November 6, 2017Analyst: PrafulBohra(+91-9819915604/+91-7961909532), Bharat Celly (+91-9998580991/+91-7961909524) Page 1 of 10 Before reading

this report, you must refer to the disclaimer on the last page.

Natco Pharma Absolute : ADD

Relative : Benchmark

2QFY18 Results: Estimate (), TP (), Rating () Regular Coverage 5% ATR in 14 Months

In-line quarter; US biz. outlook strong with gCopaxone launch - retain ADD Pharmaceuticals

© 2017EquirusAll rights reserved

Rating Information

Price (Rs) 957

Target Price (Rs) 1,010

Target Date 31st Dec’18

Target Set On 4th Nov'17

Implied yrs of growth (DCF) 20

Fair Value (DCF) 672

Fair Value (DDM) 174

Ind Benchmark BSETHC

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 1,66,769

Free Float (%) 48.81 %

52 Wk H/L (Rs) 1090/495

Avg Daily Volume (1yr) 4,21,632

Avg Daily Value (Rs Mn) 340

Equity Cap (Rs Mn) 349

Face Value (Rs) 2

Bloomberg Code NTCPH IN

Ownership Recent 3M 12M

Promoters 51.2 % 0.0 % -0.1 %

DII 5.4 % 0.3 % -6.2 %

FII 21.5 % -0.4 % 7.2 %

Public 21.9 % 0.1 % -1.0 %

Price % 1M 3M 12M

Absolute 0.5 % 0.8 % 69.4 %

Vs Industry -6.7 % -3.0 % 77.5 %

Torrent 5.1 % 3.1 % 1.6 %

CADILAHC 8.0 % -7.3 % -33.8 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 2.7 3.8 12.6 10.1

EPS (18E) 5.4 4.8 17.5 15.2

Natco Pharma’s (NTCP) 2QFY18 revenues grew 2% to Rs 4.3bn, largely in line with

EE, while EBITDA/earnings at Rs 1.22bn/Rs 844mn (+16%/25% yoy) beat estimates.

The outperformance was led by lower opex and higher-than-expected gross margins.

Business outlook for the near-to-mid term remains strong with (a) the launch of

high-value gCopaxone and (b) increasing domestic market focus which can lead to

sustainable earnings. Owing to the earlier-than-expected launch of gCopaxone

40mg, we raise our FY18E earnings by 55%, while keeping FY19E earnings intact. We

reiterate ADD with a Dec’18 TP of Rs 1,010, derived by assigning 21x to Dec’18

earnings and valuing gCopaxone at Rs 150/share. US biz outlook strengthens with pre-launch of gCopaxone: During the quarter,

NTCP booked shared profits of Rs 600mn, mainly from the high-value gDoxil. Overall

contribution from the US is set to strengthen going forward with the launch of

gCopaxone 20mg and 40mg. While the 40mg variant has been launched at risk, the

company remains confident on the litigation front and has mentioned the risk is

partly mitigated through its contract with partner Mylan. We expect gCopaxone to

contribute US$ 77mn to NTCP’s topline in FY18E, with margins likely above 85%. Focus shifting to domestic market; 20% growth targeted: NTCP has sharpened its

focus on the Indian market amid challenging conditions and steep price erosions in

the US market. The company has launched three products in the domestic market,

largely first-time introductions. NTCP mentioned its Hep-c portfolio is slowing down

due to steep price declines, which are not being compensated by higher volumes.

The company remains confident on its domestic operations and expects it to

meaningful contribute next year. R&D to be concentrated on complex generics: NTCP restated its R&D plans and

highlighted that the focus would be on complex generics in the US market, especially

peptides and injectables, which usually require higher investment versus me-too

generics. The company will continue with its partnership development model in the

US, but looks to raise investments – this in turn would lead to an equal profit share. gCopaxone litigation outlook: NTCP has already won a US District Court ruling for

four patents, which were later appealed at the Federal Circuit; it is now awaiting

judgment on the same. Teva was issued a fresh patent in 2016 (process patent), on

which litigation is ongoing at the District Court; however, NTCP remains confident

on a favorable ruling.

