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Export formulations boosted revenue

NATCO Pharma Ltd. (NATCO) is an India-based vertically integrated and R&D focused enterprise, engaged in developing, manufacturing and marketing finished dosage formulations and active pharmaceutical ingredients and intermediates.

• FY23 revenue increased 39% YoY to Rs. 2,707 cr, owing to robust sales growth in the US, Canada, and Brazil.

• EBITDA grew 255% YoY to Rs. 935cr, led by a strong contribution from export formulations. EBITDA margin expanded 2100 bps to 34.6% in FY23 from 13.5% in FY22.

• Export formulation business registered 74% growth in FY23, with revenues of Rs. 2,063 cr. Brazilian and Canadian subs, backed by strong new launches, have reported robust growth.

• Crop Health Science Division launched Chlorantraniliprole (CTPR)- based insecticide and pheromone-based mating disruption products.

• We remain optimistic about Natco’s future profitability, backed by the export formulations, traction in CTPR and Revlimid sales, and recovery in domestic formulations.

• Hence, we reiterate our Buy rating with a target price of Rs.765 based on 13x FY25E EPS.

Revenue driven by export sales

FY23 revenue increased 39% YoY to Rs. 2,707 cr, driven by growth in the US, Canada, and Brazil. EBITDA grew 255% YoY to Rs. 935 cr and EBITDA margin expanded 2100 bps to 34.6%. Adj. PAT was registered at Rs. 715cr (+ 321% YoY). An uptick in export formulation, led by Revlimid sales, delivered strong formulation growth of 47% in FY23 revenues. Export formulations grew 74% YoY while API and domestic formulation businesses declined by 15% and 21%, respectively.

Growth going ahead..

The management is looking for greenfield and brownfield opportunities to boost sales ~20-25%. The company launched around 11 products across three business segments last year. Subsidiary revenue increased 107% YoY to Rs. 375 cr, with the major contributions from Canada and Brazil. The company is setting up a subsidiary in Colombia and in Indonesia. They are also looking to buy an asset in the U.K. They have filed FTF (first-to-file) for Lynparza (Ovarian/Breast cancer Therapeutic segment), a joint venture with Alembic, and FTF for Ozempic (Diabetes segment) with Mylan. Natco established a front-end presence in the US through the Dash acquisition and planned to scale it up through the relaunch of ANDAs, which were dormant in the pipeline. CTPR in the Crop Health Science Division is expected to deliver sales ~ Rs. 100 cr in FY24, with targets of 10% weight in the sales mix over time.

New products to drive revenue in crop health science

On the agro-chemical business front, Rs. 41 cr revenue was booked from Crop Health Sciences. The company is expected to launch 5-6 products in agro business over the next 2 years. The company launched broad-spectrum insecticide Chlorantraniliprole (CTPR) based products and pheromone-based mating disruption products for the management of Pink Bollworm pest for cotton.

Outlook and valuation

We expect Natco’s revenue and operating performance to improve on the back of strong agro sales, a focus on US front end business, increased R&D and new launches of niche molecules with high entry barriers. The sale of Revlimid and CTPR promises strong growth in terms of revenue and profitability in the nearterm. Hence, we reiterate Buy rating with a target price of Rs.765 based on 13x FY25E EPS.

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