ISIN: INE987B01018 OCTOBER 15 th, 2015 STOCK DETAILS Sector NATCO PHARMA LTD. Result Update (PARENT BASIS): Q1 FY16 BSE Code 524816 Face Value 10.00 Pharmaceuticals 52wk. High / Low (Rs.) 2709.00/1245.40 Volume (2wk. Avg ) 13000 Market Cap ( Rs in mn ) 429007.61 ANNUAL ESTIMATED RESULTS (A*: ACTUAL / E*: ESTIMATED) Years FY15A FY16E FY17E Net Sales 7155.70 8157.50 9217.97 EBITDA 2421.30 2775.68 3107.13 Net Profit 1529.20 1692.94 1869.64 EPS 46.02 10.19 11.25 P/E 56.11 253.41 229.46 SHAREHOLDING PATTERN (%) (QUARTERLY) As on Sep-15 As on Jun-15 PROMOTER 51.29 53.76 FIIs 10.85 9.32 DIIs 5.89 5.70 OTHERS 31.97 31.22 1 YEAR COMPARATIVE GRAPH NATCO PHARMA LTD S&P BSE SENSEX Recommendation BUY CMP 2582.05 Target Price 2892.00 Highlights Natco Pharma pioneered the launch of several generic versions of drugs in the domestic oncology segment and holds a leading market share in their operated portfolios and continued its growth with 6.93% rise in Net Sales. Net sales stood at Rs. 1940.50 mn in 1 st quarter of FY16 against Rs. 1814.80 mn in the corresponding quarter of the previous year. In Q1 FY16, operating profit of the company has increased by 3.16% of Rs. 633.80 million against the corresponding period of last year. Net profit stood at Rs. 340.70 mn in Q1 FY16 as compared to Rs. 364.10 mn in Q1 FY15. Other income of the company increased to 221.59% in Q1 FY16 and stood at Rs. 28.30 mn when compared to Rs. 8.80 mn in Q1 FY15. In Q1 FY16, Formulations segment revenues rose by 58% of Rs. 1414.60 mn against Rs. 896.60 mn in Q1 FY15. Consolidated total Income has increased from Rs. 2114.80 million for the quarter ended June 30, 2014 to Rs. 2255.40 million for the quarter ended June 30, 2015. The company investing Rs. 120 crore towards setting up a world-class formulation facility at Visakhapatnam dedicated to its international business, scheduled to commence operations in 2016-17. NATCO Pharma approved Sub-division of face value of equity shares of the Company from Rs. 10/- each to that of Rs. 2/- each. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 24% respectively from 2014 to 2017E. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) NATCO PHARMA LTD 2582.05 429007.61 46.02 56.11 9.76 50.00 CIPLA LTD 672.60 540168.30 19.16 35.10 4.87 100.00 Dr Reddys Laboratories LTD 4280.90 717990.00 91.01 46.25 6.75 400.00 DIVIS LABORATORIES LTD 1068.00 283520.40 34.74 30.74 7.96 1000.00
COMPANY PROFILE NATCO PHARMA LIMITED was established in 1981 in Hyderabad with a single unit and 20 employees. At present Natco Pharma has five manufacturing facilities spread across India with dedicated modern research laboratories and more than 3200 employees. The Company invested Rs. 129.29 Crores in research spending during the five years leading to 2013-14. Research spending as a proportion of net revenues from operations was a significant 6.53% in 2013-14. NATCO Pharma exports both API s and Finished Dosage Forms that comply with International standards to various markets across the globe. Exports contribute about 50% of the company s total revenue. All the products are manufactured in facilities that are approved by various health regulatory agencies like US FDA, German Health Authority Hamburg, Cofepris Mexico, Iran Health Authority, Korean FDA, Ministry of Health Greece, Infarmed Portugal, etc. Natco Pharma has API Plant Locations in Mekaguda, Kothur, Mahaboob Nagar District in Andhra Pradesh and also in Chennai in India. In addition to that there are two fully functional manufacturing units in Dehradoon in the state of Uttarkhand. Natco Pharma exports its products mainly to North America, Europe, South America, Middle East and South East Asia. In 2011, the company formed a joint venture NATCOFARMA DO BRASIL to distribute and sell products in Brazil. Natco Pharma focuses to manufacture and market affordable medicines that comply with global standards and aspires to achieve market leadership in domestic as well as international markets. In March 2012, Natco Pharma was granted compulsory license for production of NEXAVAR, drug used for treating kidney and liver cancer. Natco Pharma over the last ten months has outperformed the Sensex and is one of the most promising pharma companies in the pharmaceutical industry. Natco Pharma Ltd, Winner of 'Golden Peacock Innovation Management Award' for the year 2015.