Change in estimates:

Rs. Mn FY18E Chg (%) FY19E Chg (%)

Sales 23,253 16% 24,410 -1%

EBITDA 10,169 47% 8,756 1%

EPS (Rs.) 43 55% 35 1%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 20,499 23,253 24,410 22,720

EBITDA 7,071 10,169 8,756 6,278

Depreciation 545 706 976 1,186

Interest Expense 184 213 215 215

Other Income 139 163 160 170

Reported PAT 4,857 7,484 6,180 3,836

Recurring PAT 5,094 7,484 6,180 3,836

Total Equity 16,493 22,226 26,960 29,899

Gross Debt 2,216 1,707 1,396 1,396

Cash 679 2,874 4,911 5,601

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 29.2 42.9 35.5 22.0

Book Value 95 128 155 172

Dividends 6.0 8.6 7.1 4.4

FCFF 1.0 25.9 23.3 10.0

P/E (x) 32.7 22.3 27.0 43.5

P/B (x) 10.1 7.5 6.2 5.6

EV/EBITDA (x) 23.9 16.3 18.7 26.0

ROE (%) 35 % 39 % 25 % 13 %

Core ROIC (%) 31 % 37 % 27 % 15 %

EBITDA Margin (%) 34 % 44 % 36 % 28 %

Net Margin (%) 25 % 32 % 25 % 17 %

NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 2 of 9

Other highlights

NTCP has recently launched gTamiflu suspension in the US market. The company is

the first to launch the generic, and expects Cadila, Lupin and Amneal to launch their

generic versions soon. Management mentioned that outlook for the product will

depend on severity of the flu season.

gRevlimid approval expected in CY18: NTCP stated that it has received a query on

gRevlimid and would file a response soon. It expects expect approval for the generic

in CY18. Management stated that if any other player launches the drug before NTCP,

it would expedite its launch time as well.

Hep-c contributed Rs 1.10bn to the topline, of which Rs 900mn were domestic

branded sales, Rs 90mn third-party party sales, while the remaining 110mn came

from exports.

Guidance on launches: NTCP expects approvals for gTykerb, gZortress and gNexavar

in the near-to-mid term.

Capex: NTCP has guided for Rs 3.5bn-4bn of capex in FY18E towards building (1) the

Vizag facility for the US market, (2) Dehradun and Guwahati facility expansion for

the domestic market and (3) new API facilities at Hyderabad and Chennai.

Quarterly performance, consolidated

Q2FY18 Q2FY18E Q1FY18 Q2FY17 % Change

Comments Q2FY18E Q1FY18 Q2FY17

Net Sales 4,267 4,180 4,281 4,679 2% 0% -9% Largely in line with estimates

COGS 1,129 1,133 1,094 1,838 0% 3% -39%

Staff Cost 736 675 631 554 9% 17% 33%

S G & A Expenses 1,183 1,325 1,189 1,239 -11% -1% -5%

Total Expenditures 3048 3133 2914 3631 -3% 5% -16%

EBITDA 1219 1047 1367 1048 16% -11% 16% Mainly owing to higher gross margins and lower opex.

Depreciation 160 198 150 141 -19% 7% 13%

EBIT 1,059 849 1,217 907 25% -13% 17%

Interest 42 40 39 42 5% 8% 0%

Other Income 55 37 34 32 49% 62% 73%

PBT 1,072 846 1,212 897 27% -12% 20%

Tax 228 169 275 235 35% -17% -3%

PAT before MI & Associates 844 677 937 662 25% -10% 27%

Recurring PAT 844 677 937 666 25% -10% 27%

Reported PAT 844 677 937 666 25% -10% 27%

EPS (Rs) 4.8 3.9 5.4 3.8 25% -10% 27% Mainly owing to higher sales, gross margins and lower opex.

