hi All,
Natco’s focus on niche drugs has created significant shareholder value. However, i find it very difficult to value the company because -
| Particulars | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| Revenues | 8,253 | 11,416 | 20,202 | 21,848 | 20,945 |
| Operating Profit | 1,661 | 2,188 | 6,280 | 8,622 | 7,138 |
| OPM | 20% | 19% | 31% | 39% | 34% |
| Profit Share | 0 | 0 | 4330 | 8700 | 7350 |
| Revenue ex Profit Share | 8,253 | 11,416 | 15,872 | 13,148 | 13,595 |
| OP ex Profit Share | 1,661 | 2,188 | 1,950 | (78) | (212) |
| OPM ex Profit Share | 20% | 19% | 12% | -1% | -2% |
As can be seen from above, profit shares have been a sizable part of financials, with 4,333 mn in 2017 coming from successful launch of the generic version of Tamiflu (180 day exclusivity, partnered with Mylan), while in 2018, it has increased to around 8,700 mn crores from sale of Doxil and copaxone, further accruing to around 7,350 mn in 2019 (from sale of copaxone). However, this profit share distorts the company’s margins (especially in the last 3 years), with the base business profitability declining, possibly due to investments in future launches. Also, I have been unable to sort the disconnect of the negative OP in the last 2 years.
The timing and a rough estimate of such windfall is generally known to the market, and It can be assumed that today’s market cap of 100,000 mn INR includes the impact of profits coming from copaxone (2020), new launches in RoW and India for 2020 and 2021, and big US filings in 2022 – Revlimid, Nexavar, Everolimus).
Further, although company has low leverage (0.3x D/E in the last 10 years), company has also diluted its equity multiple times over the years –
| Year | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|---|---|---|---|
| Shares Outstanding | 140.7 | 155.7 | 156.9 | 159.7 | 165.6 | 171.0 | 174.4 | 184.5 | 182.0 |
| increase by | 10.7% | 0.7% | 1.8% | 3.7% | 3.2% | 2.0% | 5.8% | -1.4% |
Also surprising has been the buyback in Nov 2018, where the company bought back 2.5 mn shares at 1,000 INR each after raising 10 mn shares at 915 INR each in Dec 2017.
has anyone else found this strange?
you can read my entire thesis on -