Natco Pharma Q3 Results Review -Caution On Growth Drivers, Strategic Shifts: Nirmal Bang

Nirmal Bang Report

Natco Pharma Ltd.’s Q3 FY24 revenue was below our estimate, but Ebitda margin was in line with estimate. Revenue grew by 54% YoY on the back of a low base in the exports business and ramp-up in the crop protection business (led by CTPR). Domestic Formulations declined by ~2% YoY while export formulations grew by 81.5% YoY, aided by new launches.

Ebitda margin improved by 1348 basis points to 35.3%, mainly led by Revlimid contribution, new launches and reduced price pressure in the U.S.

We remain cautious about Natco Pharma as growth is highly contingent upon the performance of Revlimid and CTPR. Excluding these two, we do not see any near-to-medium term visibility in either the U.S. market or the Domestic market.

Also, business restructuring to diversify into multiple geographies and segments as opposed to being a focused U.S. centric player is likely to weigh on base business margins in the short-to medium term.

We maintain 'Accumulate' on Natco Pharma with a revised SOTP-based target price of Rs 956, valuing it at 24 times price-earning on Dec-FY25E base earnings per share of Rs 32.50 and net present value of Rs 176 for Revlimid.

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