EBITDA Margin 29% 25% 32% 22% 351 -336 617

EBIT Margin 25% 20% 28% 19% 450 -361 543

PBT Margin 25% 20% 28% 19% 488 -319 595

PAT Margin 20% 16% 22% 14% 358 -211 556

Tax Rate 21% 20% 23% 26% 127 -142 -490

NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 3 of 9

Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 42.9 29.4 46 % Mainly owing to pre-launch of gCopaxone

FY19E 35.5 41.7 -15 %

Sales FY18E 23,253 21,565 8 %

FY19E 24,410 27,436 -11 %

PAT FY18E 7,484 5,057 48 %

FY19E 6,180 7,097 -13 %

Key Estimates Particulars FY16A FY17A FY18E FY19E FY20E

API 2015 2119 2581 2710 2845

Formulations 8412 16493 19258 20313 18489

Exports 2020 7693 10762 10458 7335

Domestic - Own Brands 5076 8020 7912 9271 10569

Domestic - Principal To Principal 1316 780 585 585 585

Key investment arguments:

gCopaxone, gDoxil and gVidaza fairly built in valuations.

The company has started taking initiatives in the domestic market; however, it

would contribute meaningfully only after a few years.

NTCP’s focus remains on only difficult-to-manufacture products, however, we

prefer a mixed bag as complex products could take much longer than

anticipated.

Sensitivity to Key Variables % Change % Impact on EPS

EBITDA Margin -1 % -9 %

- - -

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.8 % 0.5 10.0 % 5.0 % 5.2 %

- FY18E FY19E FY20-22E FY23-27E FY28-37E

Sales Growth 13 % 5 % -4 % 17 % 10 %

NOPAT Margin 32 % 26 % 18 % 18 % 18 %

IC Turnover 1.05 1.00 0.85 0.85 0.85

RoIC 36.6 % 26.7 % 15.2 % 16.5 % 16.0 %

Years of strong growth 1 2 5 10 20

Valuation as on date (Rs) 802 590 305 392 618

Valuation as of Dec'18 896 659 341 437 672

Based on DCF, assuming 20 years of ~9% CAGR growth in sales and ~19% average RoIC, we

derive our current fair value of Rs 618 and our Dec’18 fair value of Rs 672.

Company Description: Headquartered in Hyderabad, Natco Pharma is a

pharmaceutical company producing and developing a wide range of branded and generic

formulations and APIs. NATCO is leveraging on 30 years expertise to go global by

exporting finished dosage products to various regulated markets across the globe.Natco

took the compulsory license route to develop its Oncology franchise in India and launched

India's first drug under compulsory license - Sorafenib. Natco enjoys leadership position in

most of the Oncology products they have launched in India. Over the last few years

NATCO started to leverage on its Intellectual property for successful filing of Paragraph

IV filings in the US along with its partners.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Natco Pharma ADD 957 1,66,769 1,010 31st Dec’18 29.2 42.9 35.5 32.7 22.3 27.0 94.6 7.5 35 % 39 % 25 % 0.6 % 0.9 %

Torrent Pharma Reduce 1,316 2,22,689 1,185 30th Sep’18 54.9 51.8 59.0 24.0 25.4 22.3 255.9 4.5 24 % 19 % 19 % 1.1 % 1.0 %

Ajanta Pharma NR 1,243 1,09,367 NA NA 57.6 52.1 64.0 21.6 23.8 19.4 178.1 27.1 37 % 38 % 39 % 1.0 % 0.1 %

NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 4 of 9

Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 3,252 4,679 6,790 5,778 4,281 4,267 7,621 7,084 6,263 6,213 5,985 5,949 20,499 23,253 24,410 22,720

COGS 927 1,838 2,054 1,172 1,094 1,129 1,580 1,542 1,748 1,732 1,735 1,722 5,991 5,346 6,935 6,739

Staff Cost 498 554 560 796 631 736 675 675 707 824 756 756 2,407 2,717 3,043 3,347

S G & A Expenses 1,055 1,239 1,336 1,399 1,189 1,183 1,325 1,325 1,344 1,337 1,497 1,497 5,030 5,022 5,675 6,356

User Defined Common Expense 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

User Defined Common Expense 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EBITDA 773 1,048 2,840 2,411 1,367 1,219 4,041 3,542 2,465 2,320 1,997 1,974 7,071 10,169 8,756 6,278