FINANCIAL HIGHLIGHTS (PARENT BASIS) Q1 FY16; Rs. In million June-15 June-14 % Change Net Sales 1940.50 1814.80 6.93 Net Profit 340.70 364.10 (6.43) EPS 10.25 11.01 (6.88) EBITDA 633.80 614.40 3.16 Other Income 28.30 8.80 221.59 Profit Before Tax 444.10 448.90 (1.07) Net sales of Natco Pharma rose by 6.93% of Rs. 1940.50 million for the 1 st quarter of the financial year 2016 as against Rs. 1814.80 million in the corresponding quarter of the previous year. In Q1 FY16, operating profit of the company has increased by 3.16% of Rs. 633.80 million against the corresponding period of last year. Net profit stood at Rs. 340.70 mn in Q1 FY16 as compared to Rs. 364.10 mn in Q1 FY15. The company has reported an EPS of Rs. 10.25 for the 1 st quarter as against an EPS of Rs. 11.01 in the corresponding quarter of the previous year. Other income of the company increased to 221.59% of Rs. 28.30 mn in Q1 FY16, when compared to Rs. 8.80 mn in Q1 FY15. Break up of Expenditure (Values in million) Q1 FY16 Q1 FY15 CHG % Material Consumed 618.10 389.20 59% Employee Benefit Exp 346.40 271.50 28% Dep & Amortiz Exp 112.00 101.90 10% Other Exp 469.30 500.80-6% Purchases of stock-in-trade 3.70 0.00 -
Segment Revenue
FINANCIAL STATEMENTS & ESTIMATIONS (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance sheet as on 31 st March, 2014 to 2017E Natco Pharma Ltd FY-14A FY-15A FY-16E FY-17E Shareholder's Funds SOURCES OF FUNDS Share Capital 330.73 332.35 332.35 332.35 Reserves and Surplus 6998.26 8457.57 9979.97 11676.56 Total Net worth(a) 7328.99 8789.92 10312.32 12008.91 Non Current Liabilities long term borrowing 949.69 962.82 987.85 1007.61 Deferred Tax Liabilities 423.27 112.90 76.77 59.88 Other Long term liabilities 6.91 7.71 8.48 9.16 Long term Provisions 106.29 91.89 80.86 72.78 Total Non Current liabilities (b) 1486.16 1175.32 1153.97 1149.43 Current Liabilities Short term borrowings 986.31 1685.44 2022.53 2295.57 Trade payables 991.81 1153.39 1274.50 1389.20 Other Current liabilities 964.82 1133.19 1263.51 1389.86 Short term Provisions 4.14 11.11 14.67 17.89 Total current liabilities (c) 2947.08 3983.13 4575.20 5092.52 Total Liabilities (a + b + c) 11762.23 13948.37 16041.48 18250.86 Non-Current Assets Fixed Assets APPLICATION OF FUNDS 1. Tangible assets 5231.90 5680.25 6111.95 6515.34 2. Intangible assets 57.90 47.10 52.75 58.03 3. Capital Work in Progress 929.37 1007.74 1068.20 1121.61 Total Fixed Assets 6219.17 6735.09 7232.91 7694.98 Non-current investments 885.81 1311.50 1731.18 2112.04 Long Term loans and advances 1251.61 1424.73 1609.94 1803.14 Other non-current assets 32.17 35.21 38.03 40.69 Total Non Current Assets (d) 8388.76 9506.53 10612.06 11650.85 Current Assets: Current Investment 3.18 1.18 0.85 1.04 Inventories 1619.65 1983.47 2348.43 2737.90 Trade receivables 1158.47 1889.58 2494.25 3242.52 Cash and Bank Balances 76.96 71.88 76.82 84.50 Short-terms loans & advances 489.99 476.62 488.06 510.51 Other current assets 25.22 19.11 21.02 23.54 Total Current Assets (e) 3373.47 4441.84 5429.42 6600.01 Total Assets (d+e) 11762.23 13948.37 16041.48 18250.86
