Natco Pharma: Focusing On Complex Products

(Harshit Goel) #188

Concall Q4FY18 notes

  • Our top 4 products in USA are Tamiflu, Copaxone, Liposomal Doxorubicin and Lanthanum Carbonate.
  • Copaxone is doing good in USA, shift to 40 mg was beneficial. Greater benefits from Copaxone will be seen in later quarters.
  • Imatinib will be launched in FY 2019 but won’t make any money on it. Too much competition is there for it. If we launch it in first wave then might make some money but if we launch it with everybody else we won’t make any money on it.
  • Revlimid will provide good annuity type income from March 2022.
  • Decline in Hepatitis C sales in domestic market has been stabilised. Currently we are doing Rs. 70 cr sales per quarter which is reasonable and will stabilise at these levels.
  • Q4 sales bifurcation
    Formulation Export: Rs. 492 cr. (rs. 433 cr was profit share and Rs. 59 cr sales)
    Formulation Domestic: Rs. 158.5 cr.
    API Domestic: Rs. 8.2 cr.
    API Export: Rs. 51.50 cr.
  • FY18 sales bifurcation (standalone)
    Formulation Export: Rs. 1040 cr.
    Formulation Domestic: Rs. 720 cr.
    API: Rs. 285 cr.
  • Guidance of 8-10% growth in topline and net profit for FY 2019.
  • Conditions in US generic market is tough, there is no visible sign of a turnaround. One can remain hopeful but we would like to plan keeping reality in mind. Therefore we will focus on ROW market from FY 2020.
  • For FY 2020 and 2021 focus will be on ROW markets specially India, Brazil and Canada. We expect to file 6-7 FTF in next one year in both Brazil and Canada. Hope to get approvals in Brazil by March 2019 and launch products in FY 2020. Whatever we loose from Tamiflu from 2020 will be made up from India, Brazil and Canada. Will be focusing on Oncology and Multiple Sclerosis in ROW. Brazilian market is based on government tenders.
  • Excluding Hepatitis C we will grow by 15-16% in domestic market.
  • Vizag Plant will be completed in next 2-3 months, expect to commercialise it by September 2018.
  • Will spend Rs. 350-400 cr on CAPEX this year.
  • There was a one time increase of Rs. 30 cr. in employee cost in Q4. Rs. 20 cr was given as one time bonus to employees and Rs. 10 cr. extra provision was done due to change in Provident Fund rules by government.
  • Other income in Q4 includes Rs. 16 cr as interest income and Rs. 4 cr. as export benefits. This will be maintained at same levels in next quarter as also we have surplus cash balance.
  • Tax rate for next two years will be 21%.
  • We don’t hedge our foreign currency exposure, everything is left open. The day we receive dollar payment we convert it into rupee.

(manivannan.g) #189

(Bhaskar Jain) #190

(sumit680) #191

Hello everyone,
With the initial glances over Natco Pharma, i have my few observations-

  1. Growth

So we can see that natco has shown an excellent growth in terms of sales and profits…but the same growth is not being reflected in terms of Cash Flow…

  1. High amount of Receivables

year on year, there has been a higher growth of receivables than sales…it may indicate that the company is increasing its sales by offering a longer payment duration to the distributors.On average, receivables have grown at an avg rate of 36% while sales have grown at an avg rate of 25%…
This particular factor might be a tool for gaining larger share in market by allowing such incentives to distributors but it derides the Company of cash.

  1. Since natco is involved in production of complex formulations, it incurs a heavy capex

…the heavy capex might be because of expansion …so the net free cash flow since last 10 years has been negative…but the they have generated less than avg cash flows from operations…this thing needs to be understood…the annual reports also seem to be shallow…

  1. While the oncology and hepatitis theme is great, the business model seems to be just avg…this may lead to a below avg valuation as compared to the peers…so Biocon which is also incurring the heavy capex due to R&D and expansion, is generating better cash flows than Natco and avlb at a higher valuation…Natco is using QIPs for generating cash and avoiding the debt route but it also means dilution of equity…as such promoter’s holding is low at 48%…

  2. This information may be helpful while deciding an entry price for Natco…i feel that it should be bought at 1 year forward looking valuation of less than 20…

Ill request seniors for correction in my assumptions…


([email protected]) #192

Thanks for sharing this fine analysis. On the receivables, its better to compare across industry. I did a quick check on Biocon andfound a similar trend. here´s a report from Livemint which can help answer your question.

Also Biocon is quoting at higher valuation in anticipation of the contribution of biosimilars business. This vertical is the expected new growth driver for pharma companies.

Please keep sharing your observations.

(Vijay Dosapati) #193

Natco Pharma results are out.

Revenue has increased by 28% YoY and Net profit has increased by 93% YoY

(Harshit Goel) #194

Total Consolidated Revenue increased by Rs. 125.80 cr yoy from Rs. 448.70 cr in Q1FY18 to Rs. 574.5 cr. in Q1FY19. Out of this Income from Profit Sharing increased by Rs. 120.17 cr., Domestic Oncology Formulation increased by Rs. 18 cr. and Other Income increased by Rs. 32 cr. Almost every other business segment of the company showed decline in yoy revenue numbers, something we need to keep a watch on.

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