Depreciation 132 141 137 135 150 160 198 198 244 244 244 244 545 706 976 1,186

EBIT 641 907 2,703 2,276 1,217 1,059 3,843 3,344 2,221 2,076 1,753 1,730 6,527 9,463 7,781 5,092

Interest 32 42 46 64 39 42 66 66 54 54 54 54 184 213 215 215

Other Income 52 32 61 -6 34 55 37 37 40 40 40 40 139 163 160 170

PBT 660 897 2,718 2,206 1,212 1,072 3,814 3,316 2,207 2,063 1,739 1,717 6,481 9,413 7,725 5,047

Tax 186 235 531 442 275 228 763 663 441 413 348 343 1,394 1,929 1,545 1,211

PAT bef. MI & Assoc. 474 662 2,186 1,764 937 844 3,051 2,652 1,766 1,650 1,391 1,373 5,086 7,484 6,180 3,836

Minority Interest -2 -3 -2 0 0 0 0 0 0 0 0 0 -8 0 0 0

Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Recurring PAT 476 666 2,189 1,764 937 844 3,051 2,652 1,766 1,650 1,391 1,373 5,094 7,484 6,180 3,836

Extraordinaries 0 0 238 0 0 0 0 0 0 0 0 0 238 0 0 0

Reported PAT 476 666 1,951 1,764 937 844 3,051 2,652 1,766 1,650 1,391 1,373 4,857 7,484 6,180 3,836

EPS (Rs) 2.73 3.82 12.56 10.12 5.38 4.84 17.50 15.22 10.13 9.47 7.98 7.88 29.23 42.94 35.46 22.01

Key Drivers

API 570 470 520 560 863 584 546 588 906 613 573 617 2,119 2,581 2,710 2,845

Total Formulations 2,836 2,550 5,989 5,118 3,045 3,402 6,605 6,206 5,052 5,278 4,942 5,042 16,493 19,258 20,313 18,489

Licensing Income 114 132 280 100 114 132 280 100 114 132 280 100 626 626 626 626

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue -20 % 44 % 45 % -15 % -26 % 0 % 79 % -7 % -12 % -1 % -4 % -1 % - - - -

COGS -17 % 98 % 12 % -43 % -7 % 3 % 40 % -2 % 13 % -1 % 0 % -1 % - - - -

EBITDA -16 % 36 % 171 % -15 % -43 % -11 % 231 % -12 % -30 % -6 % -14 % -1 % - - - -

EBIT -20 % 42 % 198 % -16 % -47 % -13 % 263 % -13 % -34 % -7 % -16 % -1 % - - - -

Recurring PAT -21 % 40 % 229 % -19 % -47 % -10 % 261 % -13 % -33 % -7 % -16 % -1 % - - - -

EPS -21 % 40 % 229 % -19 % -47 % -10 % 261 % -13 % -33 % -7 % -16 % -1 % - - - -

Yearly Growth (%)

Revenue 45 % 99 % 146 % 42 % 32 % -9 % 12 % 23 % 46 % 46 % -21 % -16 % 80 % 13 % 5 % -7 %

EBITDA 34 % 79 % 363 % 161 % 77 % 16 % 42 % 47 % 80 % 90 % -51 % -44 % 162 % 44 % -14 % -28 %

EBIT 43 % 98 % 464 % 184 % 90 % 17 % 42 % 47 % 82 % 96 % -54 % -48 % 198 % 45 % -18 % -35 %

Recurring PAT 77 % 131 % 505 % 191 % 97 % 27 % 39 % 50 % 88 % 96 % -54 % -48 % 228 % 47 % -17 % -38 %

EPS 69 % 125 % 489 % 193 % 97 % 27 % 39 % 50 % 88 % 96 % -54 % -48 % 228 % 47 % -17 % -38 %

Margin (%)

