Natco Pharma Q4 Results Review - Beat On Earnings: Dolat Capital

Dolat Capital Report

Natco Pharma Ltd.’s Q4 FY24 results were above our estimates on account of higher-than expected growth in export formulation. However, domestic and Crop Health Sciences were below estimate due to a one-time charge of Rs 900 million. Charge of Rs 350 million on domestic business was on return of stock from super stockist due to change in distribution model. Stock returns in CHS were worth Rs 250 million due to poor crop season and Rs 300 million provision for certain non-utilized assets.

Management guided topline growth of 15-20% for FY25. Crop Health sciences is expected to be a Rs 3 billion business in the next three years. The company is looking for acquisitions in rest of world markets to expand its business.

We upgrade our FY25E/FY26E EPS estimates by 4.8%/5.1% assuming higher than expected export formulation sales. We like Natco Pharma’s focus on niche drug filings and expect strong cash flows backed by low competitive launches.

We believe cash flows will be utilized towards inorganic opportunities, dividend payouts and research and development bio-study activities. We maintain our ‘Accumulate’ rating with revised target price of Rs 1,144 (earlier Rs 1,004) on SOTP basis.

Keys risks: Higher competition in niche products, higher price erosion in the U.S. and GMP compliance issues.

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