Natco Pharma (NATPHA)

Transcription

1 Result Update Rating matrix Rating : Hold Target : 378 Target Period : 12 months Potential Upside : 5% Key Financials ( crore) FY11 FY12 FY13E FY14E Revenues EBITDA Net Profit Valuation summary FY11 FY12 FY13E FY14E EPS ( ) PE (x) Target PE(x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) Stock data Market Capitalisation 1125 crore Debt (FY12) 24 crore Cash (FY12) 33 crore EV 1332 crore 52 week H/L 437/197 Equity capital 31.1 crore Face value 1 MF Holding (%) 11.5 FII Holding (%) 5.9 Price movement 6,4 6,1 5,8 5,5 5,2 4,9 4,6 4,3 4, Aug-11 Analyst s name Nov-11 Price (R.H.S) Feb-12 Siddhant Khandekar siddhant.khandekar@icicisecurities.com Krishna Kiran Konduri krishna.konduri@icicisecurities.com May-12 Nifty (L.H.S) Aug WHAT S CHANGED August 16, 212 Natco Pharma (NATPHA) 361 PRICE TARGET...Unchanged EPS (FY13E)... Changed from 26.9 to 25.6 EPS (FY14E)...Unchanged RATING...Unchanged Numbers muted but prospects intact Natco reported a muted set of Q1FY13 numbers. Revenues grew 19% to 141 crore (I-direct estimate: 164 crore). The difference was on account of 1) ~18% decline in export APIs and 2) lower other operating income. On the other hand, the oncology segment (32% of sales) registered 72% growth to 43 crore on expected lines. EBITDA margins declined 168 bps to 2.6% (I-direct estimate: 21%) on account of higher employee and power costs. The net profit grew ~22% to 17 crore (I-direct estimate: 19.4 crore). Higher growth vis-à-vis EBITDA growth was on account of lower interest. The quarter s overall performance was also affected by postponement of certain API export shipments to Q2. We maintain our HOLD rating as the stock has factored in most of the positives. Loses Copaxone patent litigation against Teva; no impact on valuation During the quarter, Natco lost its patent litigation case against Teva in a US district court regarding multiple sclerosis drug Copaxone (Glatiramer Acetate). The court rejected both Momenta/Sandoz and Mylan/Natco s claims that Copaxone patents were invalid. According to Teva, generic players may be unable to launch the drug before the expiry of the process patent, which expires on September 1, 215. Approval for Lansoprazole delayed, can come in Q2 The USFDA approval for anti-ulcerant Lansoprazole has been delayed. The management now expects the same in Q2. Post approval, Lansoprazole will be marketed by Actavis and Breckenridge in the US. Total Lansoprazole market size (OTC and prescription) in the US as per rough estimates is ~US$8 million. It is currently a five player market. Growth parameters intact but upside scope limited We expect revenues, EBITDA and net profit to grow at a CAGR of 18%, 2% and 3%, respectively, in FY12-14E. We have valued the base business at 325 i.e. 1x FY14E EPS of We expect NPL to stick to its USP of oncology offerings and consolidate its position in this therapy. For the FTFs/Para IV opportunities, our base case value (at 25% probability) stands at Thus, our SoTP based target price stands at 378. We recommend HOLD as other than lansoprazole approval there are no immediate triggers. Investors can accumulate Natco at every dip. Exhibit 1: Financial Performance ( Crore) Q1FY13A Q1FY13E Q1FY12 Q4FY12 YoY Gr.(%) QoQ Gr.(%) Revenues EBITDA EBITDA Margin (%) Depreciation Interest Reported PAT EPS ( ) ICICI Securities Ltd Retail Equity Research

2 Quarterly Highlights Exhibit 2: Trends in revenues & EBITDA 2 Revenues grew ~19.6% YoY to 14.8 crore, lower than our estimates of crore mainly on the back of 18% decline in the exports API business and lower other operating income. However, the oncology business witnessed robust growth of 72% YoY to 42.6 crore. The lower growth in APIs was due to postponement of shipment crore Revenues EBITDA Exhibit 3: Trends in EBITDA margin & net profit margin EBITDA margins declined 168 bps to 2.6% due to higher employee cost and power cost. EBITDA grew 11% to 29 crore % EBITDA Margins Net Profit Margins Exhibit 4: Net profit grows 21% YoY Despite lower EBITDA growth of 11%, the net profit increased 21% YoY to 17.1 crore on the back of lower interest cost crore 1 5 Net Profit ICICI Securities Ltd Retail Equity Research Page 2