EBITDA 24 % 22 % 42 % 42 % 32 % 29 % 53 % 50 % 39 % 37 % 33 % 33 % 34 % 44 % 36 % 28 %

EBIT 20 % 19 % 40 % 39 % 28 % 25 % 50 % 47 % 35 % 33 % 29 % 29 % 32 % 41 % 32 % 22 %

PBT 20 % 19 % 40 % 38 % 28 % 25 % 50 % 47 % 35 % 33 % 29 % 29 % 32 % 40 % 32 % 22 %

PAT 15 % 14 % 32 % 31 % 22 % 20 % 40 % 37 % 28 % 27 % 23 % 23 % 25 % 32 % 25 % 17 %

NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 5 of 9

Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 20,499 23,253 24,410 22,720 Equity Capital 349 349 349 349 PBT 6,481 9,413 7,725 5,047

Op. Expenditure 13,428 13,085 15,653 16,442 Reserve 16,144 21,877 26,611 29,550 Depreciation 545 706 976 1,186

EBITDA 7,071 10,169 8,756 6,278 Networth 16,493 22,226 26,960 29,899 Others -238 0 0 0

Depreciation 545 706 976 1,186 Long Term Debt 2,216 1,707 1,396 1,396 Taxes Paid 1,394 1,929 1,545 1,211

EBIT 6,527 9,463 7,781 5,092 Def Tax Liability 377 486 397 397 Change in WC -1,810 -344 227 565

Interest Expense 184 213 215 215 Minority Interest 41 41 41 41 Operating C/F 3,584 7,847 7,383 5,587

Other Income 139 163 160 170 Account Payables 2,627 2,490 3,230 3,139 Capex -3,551 -3,500 -3,500 -4,000

PBT 6,481 9,413 7,725 5,047 Other Curr Liabi 1,422 3,876 4,068 3,787 Change in Invest 0 0 0 0

Tax 1,394 1,929 1,545 1,211 Total Liabilities & Equity 23,176 30,825 36,093 38,658 Others 0 0 0 0

PAT bef. MI & Assoc. 5,086 7,484 6,180 3,836 Net Fixed Assets 8,272 11,066 13,590 16,405 Investing C/F -3,551 -3,500 -3,500 -4,000

Minority Interest -8 0 0 0 Capital WIP 3,421 3,421 3,421 3,421 Change in Debt 1,232 -509 -311 0

Profit from Assoc. 0 0 0 0 Others 610 610 610 610 Change in Equity -125 0 0 0

Recurring PAT 5,094 7,484 6,180 3,836

Inventory 3,489 6,371 6,688 6,225 Others -1,122 -1,643 -1,535 -898

Extraordinaires 238 0 0 0 Account Receivables 4,752 5,350 5,350 4,980 Financing C/F -15 -2,151 -1,846 -898

Reported PAT 4,857 7,484 6,180 3,836 Other Current Assets 1,953 1,133 1,522 1,417 Net change in cash 18 2,195 2,037 689

FDEPS (Rs) 29.2 42.9 35.5 22.0 Cash 679 2,874 4,911 5,601 RoE (%) 35 % 39 % 25 % 13 %

DPS (Rs) 6.0 8.6 7.1 4.4 Total Assets 23,176 30,825 36,093 38,658

RoIC (%) 31 % 35 % 24 % 13 %

CEPS (Rs) 32.4 47.0 41.1 28.8 Non-cash Working Capital 6,145 6,489 6,262 5,696

Core RoIC (%) 31 % 37 % 27 % 15 %

FCFPS (Rs) 1.0 25.9 23.3 10.0 Cash Conv Cycle 109.4 101.9 93.6 91.5 Div Payout (%) 25 % 23 % 23 % 23 %

BVPS (Rs) 94.6 127.5 154.7 171.5 WC Turnover 3.3 3.6 3.9 4.0 P/E 32.7 22.3 27.0 43.5

EBITDAM (%) 34 % 44 % 36 % 28 % FA Turnover 1.8 1.6 1.4 1.1 P/B 10.1 7.5 6.2 5.6

PATM (%) 25 % 32 % 25 % 17 % Net D/E 0.1 -0.1 -0.1 -0.1 P/FCFF 941.5 36.9 41.1 95.3

Tax Rate (%) 22 % 20 % 20 % 24 % Revenue/Capital Employed 1.2 1.1 0.9 0.8 EV/EBITDA 23.9 16.3 18.7 26.0