Annual Profit & Loss Statement for the period of 2014 to 2017E Value(Rs.in.mn) FY14A FY15A FY16E FY17E Description 12m 12m 12m 12m Net Sales 6223.30 7155.70 8157.50 9217.97 Other Income 157.10 135.50 173.44 194.25 Total Income 6380.40 7291.20 8330.94 9412.23 Expenditure -4357.50-4869.90-5555.26-6305.09 Operating Profit 2022.90 2421.30 2775.68 3107.13 Interest -340.50-301.30-331.43-357.94 Gross profit 1682.40 2120.00 2444.25 2749.19 Depreciation -267.90-424.60-473.43-520.77 Exceptional Items 0.00-151.30 0.00 0.00 Profit Before Tax 1414.50 1544.10 1970.82 2228.42 Tax -312.60-14.90-277.89-358.77 Profit After Tax 1101.90 1529.20 1692.94 1869.64 Equity capital 330.70 332.30 332.30 332.30 Reserves 6998.30 8457.60 9979.97 11676.56 Face value 10.00 10.00 2.00 2.00 EPS 33.32 46.02 10.19 11.25 Quarterly Profit & Loss Statement for the period of 31 Dec, 2014 to 30 Sep, 2015E Value(Rs.in.mn) 31-Dec-14 31-Mar-15 30-Jun-15 30-Sep-15E Description 3m 3m 3m 3m Net sales 1669.60 1758.50 1940.50 2095.74 Other income 71.20 25.50 28.30 39.05 Total Income 1740.80 1784.00 1968.80 2134.79 Expenditure -1190.80-1166.00-1335.00-1445.01 Operating profit 550.00 618.00 633.80 689.78 Interest -81.10-86.70-77.70-74.13 Gross profit 468.90 531.30 556.10 615.66 Depreciation -107.50-112.90-112.00-117.60 Exceptional Items -151.30 0.00 0.00 0.00 Profit Before Tax 210.10 418.40 444.10 498.06 Tax -44.00 232.60-103.40-117.04 Profit After Tax 166.10 651.00 340.70 381.01 Equity capital 332.30 332.30 332.30 332.30 Face value 10.00 10.00 10.00 2.00 EPS 5.00 19.59 10.25 2.29
Ratio Analysis Particulars FY14A FY15A FY16E FY17E EPS (Rs.) 33.32 46.02 10.19 11.25 EBITDA Margin (%) 32.51 33.84 34.03 33.71 PBT Margin (%) 22.73 21.58 24.16 24.17 PAT Margin (%) 17.71 21.37 20.75 20.28 P/E Ratio (x) 77.49 56.11 253.41 229.46 ROE (%) 15.03 17.40 16.42 15.57 ROCE (%) 24.15 24.45 24.39 23.69 Debt Equity Ratio 0.26 0.30 0.29 0.28 EV/EBITDA (x) 43.24 36.58 155.62 139.11 Book Value (Rs.) 221.62 264.52 62.07 72.28 P/BV 11.65 9.76 41.60 35.72 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs.2582.05, the stock P/E ratio is at 253.41 x FY16E and 229.46 x FY17E respectively. Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs. 10.19 and Rs. 11.25 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 24% respectively from 2014 to 2017E. On the basis of EV/EBITDA, the stock trades at 155.62 x for FY16E and 139.11 x for FY17E. Price to Book Value of the stock is expected to be 41.60 and 35.72 x respectively for FY16E and FY17E. The company expects strong sales growth with high-margin products, in the ensuing quarters of FY2016.We recommend BUY in this particular scrip with a target price of Rs. 2892.00 for Medium to Long term investment.
