@iivans I agree , the growth has been phenomenal in last 2 Years. EPS jumped from 9 in March 2016 to 27 in March 2017. Profits similarly tripled in one year during same period. NPMs rose from 15% in March 2016 to 30% in March 2018. Where can these NPM margins stabilize. Have to look for reasons for this sudden growth from March 2016 to March 2017. Coming to the regular dilution , the business seems to be capital intensive as can also be said by looking at the high amount of Capex every year. Instead of choosing debt , they have chosen to dilute equity to raise regular capital. There are no red flags in doing that. I like businesses which can grow with no equity dilution or which can grow without much capital.
Phreakonomics.in
@vijaydosapati 1.5 Lac shares will corresponds to mere 0.3-0.4% ! The reason for promoter holding going down looks majorly because of continuous equity dilution as I can see the number of shares of promoters has hardly gone down much but as a % of holding has came down by 3%.
My mistake. The promoter share holding has come down because of QIP issued in Decâ17 for 915 Cr. It was done to increase the cash reserves and utiliize as and when they get good opportunities through organic/ inorganic route. This was also mentioned during yesterdayâs concall.
But issuing QIP in Decâ17 and announcing buyback after 10 months (for a smaller amount) did not make much logic tbh.
there was a burden of a possible outgo of cash due to litigation which eased due to recent favourable judgement. Looks like the management is using the cash set aside for it to buyback shares
Totally agree - If I was an owner of the company, equity dilution would be the last resort I would take. This is an extract from 2017-18 annual report shared by Harshitgoel [quote=âharshitgoel, post:195, topic:5238â]
In FY 2017-18, we raised around `9,150 million via a Qualified Institutional Placement (QIP). This capital will be invested in organic growth and potential niche inorganic opportunities.
[/quote]
Screen shot of segmental breakdown earning of Q2 FY19. How they arriving formulation gross income to 4390.3 Mn it seems to be 2983.2 Mn as per presentation
I am rather worried on the reliability of P & L statements of the company. Barring fluctuations in the quarterly report, annual data presented looks near flawless in showing consistent growth.
The major contributing factor for the consistent increase in net profit year after year and also its large leap in the last two years is due to a constant decrease of proportionate raw materials cost. Raw materials cost in % of Sales was 40% in FY 2013, but came down to 20% in FY 2018. I could not find a similar trend in other pharma companies.
I am not able to comprehend the rationale behind Natcoâs capability in achieving the same. Can anyone throw more light on this?
To the best of my knowledge Natco has been a pioneer in drug chemistry and has talent feared by its competitors, Their service towards production and commercialization of cost effective drugs panning complex ailments is well documented. RM costs reduction as % should not be worry as the economies of scale and pricing power kick inâŚManpower ( talent ) cost is importantâŚand it is risingâŚ
Disc, invested since 2008 small exposure of 360 sharesâŚ
The USP of this company is to recreate complex drugs which are going off patent. Usually these are diffcult to reverse engineer and involves a high R&D spend and risk of litigation. Thus they only go after big drugs like Copaxone which has a huge market in US. Once they get the right to sell these drugs, they find a partner to sell the drug in the respective country. This ensure that the legal risk is managed by the partner. In case of Copaxone, Teva is the patent holder and Mylan is Natco´s partner to market it in US. This company also has other business models but the biggest value is added this actvity.
All of this means that they make high margins over a short period until other competitors reproduce the durgs and bring down the price of the drug. All of this info is available in their AR report. Also I have a friend in US who is into pharma product brand analysis and confirmed this thesis. The biggest risk to this company is to be able to continue replicating this business model. I see that they are trying to establish themselves in branded generics in growing markets like India and Brazil to spread their risk. Thus i would not expect the current margin and profit growth to continue forever.
This is an interesting point you have made. But the question is Will this expansion in Brazil,India and China is actually for spreading risks or for increasing the sales volumes? To be a high growth company any multinational have to extend their geographical reach and any branded generics in any market if a niche one will always have a premium. Even though I am not expecting the kinds of premium it will get as in US but it all depends on the distribution network and partners for extracting the kind of premium it deserve.
By risk I meant challenge in maintaining the high profit margin and profit momentum. Yes, the company is trying to do the same, however its not going to happen quickly. Pharma brand business is very tricky with a high entry barriers and made more challenging by variable regulations in every country. We need to keep monitoring the progress of the company´s strategic execution.
If you take Hikal for an example, they does pharma and agrochem. We have to wait for the concall or further update on what sort of agrochemical they are venturing into, before taking any decisions.