Sales Growth (%) 80 % 13 % 5 % -7 %

Capital Employed/Equity 1.1 1.1 1.1 1.1

EV/Sales 8.2 7.1 6.7 7.2

FDEPS Growth (%) 228 % 47 % -17 % -38 %

Dividend Yield (%) 0.6 % 0.9 % 0.7 % 0.5 %

TTM P/E vs. 2 yr forward EPS growth

TTM EV/EBITDA vs. 2 yr forward EBITDA growth

TTM P/B vs. 2 yr forward RoE

-80%-60%-40%-20%0%20%40%60%80%100%120%

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NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 6 of 9

Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 7,389 8,253 11,416 20,499 Equity Capital 331 331 349 349 PBT 1,290 1,493 2,066 6,481

Op. Expenditure 5,596 6,122 8,719 13,428 Reserve 6,928 8,128 12,635 16,144 Depreciation 305 473 510 545

EBITDA 1,793 2,131 2,697 7,071 Networth 7,259 8,459 12,984 16,493 Others 454 41 0 -238

Depreciation 305 473 510 545 Long Term Debt 1,941 2,656 984 2,216 Taxes Paid 346 237 237 1,394

EBIT 1,489 1,658 2,188 6,527 Def Tax Liability 552 222 277 377 Change in WC -263 -843 -843 -1,810

Interest Expense 366 317 229 184 Minority Interest 69 50 49 41 Operating C/F 1,440 927 1,495 3,584

Other Income 167 153 108 139 Account Payables 1,098 1,253 2,755 2,627 Capex -1,104 -1,175 -1,175 -3,551

PBT 1,290 1,493 2,066 6,481 Other Curr Liabi 1,039 1,200 1,190 1,422 Change in Invest 15 26 26 0

Tax 309 351 528 1,394 Total Liabilities & Equity 11,957 13,840 18,238 23,176 Others 0 2 2 0

PAT bef. MI & Assoc. 981 1,142 1,538 5,086 Net Fixed Assets 6,447 7,100 7,135 8,272 Investing C/F -1,089 -1,148 -1,148 -3,551

Minority Interest -46 -46 -14 -8 Capital WIP 1,238 1,290 2,118 3,421 Change in Debt -911 714 714 1,232

Profit from Assoc. 0 0 0 0 Others 48 51 43 610 Change in Equity 1,085 0 0 -125

Recurring PAT 1,027 1,188 1,552 5,094 Inventory 1,811 2,200 3,573 3,489 Others -523 -471 -471 -1,122

Extraordinaires 0 -160 0 238 Account Receivables 1,188 1,924 2,616 4,752 Financing C/F -349 243 243 -15

Reported PAT 1,027 1,349 1,552 4,857 Other Current Assets 1,111 1,141 2,092 1,953 Net change in cash 3 22 591 18

EPS (Rs) 6.2 7.2 8.9 29.2 Cash 114 135 661 679

RoE (%) 16 % 15 % 14 % 35 %

DPS (Rs) 1.0 1.0 1.3 6.0

Total Assets 11,957 13,840 18,238 23,176

RoIC (%) 14 % 13 % 13 % 31 %

CEPS (Rs) 1.1 9.0 1.7 32.4 Non-cash Working Capital 1,974 2,812 4,335 6,145 Core RoIC (%) 12 % 12 % 13 % 31 %

FCFPS (Rs) 0.5 0.1 0.4 1.0 Cash Conv Cycle 97.5 124.4 138.6 109.4 Div Payout (%) 19 % 15 % 17 % 25 %

BVPS (Rs) 43.9 51.1 74.5 94.6 WC Turnover 3.7 2.9 2.6 3.3

P/E 154.0 133.3 107.5 32.7

EBITDAM (%) 24 % 26 % 24 % 34 % FA Turnover 1.0 1.0 1.2 1.8 P/B 21.8 18.7 12.8 10.1

PATM (%) 14 % 14 % 14 % 25 % Net D/E 0.3 0.3 0.0 0.1 P/FCFF 1,895.4 8,027.1 2,176.2 941.5

Tax Rate (%) 24 % 24 % 26 % 22 % Revenue/Capital Employed 0.8 0.8 0.9 1.2 EV/EBITDA 94.6 79.7 62.2 23.9

Sales growth (%) 11 % 12 % 38 % 80 %

Capital Employed/Equity 1.6 1.5 1.3 1.2

EV/Sales 23.0 20.6 14.7 8.2

FDEPS growth (%) 23 % 16 % 24 % 228 %

Dividend Yield (%) 0.1 % 0.1 % 0.1 % 0.6 %

NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 7 of 9

Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services abhishek.shindadkar@equirus.com 91-22-43320643 VishadTurakhia vishad.turakhia@equirus.com 91-22-43320633

AshutoshTiwari Auto, Metals & Mining ashutosh@equirus.com 91-79-61909517 SubhamSinha subham.sinha@equirus.com 91-22-43320631

DepeshKashyap Mid-Caps depesh.kashyap@equirus.com 91-79-61909528 Sweta Sheth sweta.sheth@equirus.com 91-22-43320634

DevamModi Power & Infrastructure devam@equirus.com 91-79-61909516 Viral Desai viral.desai@equirus.com 91-22-43320635

DhavalDama FMCG, Mid-Caps dhaval.dama@equirus.com 91-79-61909518 Dealing Room E-mail

Manoj Gori Consumer Durables manoj.gori@equirus.com 91-79-61909523 Ashish Shah ashishshah@equirus.com 91-22-43320662

Maulik Patel Oil and Gas maulik@equirus.com 91-79-61909519 IleshSavla ilesh.savla@equirus.com 91-22-43320666

PrafulBohra Pharmaceuticals praful.bohra@equirus.com 91-79-61909532 Manoj Kejriwal manoj.kejriwal@equirus.com 91-22-43320663

RohanMandora Banking & Financial Services rohan.mandora@equirus.com 91-79-61909529 Dharmesh Mehta dharmesh.mehta@equirus.com 91-22-43320661

Associates E-mail SandipAmrutiya sandipamrutiya@equirus.com 91-22-43320660

AnkitChoudhary ankit.choudhary@equirus.com 91-79-61909533 Compliance Officer E-mail

Bharat Celly bharat.celly@equirus.com 91-79-61909524 Jay Soni jay.soni@equirus.com 91-79-61909561

Harshit Patel harshit.patel@equirus.com 91-79-61909522 Corporate Communications E-mail

Meet Chande meet.chande@equirus.com 91-79-61909513 MahdokhtBharda mahdokht.bharda@equirus.com 91-22-43320647 Parva Soni parva.soni@equirus.com 91-79-61909521

Pranav Mehta pranav.mehta@equirus.com 91-79-61909514

Ronak Soni Ronak.soni@equirus.com 91-79-61909525

Samkit Shah samkit.shah@equirus.com 91-79-61909520

ShreepalDoshi shreepal.doshi@equirus.com 91-79-61909541

VarunBaxi varun.baxi@equirus.com 91-79-61909527

Vikas Jain vikas.jain@equirus.com 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

Equirus Securities Private Limited

Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,

N M Joshi Marg, Lower Parel,

Mumbai-400013.

Tel. No: +91 – (0)22 – 4332 0600

Fax No: +91- (0)22 – 4332 0601

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NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 8 of 9

© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not

be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited

Analyst Certification

I, Maulik Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also

certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor

Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or

brokerage service transactions. ESPL has not been engaged in market making activity for the subject company.

The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months;

(c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products

or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the

subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the

subject company.

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

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on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as

to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant

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information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended

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consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with

companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest.

NatcoPharma Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

November 6, 2017 Analyst: PrafulBohra(+91-9819915604/+91-7961909532)/ Bharat Celly (+91-9998580991/+91-7961909524) Page 9 of 9

A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the

“three years” period in the price chart).

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition

on soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective

contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S.

Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US

Persons" under certain rules.