3 Exhibit 5: Segment wise performance Q1FY13 Q1FY12 YoY Gr(%) Q4FY12 QoQ Gr (%) Domestic Exports Total APIs Domestic - Oncology Exports US Retail Domestic Non-Onco & other formulations Total Formulations The company launched one oncology drug Dasanat and Decita tablets during the quarter, which also led growth in the oncology business Exhibit 6: Trends in oncology business ( crore) Oncology Exhibit 7: API business up 8% YoY Exhibit 8: US retail business grows 1% YoY crore crore API US Retail ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 9: Assumptions ( crore) FY11 FY12 FY13E FY14E API Domestic YoY Growth (%) Exports YoY Growth (%) Total API YoY Growth (%) Formulation Oncology YoY Growth (%) Exports YoY Growth (%) US Retail YoY Growth (%) Other formulation revenues YoY Growth (%) Total Formulation YoY Growth (%) Total consolidated sales Valuation We expect revenues, EBITDA and net profit to grow at a CAGR of 18%, 2% and 3%, respectively, in FY12-14E. We have valued the base business at 325 i.e. 1x FY14E EPS of We expect NPL to stick to its USP of oncology offerings and consolidate its position in this therapy. For the FTFs/Para IV opportunities, our base case value (at 25% probability) stands at Thus, our SoTP based target price stands at 378. We recommend HOLD as other than Lansoprazole approval there are no immediate triggers. Investors can accumulate the stock at every dip. Exhibit 1: Valuation table share Base Business (1x FY14E EPS of 32.5) 325 Para IV Opportunities Lenalidomide capsules 28 Glatiramer Acetate Injection 18 Lanthanum Carbonate chewable tablets 4 Oseltamivir Phosphate Capsules 3 Target Price 378 Key risks- 1) Delay in product approvals from USFDA and (2) intensifying price war in the domestic oncology market ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 11: One year forward P/E ( ) Mar-6 Oct-6 May-7 Dec-7 Jul-8 Feb-9 Sep-9 Apr-1 Nov-1 Jun-11 Jan-12 Price 15.x 13.2x 12.3x 1.5x 6.x Exhibit 12: One year forward PE of company vs. BSE Healthcare Index % Discount x Mar-6 Nov-6 Jul-7 Mar-8 Nov-8 Jul-9 Mar-1 Nov-1 Jul-11 Mar-12 Natco Pharma BSE Healthcare Index ICICI Securities Ltd Retail Equity Research Page 5

6 Financial summary Profit and loss statement (Year-end March) / ( crore) FY11 FY12E FY13E FY14E Total operating Income Growth (%) Raw Material Expenses Employee Expenses Other expenses Total Operating Expenditure EBITDA Growth(%) Depreciation Interest Other Income PBT Taxation PAT before MI Minority Interest Less: Prior Period Items.... PAT Growth(%) EPS( ) Cash flow statement (Year-end March) / ( crore) FY11 FY12E FY13E FY14E Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities Other Investments -2. (Purchase)/Sale of Fixed Assets Deferred Tax Liability Minority Interest CF from investing activities Inc / (Dec) in Equity Capital Inc / (Dec) in Sec Loan Funds Inc / (Dec) in Unsec. Loan Funds Dividend & Dividend tax Inc/(dec) in Sec Pre Account CF from financing activities Net Cash flow Opening Cash Closing Cash Balance sheet (Year-end March) / ( crore) FY11 FY12E FY13E FY14E Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Net Intangibles Investments Inventory Debtors Loans and Advances Cash Other Current Assets Total Current Assets Creditors Provisions Total Current Liabilities Net Current Assets Others Assets.... Application of Funds Key ratios (Year-end March) FY11 FY12E FY13E FY14E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 6

7 ICICIdirect.com coverage universe (Healthcare) I-Direct CMP TP Rating M Cap EPS ( ) PE(x) EV/EBITDA (x) RoCE (%) RoNW (%) Company Code ( ) ( ) ( Cr) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E Apollo Hospitals APOHOS BUY 8, Aurobindo Pharma AURPHA HOLD 3, Biocon BIOCON BUY 4, Cadila Healthcare CADHEA HOLD 17, Divi's Laboratories DIVLAB HOLD 15, Elder Pharma ELDPHA BUY Fortis Healthcare FORHEA HOLD 4, NA Glenmark Pharma GLEPHA HOLD 11, Indoco Remedies INDREM 6 63 BUY Ipca Laboratories IPCLAB BUY 5, Jubilant Life Sciences VAMORG BUY 2, Lupin LUPIN HOLD 25, Natco Pharma NATPHA HOLD 1, Opto Circuits OPTCIR BUY 3, Strides Arcolab STRARC 78 7 HOLD 4, Sun Pharma SUNPHA HOLD 69, Torrent Pharma TORPHA BUY 5, Unichem Laboratories UNILAB HOLD 1, Exhibit 13: Recommendation History Aug-11 Oct-11 Nov-11 Jan-12 Feb-12 Apr-12 May-12 Jun-12 Aug-12 Price Target Price Exhibit 14: Recent Releases Date Event CMP Target Price Rating 22-Mar-12 Initiating Coverage HOLD 4-Apr-12 Q4FY12 Preview HOLD 31-May-12 Q4FY12 Result Update HOLD 5-Jul-12 Q1FY13 Preview HOLD ICICI Securities Ltd Retail Equity Research Page 7

8 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ANALYST CERTIFICATION We /I, Siddhant Khandekar CA INTER Krishna Kiran Konduri MBA FINANCE research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. 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