Natco Pharma’s (NATP) Q4FY16 earnings hit a homerun with revenue, EBITDA and PAT catapulting 103%, 87% and 159%, respectively. The good show was primarily spearheaded by Hepatitis C portfolio where NATP enjoys first-mover advantage. Onco portfolio in domestic market jumped 30% YoY and it won a tender in Venezuela. The company guided for ~30% base business growth in FY17 without factoring any of the imminent upside from US opportunities like Tamiflu, Entocort, Copaxone, Nuvigil, Tracleer and Fosrenol. We believe FY17 and FY18 will be significant years for NATP as the US engine starts roaring. Maintain ‘BUY’ with target price of INR640. NATP is our top pick in the mid-cap pack.
Hep C franchise keeps beefing domestic business
Current quarter benefitted from Venezuelan tender win; however, revenue adjusted for this grew 61% YoY. India sales jumped 155% YoY and 31% QoQ driven by Hep C franchise (INR1.5bn versus INR1.1bn QoQ) as well as Oncology (up 30% YoY). Export sales surged to INR1.05bn versus INR360mn QoQ driven by tender sales in Venezuela and higher supply of Lansoprazole. Other expenses were higher due to royalties and profit share owing to Hep C franchise. EBITDA margin at 23.9% rose ~60bps QoQ. EBITDA catapulted 87% YoY and 51% QoQ. FY17 guidance of INR13.5bn sales factors the sale of SaveMart Pharmacy, continued momentum in Hep C franchise in India and current order book for export markets. It does not factor any upside whatsoever from US launches.
Exciting US launches ahead
Apart from Doxil, NATP filed 3 P-IV ANDAs in FY16, which includes Gleevec, Tarceva and 1 injectable. Over the next 12-18 months, a series of US launches are expected viz., Tamiflu, Entocort, Copaxone 20mg, Nuvigil, Tracleer and Fosrenol. A number of other interesting products like Doxil and Vidaza could also receive approval. The company is expected to file ~6-7 ANDAs in FY17, half of which will be Onco products. By FY18, Hep C franchise will also start unlocking in RoW markets, albeit the quantum will be much smaller than India where it has made the most of its headstart.
Outlook and valuations: No dearth of catalysts; maintain ‘BUY’
NATP’s filings will continue to be differentiated and keep valuations buoyant. We maintain our estimates and ‘BUY/SO’ with target price of INR640 (20x FY18E EPS).