INDUSTRY OVERVIEW Global economy: Global growth in 2014 was a modest 3.4%, following an improvement in advanced economies relative to the previous year and a slowdown in emerging markets and developing economies. Despite the slowdown, emerging market and developing economies still accounted for three-fourths of global growth in 2014. Global growth is projected to increase slightly to reach 3.5% in 2015 and then to rise further to 3.7% during 2016. The increase will be driven by a rebound in advanced economies, supported by declining oil prices, with the United States playing a crucial role. India: In 2014-15, the Indian economy retained its position as one of the largest in the world with a promising outlook. This optimism was inspired by moderated inflation, domestic demand growth, increased investments and declining oil prices, among other factors. The RBI tightened its monetary policy, which helped contain demand pressure, creating a buffer against external shocks and keeping currency volatility under check. The average Wholesale Price Index inflation for 2014-15 declined to 3.4% (April- December) compared to 8.9% in 2013-14, largely influenced by a decline in fuel prices. Food price inflation moderated to 4.8% during April-December 2014 compared to 9.4% in 2013-14. For 2015-16, the Economic Survey pegged real gross domestic product growth (at market prices) between 8 and 8.5%, which was 0.6 to 1.1 percentage points higher than estimates for the current financial year. In the short run, growth is likely to be boosted by a combination of lower oil prices, monetary policy easing and a normal monsoon. Global pharmaceutical Global spending on medicines is forecast to reach nearly US$1.3 trillion by 2018, an increase of about 30% over the 2013 level. This level of growth a compound annual growth rate of 4-7% on a constant currency basis will be slightly higher than the 5.2% recorded over the past five years, as the introduction of new specialty medicines and increased accessibility for patients coincides with lower impacts from patents expiry in developed markets. Among the major markets, the United States remains the largest, representing over one-third of the global total, and is expected to grow at a compound annual growth rate of 5-8% through 2018. Over the next five years, advances in the therapy areas of oncology, diabetes and Hepatitis C will be of particular interest and importance. The surge in cancer drug innovation over recent years will continue and contribute to a global spending on all oncology drugs, reaching about US$100 billion in 2018, up from US$65 billion in 2014. Global spending on medicines is expected to shift towards generics as developed economies are increasingly implementing strategies for optimising healthcare expenditure. Generic medicines account for over 50% of the global prescriptions in the US, generic usage in volume terms is estimated at 86%.
Indian pharmaceutical The Indian Pharmaceutical Industry (IPI) is ranked third globally in terms of volume and thirteenth in terms of value. The lower market share in terms of value can be attributed to the predominance of generic medicines which command lower prices. As per estimates, the industry size is expected to grow at a CAGR of 12.38% from H1602 bn in 2014 to H2872 bn by 2018 given the huge export potential coupled with steady growth in the domestic formulation market. Growth in the domestic pharma market is expected to be driven by increase in the penetration of health insurance, improving access to healthcare facilities, rising prevalence of chronic diseases and rising per capita income. The export growth is expected to be led by increasing generic penetration in the regulated markets on the back of enhanced focus on the niche and complex product segments, patent expiries and growing demand from semi-regulated pharma markets. In the long term, growth in the exports market will be sustained by emerging markets such as Russia, Brazil, South Africa, etc. Going ahead, the prospects for the domestic pharmaceutical sector appear promising. The Indian pharmaceutical sector is expected to clock total sales of US$27 billion by 2016, according to a recent report by Deloitte, 2014 Global Life Sciences Outlook, revenue from sales which stood at US$22.6 billion in 2012 and about US$23.6 billion in 2013. The Indian pharmaceutical industry is on a good growth path and is likely to be in the top 10 global markets in value term by 2020. Disclaimer: This document is prepared by our research analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.
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