Natco Pharma Ltd. share price target

Natco Pharma's 1QFY16 performance has been in-line on the operating and profitability front despite a 5% miss in top-line impacted by dismal export formulations and lumpy API sales. Surge in gross margins at 67.6% (up 200bps yoy) led to steady improvement in EBITDA at 22.9% (up 290 bps yoy). Traction in base portfolio of domestic oncology and gSovaldi (Rs370mn in 1Q) were key highlights. Management has guided for sales of Rs10.5-11bn and PAT of Rs1.6bn in FY16E assuming: 1) Sovaldi ramp up in India-guided Rs1.5bn sales 2) Commencement of Venezuela tender business 3) No commercial launches in US. However, the...

On June 18, 2015, the US Federal Circuit Court ruled in favour of Natco by invalidating Teva's process patent 5,800,808. This means Natco can launch generic Copaxone 20 mg as soon as it receives US FDA approval.

Natco Pharma Ltd reported Rs. 2,008 Mn in Net Revenues for Q4 FY15, up by 9.2% YoY, and up by 2.7% on a QoQ basis. Net Revenues increased on the back of higher sales of Formulations which rose by 9.3% YoY and 22.7% QoQ. Also, Bulk Chemicals contributed significantly to the top line, sales of Bulk Chemicals rose by 65.1% YoY and 13.1% on a QoQ basis.

Karvy initiated the coverage on Natco Pharma on 23rd Jan, 2015 at a price ofRs.1,362 with a price target of Rs.1,770, which has been achieved. We plan torelease an updated report shortly. Please click here to read the key developments.

Natco: Near term volatility; Long term triggers intact:Although financial metrics of Natco fell on a QoQ basis, they have risen on 9 months basis (9mFY15 vs 9mFY14). Net revenue fell by 11% to Rs.1955 mn QoQ, primarily because of fall in Venezuela exports. But on a 9 months basis revenue increased by 12.5%.

Karvy initiates coverage of Natco Pharma with a Buy Rating. Generic Copaxone is still a big opportunity despite US Supreme Court ruling. Natco to launch generic Sovaldi, another blockbuster drug for treatment of Hepatitis C, in India in 1QFY16. Tamiflu lawsuit currently ongoing, Natco is expected to prevail in the case allowing it to win 180-day exclusivity.