IGI Logo

Covid drags FY21; new launches to drive FY22…

Natco’s Q4FY21 revenues de-grew 27.2% YoY to | 331.3 crore due to decline across verticals. Export formulations declined 27.6% YoY to | 158.8 crore due to significant drop in gTamiflu sales. Domestic formulations degrew 20.3% to | 81.8 crore amid a sharp fall in oncology sales. API business declined 26.6% YoY | 70.8 crore. EBITDA margins contracted 521 bps YoY to 23%, mainly due to higher employee cost. EBITDA fell 40.6% YoY to | 76.2 crore. Ensuing PAT declined 43.7% YoY to | 53 crore.

Focused approach in US

Natco has carved out its own identity via tie-ups to tap limited but niche products pipeline including 20 Para IVs filings (FY20). As per the revised and more feasible game plan, it plans to market products via tie-ups with established players in the generic space. Till FY20, the company had filed 55 ANDAs, which includes some niche FTF opportunities. Overall, the management expects one or two complex product launches in the US.

New launches in CND/oncology to drive domestic revenues

Natco is a leading player in the domestic oncology segment with a product basket of ~33 products (FY20). Covid related disturbances and pricing pressure notwithstanding, we expect momentum in oncology segment to be decent on the back of incremental launches. New launches in cardio/diabetology segment (CND) is also expected to support overall growth. Going ahead, Natco is looking to launch 10 products a year. We expect domestic sales to grow at 21.4% CAGR in FY20-23E to | 611 crore.

Valuation & Outlook

Q4 and FY21 performance was way lower than the management guidance amid Covid impact. However, the management expects strong growth in FY22 due to multiple high value product launches in the US, rebound in domestic India business with new products and contribution from crop health division. While all eyes are on gRevlimid launch in March 22, the company also has a handful of other niche US approvals and launches lined up. Broadly, given the current trend in the US with niche opportunities being specifically targeted by USFDA to encourage more generic players, this funnel is getting squeezed. In this backdrop, the management is looking to expand in other geographies, businesses (agrochemicals). As per new strategy, specific markets - India, Brazil, Canada, China, agrochemical segment, together are likely to contribute 70-80% of revenues in the medium to long term. The bright spot for Natco is of course its strong balance sheet besides the management’s ability to carve out a niche out of the available opportunities. The growth trajectory is likely to improve from here on as the new strategy takes shape. We ascribe a target price of | 1010 (earlier | 885), which includes base business value of ~| 815 (35x FY23E EPS of | 23.3) + | 195 for NPV for gRevlimid. We maintain HOLD.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer