Natco Pharma (NATPHA) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_NatcoPharma_Q3FY15.pdf · Q3 numbers were affected by loss of business in Venezuela overshadowing the

February 20, 2015

ICICI Securities Ltd | Retail Equity Research

Company Update

Subdued quarter; product launches hold key • Revenues de-grew 4% YoY to | 195.5 crore, lower than I-direct

estimate of | 226.2 crore mainly due to a decline in formulation sales by 8% to | 123 crore

• EBITDA margins declined ~218 bps to 24.3% compared to I-direct estimate of 26.5%. EBITDA de-grew 11.8% YoY to | 47.6 crore, lower than I-direct estimate of | 59.9 crore

• Adjusted net profit declined 1.4% YoY to | 29.5 crore lower than I-direct estimate of | 35.8 crore on lower operational performance

Focused approach to take on biggies in US generics space Despite being a late entrant in the US market, it has carved out its own identity via tie-ups to tap limited but niche products pipeline including 12 Para IVs and two limited competition products. Natco had earlier tried to pursue the route of retail pharmacies as a gateway for entry into the US market. Later on, it revisited the strategy and sold two pharmacies and currently owns and operates a single store. As per the revised and more feasible game plan, it plans to market products via tie-ups with established players in the generic space. We believe this is a bold step to make inroads in the Big Brother club. Till date the company has filed 31 ANDAs which include FTF opportunities such as 1) Lenalidomide Capsules (anticancer), 2) Lanthanum Carbonate chewable tablets (hyperphosphatemia), 3) Oseltamivir Phosphate Capsules (anti-infectives), 4) Lapatinib Ditosylate tablets (anti-cancer). Besides these it has also filed ANDAs for limited competition products such as 1) Glatiramer Acetate injection (multiple sclerosis) 2) Lansoprazole (anti-ulcerant; launched post approval) and 3) Budesonide (Crohn’s disease). There are even more such products in the pipeline. To market these products in the US market, Natco has signed agreements with MNCs as well as domestic players. Leading oncology player in domestic market Natco is a leading player in the domestic oncology segment with a product basket of ~18 products. Despite the product range, the growth has been flattish in this space as most of the sales are through institutional channels. However, going ahead, we expect good traction in oncology segment on account of incremental launches. The recent judgment for compulsory licensing can be considered a new avenue for more potential launches. Future bodes well due to niche fillings but fairly priced; maintain HOLD Q3 numbers were affected by loss of business in Venezuela overshadowing the solid growth registered in the domestic oncology space. However, scores of important approvals and launches in the coming 18-24 month will be keenly watched. We continue to value the stock on SoTP basis to capture the emerging FTF/limited competition opportunities in the US. We value the base business separately and have assigned NPV for some of the future launches as the FTF/Para IV status to some of them warrants future pipeline recognition. Similarly, we have calculated gCopaxone (Glatiramer Acetate) separately considering the likelihood of its launch after September 2015 (earlier March- September 2015), post the approval from the USFDA. The hearing has already started and the verdict is expected in Q4FY15. Our revised target price of | 1354 includes base business value of | 943.5 (17x FY17E EPS of | 55.5) + | 219 for NPV of other FTF / Para IVs + | 191 for gCopaxone.

Rating matrix Rating : HoldTarget : | 1354Target Period : 12 monthsPotential Upside : -3%

What’s Changed? Target Changed from | 1388 to | 1354EPS FY15E Changed from | 40.0 to | 32.5EPS FY16E Changed from | 51.3 to | 44.9EPS FY17E Changed from | 64.4 to | 55.5Rating Unchanged

Quarterly Performance

Q3FY15 Q3FY14 YoY (%) Q2FY15 QoQ (%)Revenue 195.5 203.4 -3.9 219.2 -10.8EBITDA 47.6 53.9 -11.8 58.8 -19.2EBITDA (%) 24.3 26.5 -218 bps 26.8 -250 bpsAdj.Net Profit 25.2 29.9 -15.8 32.4 -22.2

Key Financials (| crore) FY14 FY15E FY16E FY17ERevenues 738.9 812.8 936.1 1077.1EBITDA 179.3 213.8 259.5 301.6Net Profit 102.2 109.7 151.7 187.5EPS (|) 30.3 32.5 44.9 55.5

Valuation summary

FY14 FY15E FY16E FY17EPE (x) 14.5 13.5 9.8 7.9Target PE(x) 31.0 28.9 20.9 16.9EV to EBITDA (x) 32.8 23.8 19.4 15.9Price to book (x) 6.9 6.1 4.5 4.0RoNW (%) 14.1 13.5 16.1 17.0RoCE (%) 15.3 16.7 18.7 20.0

Stock data ParticularMarket Capitalisation Debt (FY14)Cash (FY14)EV 52 week H/L 1586/656Equity capital | 33.8 croreFace value | 10

Amount| 4647 crore

| 240 crore| 11 crore

| 4876 crore

Price performance (%)

1M 3M 6M 1YNatco Pharma 1.8 4.8 42.3 86.8Unichem Labs -6.9 -7.1 2.0 7.0Indoco Remedies -2.7 2.2 42.5 148.4

Natco Pharma (NATPHA) | 1402

Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected] Nandan Kamat [email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis Q3FY15 Q3FY15E Q3FY14 Q2FY15 YoY (%) QoQ (%) Comments

Revenue 195.5 226.2 203.4 219.2 -3.9 -10.8 YoY revenue de-growth due to absence of Venezuela tender business.Raw Material Expenses 63.1 70.1 57.9 64.4 8.9 -2.1Employee Expenses 33.3 32.8 29.8 33.7 11.9 -1.2Other Expenditure 51.6 63.3 61.8 62.3 -16.5 -17.2Total Operating Expenditure 147.9 166.2 149.4 160.4 -1.0 -7.8EBITDA 47.6 59.9 53.9 58.8 -11.8 -19.2EBITDA (%) 24.3 26.5 26.5 26.8 -218 bps -250 bps The dip in margins was mainly due to adverse product mix.Interest 8.5 4.5 9.2 7.2 -7.7 17.5Depreciation 12.2 11.1 7.7 11.2 58.2 9.2Other Income 7.3 3.0 1.3 3.2 478.0 130.1EO 15.1 0.0 0.0 0.0 0.0 0.0PBT 19.1 47.3 38.3 43.6 -50.1 -56.3Tax 5.4 11.4 10.8 12.4 -49.9 -56.3PAT before MI 13.7 36.0 27.5 31.2 -50.2 -56.2MI -0.7 0.2 -2.4 -1.1 NA NAAdj.Net Profit 25.2 35.8 29.9 32.4 -15.8 -22.2 Decreased profitability due to lower operational performance Key MetricsAPIs 61.2 61.9 50.6 65.1 21.0 -6.0 Strong growth in export APIs drove overall API growth.Domestic Oncology 53.8 49.9 41.6 45.0 29.3 19.6 New product launches drove the growth.Export Formulations 29.8 61.6 51.4 62.0 -42.0 -51.9 absence of Venezuelan tenders sales affected export formulations growth.

US Retail & Brazil 29.0 30.8 29.4 28.0 -1.2 3.8Other Formulation Revenues 10.4 11.9 11.7 9.0 -10.7 15.8

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % Change CommentsRevenue 867.6 812.8 -6.3 1,042.1 936.1 -10.2 Trimmed down revenue estimate mainly due to increase volatility in Venezuela tender

business and possible postponement of some of the proposed launches.

EBITDA 232.6 213.8 -8.1 288.7 259.5 -10.1 Change in estimates in synch with Revenue.EBITDA Margin (%) 26.8 26.3 -49 bps 27.7 27.7 2 bpsPAT 135.2 109.7 -18.9 173.2 151.7 -12.4 Chance in estimates in synch with EBITDA. EPS (|) 40.0 32.5 -18.8 51.3 44.9 -12.5

FY15E FY16E

Source: Company, ICICIdirect.com Research Assumptions

CommentsFY13 FY14 FY15E FY16E FY15E FY16E

APIs 223.4 195.4 258.3 288.7 252.1 258.7 Increase in estimates mainly due to incremental expected traction in Export sales.

Dometic Oncology 140.2 154.7 194.1 233.0 190.3 228.3Exports formulations 102.8 162.8 158.8 209.6 221.7 346.7 Lowering of estimates to incorporate volatillity in Venezuelan tender business.

US Retail 102.5 117.6 117.9 120.3 119.8 122.2Other Formulations 55.9 36.6 32.6 44.6 34.1 46.1

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis

Natco Pharma is a mid sized pharmaceutical company with a presence across the pharma value chain. The company also has US retail business. It owns six manufacturing facilities including four formulations facilities and two APIs facilities. The company’s overall revenues grew at a CAGR of 10.5% in FY09-14. Natco is a leading domestic player in the oncology space. The company derives ~35-40% of sales from the oncology business (both APIs and Formulations). NPL’s product pipeline consists of drugs which are used for various types of cancer like blood cancer, breast cancer, brain cancer, ovarian cancer, lung cancer and prostate cancer. Currently, Natco is marketing ~18 products in the Indian market. On the export front, Natco exports products to US, Canada and Europe regions. Despite being a late entrant in the US market, it has carved out its own identity via tie-ups to tap limited but niche products pipeline including 12 Para IVs and limited competition products. The products which are having first to file status are Lenalidomide Capsules, Oseltamivir Phosphate capsules, Lanthanum Carbonate chewable tablets, Lapatinib Ditosylate tablets and Bendamustine Hydrochloride powder. The other limited competition products are Glatiramer Acetate Injection (Para IV) and Budesonide. There are still more such candidates in the pipeline. Natco had earlier tried to pursue the route of retail pharmacies as a gateway for entry into the US market. Later on, it revisited the strategy and sold two pharmacies and currently owns and operates a single store. As per the revised and more feasible game plan, it plans to market products via tie-ups with established players in the generic space. Overall, we expect base business revenues to grow at a CAGR of 13.4% in FY14-17E to | 1077 crore. Exhibit 1: Revenues to grow at a CAGR of 13.4% in FY14-17E

448.6 456.7 455.9520.1

664.0738.9

812.8

936.1

1077.1

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Revenues



Exhibit 2: Domestic oncology to grow at CAGR of 20.1% in FY14-17E

96.9123.8 121.2

148.4 140.2154.7

194.1

233.0267.9

-10

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Domestic Oncology


Exhibit 3: New product launches expected to drive growth

31.1 23.750.5 65.6

102.8

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209.6

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100150200250300350400450


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Export Formulations


Exhibit 4: EBITDA margins to improve on high margins products

78.8 93.0 86.8105.7

149.9179.3

213.8

259.5

301.6

17.6

20.419.0

20.3

28.0

24.3

26.327.7

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EBITDA EBITDA Margins (%)


Exhibit 5: Net profit to grow at CAGR of 22.4% in FY14-17E

44.0 48.7 53.5 59.671.9

102.2 109.7

151.7

187.5

-20

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Net Profit


Lenalidomide Capsules Natco is the only first filer for the generic version of Celgene’s Revlimid Capsules. The annual sales of Revlimid in the US market are around US$2.0 billion. The company has tied up with Watson Pharmaceuticals (now Actavis) to market the product in the US market. Revlimid is a blood cancer drug for treatment of patients with multiple myeloma. In the US and other select international markets, it has also been approved for the treatment of transfusion-dependent anaemia due to myelodysplastic syndromes (MDS). The drug obtained orphan drug status for the treatment of multiple myeloma and MDS in the US. Lanthanum Carbonate Chewable tablets NPL has filed ANDA with Para IV certification with the USFDA for Lanthanum Carbonate chewable tablets in October 2008. The company is one of the four first filers on the drug. The drug is the generic version of Shire Plc’s Fosrenol chewable tablets. Beside Natco, Barr, Mylan and Alkem Laboratories were the other companies sued by Shire Plc. The patents will expire in March 19 2016. Lanthanum carbonate is used as a phosphate binder. The drug is prescribed for the treatment of hyperphosphatemia, primarily in patients with chronic kidney diseases. The annual sales of Fosrenol chewable tablets in the US market are around US$100 million. Natco has tied up with Lupin for the product.


Oseltamivir Phosphate Capsules Natco Pharma has filed ANDA with Paragraph IV certificate for Oseltamivir Phosphate Capsules. Natco is the first filer for the drug. Oseltamivir Phosphate capsules are generic versions of Tamiflu capsules, marketed by Roche Holding and innovated by Gilead Sciences. Oseltamivir Phosphate is used in the treatment of bird and swine-flu infections. In normal circumstances, annual sales of the drug in the US market are around US$ 400 million. The company has received tentative approval before 30 month of stay from the USFDA for the drug and entitled to get 180 days exclusivity. The patent of Tamiflu capsules is set to expire on August 27, 2015. The company has tied up with Luxemburg based Alvogen for marketing and sales of Oseltamivir Phosphate in the US market. Lapatnib distosylate tablets Natco Pharma has filed ANDA with Paragraph IV certification with USFDA for the approval of Lapatnib ditosylate tablets. The drug is the generic version of GlaxoSmithKline’s Tykerb tablets, which are used for the treatment of breast cancer. Natco has signed an agreement with Lupin to jointly market the product in the US market. Natco’s ANDA is the first to file generic version of Tykerb and entitled for 180 days exclusivity. The annual sales of the drug in the US market are around US$ 90 million. The company has tied up with Lupin to market the drug in the US market. We are not expecting any at-risk launch by Natco/ Lupin. Bendamustine Hydrochloride Powder Natco along with its marketing partner Breckenridge Pharmaceuticals has filed ANDA for Teva’s Treanda powder. As company was the first ANDA file for the drug, the company entitles to get 180 days of exclusivity. The annual sales of the drug in the US market were US$ 660 million. The patent is expected expire in April 2016. Glatiramer Acetate NPL has entered in to an exclusive licensing & supply agreement with Mylan Laboratories for Glatiramer Acetate in June 2008. Under the agreement, Mylan has exclusive distribution rights for Glatiramer Acetate syringes in the US, Europe, Australia, New Zealand, Japan and Canada and includes an option to expand into additional territories. The drug is the generic version of Teva’s Copaxone and is used in the treatment of multiple sclerosis. It had annual sales US $3 billion in the US market. The patent of drug has expired on May 24, 2014. But the company is waiting for final approval for the product.


Exhibit 6: Trends in quarterly financials | Crore Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 YoY (%) QoQ (%)Net sales 121.6 129.3 136.7 134.5 169.2 157.8 154.5 164.5 162.9 186.2 174.8 190.3 209.1 184.3 -1.0 -11.9Other operating income 5.1 9.47 12.18 6.37 11.16 19.8 12.8 8.0 16.3 17.2 9.0 19.5 10.2 11.2 -34.9 10.0Revenues 126.7 138.8 148.9 140.8 180.3 177.6 167.3 172.5 179.2 203.4 183.8 209.8 219.2 195.5 -3.9 -10.8RM Cost 47.83 51.62 56.6 53.17 66.58 66.8 56.3 54.7 57.9 57.9 62.8 65.4 64.4 63.1 8.9 -2.1% of Revenues 37.8 37.2 38.0 37.8 36.9 37.6 33.6 31.7 32.3 28.5 34.1 31.2 29.4 32.3 378 bps 288 bpsGross Profit 78.82 87.16 92.32 87.67 113.74 110.8 111.1 117.8 121.4 145.5 121.1 144.4 154.8 132.4 -9.0 -14.5Gross Profit Margin (%) 62.2 62.8 62.0 62.2 63.1 62.4 66.4 68.3 67.7 71.5 65.9 68.8 70.6 67.7 -378 bps -288 bpsEmployee cost 17.05 20.49 21.76 21.43 31 24.5 25.4 25.9 26.3 29.8 30.8 31.6 33.7 33.3 11.9 -1.2% of Revenues 13.5 14.8 14.6 15.2 17.2 13.8 15.2 15.0 14.7 14.6 16.8 15.0 15.4 17.0 240 bps 166 bpsOther expenditure 31.37 35.52 44.73 37.26 39.21 41.1 51.4 47.2 51.6 61.8 53.0 55.3 62.3 51.6 -16.5 -17.2% of Revenues 24.8 25.6 30.0 26.5 21.7 23.1 30.7 27.4 28.8 30.4 28.8 26.4 28.4 26.4 -400 bps -204 bpsTotal Expenditure 96.25 107.63 123.09 111.86 136.79 132.4 133.1 127.8 135.7 149.4 146.5 152.3 160.4 147.9 -1.0 -7.8% of Revenues 76.0 77.6 82.7 79.4 75.9 74.5 79.5 74.1 75.7 73.5 79.7 72.6 73.2 75.7 218 bps 250 bpsEBITDA 30.4 31.15 25.83 28.98 43.53 45.2 34.2 44.7 43.5 53.9 37.3 57.5 58.8 47.6 -11.8 -19.2EBITDA Margins(%) 24.0 22.4 17.3 20.6 24.1 25.5 20.5 25.9 24.3 26.5 20.3 27.4 26.8 24.3 -218 bps -250 bpsDepreciation 4.02 4.08 1.66 4.43 5.1 6.3 6.3 7.3 7.5 7.7 8.0 11.1 11.2 12.2 58.2 9.2Interest cost 6.1 5.8 6.2 4.7 5.8 7.6 8.2 10.0 10.0 9.2 7.4 6.6 7.2 8.5 -7.7 17.5Other income 1.23 0.35 0.74 1.78 0.88 5.9 1.9 3.5 2.0 1.3 10.0 1.2 3.2 7.3 478.0 130.1Exeptional items 0.0 0.0 0.0 0.0 6.2 5.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15.1 NA NAPBT 21.49 21.61 18.7 21.66 27.3 31.8 21.6 30.9 28.0 38.3 31.8 41.0 43.6 19.1 -50.1 -56.3Tax 5.8 5.0 6.2 4.9 7.7 10.6 13.2 10.1 3.7 10.8 6.3 8.8 12.4 5.4 -540.0 -699.0Tax rate (%) 27.1289 23.32254 33.1016 22.66851 28.24176 33.3 61.1 32.8 13.3 28.3 19.9 21.4 28.4 28.4PAT 15.7 16.6 12.5 16.8 19.6 21.2 8.4 20.8 24.3 27.5 25.5 32.2 31.2 13.7 -50.2 -56.2PAT Margin (%) 12.36478 11.93976 8.400483 11.89293 10.86402 12.0 5.0 12.0 13.5 13.5 13.9 15.4 14.2 7.0 -651.0 -725.2MI -0.3 -0.4 -0.1 -0.3 -1.4 -1.4 -2.9 -1.0 -2.7 -2.4 1.5 -1.3 -1.1 -0.7PAT after MI 15.94 17 12.65 17.07 20.99 22.6 11.3 21.8 26.9 29.9 24.0 33.5 32.4 14.3 -52.0 -55.7EPS (|) 5.1 5.4 4.0 1.7 6.7 7.2 3.6 6.9 8.6 9.5 7.3 10.1 9.8 4.3Adj PAT 15.94 17 12.65 17.07 27.17 28.0 11.3 21.8 26.9 29.9 24.0 33.5 32.4 29.5 -1.4 -8.9


SWOT Analysis Strengths- focus on limited but niche opportunities, tie-ups with the MNCs, larger Indian companies to share risks, focus on Oncology in the domestic space, strong balance sheet. Weakness- Domestic oncology growth still flattish due to institutional focus. Opportunities- The US Generics space. Threats- Increased USFDA scrutiny across the globe regarding cGMP issues and consolidation in the US pharmacy space. Delay in getting USFDA approvals. Currency volatility and lumpiness in tender business in Venezuela.


Conference call highlights • The company expects 10-15% growth in the base business. • In the next 15 months, the company expects seven to eight

opportunities in US and domestic market including gCopaxone (Multiple Sclerosis), Sovaldi (domestic market; hepatitis C), Vidaza (end of FY16), gEntocort (Crohn's intestine diseases)

• Para IV filings doubled to 12 from 6 in CY14. • No major launches are expected in Q4FY15. Lansoprazole OTC is

expected to be launched in Q4FY15. • Payment worth ~| 12 crore was halted from Venezuela. • It expects Solvaldi opportunity to be around | 100-300 crore post

launches in the multiple emerging markets. • The company has filed gGilenya Capsule (Fingolimod, 0.5mg s)

and gJevtana Injection (Cabazitaxel, 60mg/1.5ml) with the USFDA. Its partner Mylan has also filed Nexavar (Sorafenib, 200mg) Tablet with USFDA

US/ EU Key Product Pipeline US Pipeline:

Brand Name API Dose Form Therapeutic use Status Partner

Fosrenol Lanthanum Carbonate Tablets End stage renal disease Para IV/ FTF NA Lupin Natco 2015 115 million

Copaxone 20mg Glatiramer prefilled Injection Multiple Sclerosis Para IV In process Mylan Mylan Sep-15 3.0 billion

Revlimid Lenalidomide Capsules Multiple Myeloma Para IV/FTF Still Due Actavis Natco 2015 3.0 billion

Tamiflu Oseltamivir Capsules Influenza infection Para IV/FTF Pending Alvogen Natco 2017 500 million

Tykerb Lapatinib Tablets Anti cancer Para IV/FTF NA Lupin Lupin NA 125 million

Prevacid OTC Lansoprazole OTC Capsules Anti-ulcer Para III No Activis Activis 2015 300 million

Entocort EC Budesonide Capsules Crohn’s Intestine disease Para III NA Alvogen Alvogen 2016 400 million

Zortress Everolimus Tablets Immuno-suppressant Para IV/FTF Pending Breckenridge Breckenridge NA 45 million

Europe Pipeline:

Glivec Imatinib Tablets CML NA No Helm Activis 2016 4 billion

Treanda Bendamustine Vial Lymphocytic Leukemia NA NA Helm Helm 2015 860 million

ANDA ownership

Patent Litigation Status

Expected Launch Date

Annual Sales (US$ )



Valuation Q3 numbers were affected by loss of business in Venezuela overshadowing the solid growth registered in the domestic oncology space. However, scores of important approvals and launches in the coming 18-24 month will be keenly watched. We continue to value the stock on SoTP basis to capture the emerging FTF / limited competition opportunities in the US. We value the base business separately and have assigned NPV for some of the future launches as the FTF/Para IV status to some of them warrants future pipeline recognition. Similarly, we have calculated gCopaxone (Glatiramer Acetate) separately considering the likelihood of its launch after September 2015 (earlier March- September 2015), post the approval from the USFDA. The hearing has already started and the verdict is expected in Q4FY15. Our revised target price of | 1354 includes base business value of | 943.5 (17x FY17E EPS of | 55.5) + | 219 for NPV of other FTF / Para IVs + | 191 for gCopaxone. Exhibit 7: Valuation

| shareBase Business (17x FY17E EPS of | 60.9) 944Copaxone NPV 191Other Para IV Opportunities 219Target Price 1354


Exhibit 8: One year forward PE

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[


Exhibit 9: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE(| crore) (%) (|) (%) (x) (X) (%) (%)

FY14 739 11 30.3 42 23.8 19.4 14.1 15.3FY15E 813 10 32.5 7 22.2 15.9 13.5 16.7FY16E 936 15 44.9 38 16.0 13.1 16.1 18.7FY17E 1077 15 55.5 24 13.0 10.9 17.0 20.0



Company snapshot

Target Price: 1354

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Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventOct-08 Files first ANDA with Para IV certification with USFDA for Lanthanum Carbonate chewable tablets.

Oct-10 Files ANDA with para IV certification with USFDA for the generic version of Celgene’s Revlimid Capsules. Entitled to 180 days exclusivity

Feb-11 Files ANDA with para IV certification for the generic version of Oseltamivir phosphate capsules. Entitled to 180 days exclusivity

Jun-11 Enters into an alliance with Lupin to jointly market generic anti-cancer Lapatinib Ditosylate tablets in the US market

Dec-11 Raises | 67.5 crore through issue of 30,00,000 shares in a QIP issue

Mar-12 Indian Patent office grants India’s first compulsory license to Natco Pharma to launch the generic version of Sorafenib Tosylate in India.

Dec-12 Receives final approval for Lansoprazole DR capsules, a limited competition product in the US

Jul-13 Wins patent litigation relating to Copaxone (Glatiramer Acetate) against Teva Pharma in US court of Appeals for the federal circuit

Oct-13 Raises | 153.22 crore from CX securities (foreign institutional investor) by issuing 24 lakhs shares on a preference allotment basis

Jan-14 Teva launches Copaxone in 40 mg strength.

Sep-14 USFDA grants EIR to the formulation facility at Kothur

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m)n Change (m)1 Nannapaneni (V C) 31-Dec-14 21.24 7.1 0.12 Time Cap Pharma Labs Pvt. Ltd. 23-Jan-15 10.32 3.4 0.03 Natsoft Information Systems Pvt. Ltd. 31-Dec-14 9.49 3.2 0.04 CX Securities, Ltd. 31-Dec-14 5.12 1.7 0.05 Shanghvi (Dilip S) 31-Dec-14 3.46 1.2 0.06 ICICI Prudential Asset Management Co. Ltd. 31-Dec-14 3.33 1.1 0.07 Nannapaneni (Venkaiah Chowdary) HUF 31-Dec-14 3.27 1.1 0.08 Nannapaneni (Durga Devi) 31-Dec-14 2.49 0.8 0.09 Neelima Sita Nannapaneni Trust 31-Dec-14 2.46 0.8 0.010 Wasatch Advisors, Inc. 31-Dec-14 2.03 0.7 0.3

(in %) Dec-13 Mar-14 Jun-14 Sep-14 Dec-14Promoter 53.7 53.5 53.5 53.5 53.7FII 11.5 13.0 14.5 16.6 9.7DII 10.8 9.7 8.8 7.8 7.7Others 24.0 23.7 23.2 22.0 28.9

Source: Reuters, ICICIdirect.com Research Recent Activity

Investor name Value Shares Investor name Value SharesSBI Funds Management Pvt. Ltd. 15.96m 0.66m DNB Asset Management (Asia) Limited -3.87m -0.16m Wasatch Advisors, Inc. 6.43m 0.26m Goldman Sachs Asset Management International -1.46m -0.08m Nannapaneni (V C) 3.00m 0.12m Deutsche Asset Management (Asia) Ltd. -1.33m -0.08m NDL Infratech Pvt. Ltd. 0.42m 0.02m DSP BlackRock Investment Managers Pvt. Ltd. -1.27m -0.06m Donthineni (Linga Rao) 0.24m 0.01m L&T Investment Management Limited -0.80m -0.06m

Buys Sells

Source: Reuters, ICICIdirect.com Research


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Financial summary

Profit and loss statement | Crore (Year-end March) FY14 FY15E FY16E FY17ERevenues 738.9 812.8 936.1 1,077.1Growth (%) 11.3 10.0 15.2 15.1Raw Material Expenses 233.2 251.2 271.5 312.4Employee Expenses 112.8 125.8 135.7 156.2Other expenses 213.6 221.9 269.4 307.0Total Operating Expenditure 559.6 598.9 676.6 775.5EBITDA 179.3 213.8 259.5 301.6Growth(%) 19.6 19.2 21.4 16.2Depreciation 30.8 43.9 50.2 54.0Interest 36.6 26.8 15.3 11.7Other Income 16.7 14.7 12.0 12.0PBT 128.6 142.7 206.0 247.9Taxation 31.0 36.0 53.6 59.5PAT before MI 97.6 106.8 152.4 188.4Minority Interest -4.6 -2.9 0.8 0.9Less: Prior Period Items 0.0 0.0 0.0 0.0PAT 102.2 109.7 151.7 187.5Growth(%) 42.2 7.3 38.3 23.6EPS(|) 30.3 32.5 44.9 55.5


Cash flow statement | Crore (Year-end March) FY14 FY15E FY16E FY17EProfit after Tax 102.2 109.7 151.7 187.5Add: Depreciation 30.8 43.9 50.2 54.0(Inc)/dec in Current Assets -37.6 15.4 -110.0 -17.2Inc/(dec) in CL and Provisions 22.4 11.7 37.9 26.6CF from operating activities 117.9 180.6 129.7 250.8Other Investments 0.0 0.0 0 0(Purchase)/Sale of Fixed Assets -110.8 -80.0 -100.0 -100.0Deferred Tax Liability -1.3 0.0 0.0 0.0Minority Interest -3.7 -2.9 0.8 0.9CF from investing activities -115.9 -93.3 -107.3 -113.6Inc / (Dec) in Equity Capital 1.7 0.0 0.0 0.0Inc / (Dec) in Sec Loan Funds -43.8 -20.0 -30.0 -40.0Inc / (Dec) in Unsec. Loan Funds -47.6 -20.0 0.0 0.0Dividend & Dividend tax -19.3 -19.8 -23.7 -27.7Inc/(dec) in Sec Pre Account 106.8 0.0 0.0 0.0CF from financing activities -1.8 -59.8 -53.7 -67.7Net Cash flow 0.2 27.6 -31.3 69.6Opening Cash 10.7 10.9 38.4 7.2Closing Cash 10.9 38.4 7.2 76.8


Balance sheet | Crore (Year-end March) FY14 FY15E FY16E FY17EEquity Capital 33.1 33.1 33.1 33.1Reserve and Surplus 692.3 782.2 910.2 1,070.0Total Shareholders funds 725.4 815.3 943.3 1,103.0Total Debt 240.4 200.4 170.4 130.4Deferred Tax Liability 43.1 43.1 43.1 43.1Minority Interest / Others 6.9 4.0 4.7 5.7Long Term Provisions 12.1 15.1 15.1 15.1Total Liabilities 1,027.9 1,077.9 1,176.6 1,297.4Gross Block 781.0 944.8 1,004.8 1,064.8Less: Acc Depreciation 168.3 210.0 257.0 307.0Net Block 612.7 734.8 747.8 757.8Capital WIP 123.8 20.0 40.0 60.0Total Fixed Assets 736.5 754.8 787.8 817.8Net Intangibles 32.0 49.8 66.7 82.7Investments 1.9 1.9 1.9 1.9Inventory 181.1 132.0 211.7 186.1Debtors 118.5 135.7 159.6 184.7Loans and Advances 54.3 67.6 75.8 90.1Cash 10.9 38.4 7.2 76.8Other Current Assets 2.5 5.9 4.0 7.4Total Current Assets 367.4 379.5 458.3 545.1Creditors 109.8 114.8 135.0 156.3Provisions 1.7 1.3 1.6 1.8Other Current Liabilities 55.8956 63.0 80.4 85.5Total Current Liabilities 167.4 179.1 217.0 243.6Net Current Assets 200.0 200.5 241.3 301.5LT L & A & Other Non CA 57.5 70.9 79.0 93.5Application of Funds 1,027.9 1,077.9 1,176.6 1,297.3


Key ratios (Year-end March) FY14 FY15E FY16E FY17EPer share data (|)EPS 30.3 32.5 44.9 55.5Cash EPS 39.4 45.5 59.8 71.5BV 214.8 241.4 279.3 326.6DPS 5.0 5.0 6.0 7.0Cash Per Share 3.2 11.4 2.1 22.7Operating Ratios (%)EBITDA margins 24.3 26.3 27.7 28.0PBT margins 18.7 18.7 23.0 23.9Net Profit margins 13.8 13.5 16.2 17.4Inventory days 86.7 75.0 70.0 70.0Debtor days 62.8 65.0 65.0 65.0Creditor days 58.2 55.0 55.0 55.0Return Ratios (%)RoE 14.1 13.5 16.1 17.0RoCE 15.3 16.7 18.7 20.0RoIC 16.6 16.7 18.5 21.3Valuation Ratios (x)P/E 23.8 22.2 16.0 13.0EV / EBITDA 19.4 15.9 13.1 10.9EV / Revenues 5.0 4.5 3.8 3.2Market Cap / Revenues 0.9 0.9 1.0 0.9Price to Book Value 4.7 4.3 3.6 3.1Solvency RatiosDebt/EBITDA 1.3 0.9 0.7 0.4Debt / Equity 0.3 0.2 0.2 0.1Current Ratio 2.2 2.1 2.1 2.2Quick Ratio 2.1 1.9 2.1 1.9



ICICIdirect.com coverage universe (Healthcare) ICICIdirect Healthcare coverage Universe

I-Direct CMP TP Rating M CapCode (|) (|) (| Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E

Ajanta Pharma AJAPHA 2517 3220 BUY 8848.4 66.2 75.0 85.6 38.0 33.6 29.4 24.0 20.9 17.3 44.9 40.6 38.1 39.4 32.8 28.9

Apollo Hospitals APOHOS 1295 1075 HOLD 16955.8 22.8 27.5 35.1 56.9 47.2 36.9 26.6 22.7 17.2 11.6 12.7 14.9 10.6 11.8 13.58

Aurobindo Pharma AURPHA 1124 1303 HOLD 30223.3 47.3 57.4 70.5 23.8 19.6 15.9 15.9 13.1 10.6 24.1 23.4 24.4 31.3 31.6 28.65

Biocon BIOCON 420.5 410 HOLD 8269.7 20.7 20.0 22.6 20.3 21.0 18.6 12.3 12.2 10.8 13.4 11.6 12.9 13.7 12.3 12.9

Cadila Healthcare CADHEA 1545 1634 HOLD 31078.8 39.2 51.1 66.2 39.4 30.2 23.3 27.6 20.6 16.0 15.9 19.0 21.7 23.4 24.6 25.4

Cipla CIPLA 660.7 585 HOLD 51549.3 17.3 15.9 21.7 38.2 41.5 30.4 24.5 22.2 17.8 15.5 14.8 17.2 13.8 11.5 13.7

Divi's Laboratories DIVLAB 1644 1633 HOLD 21717.2 56.0 62.4 81.7 29.4 26.3 20.1 21.3 18.0 15.0 29.6 28.1 29.7 26.1 23.2 25.1

Dr Reddy's Labs DRREDD 3237 3332 HOLD 53490.7 126.7 128.3 151.0 26.3 26.0 22.1 16.1 15.0 13.2 19.2 18.7 20.1 23.7 19.9 19.5

Glenmark Pharma GLEPHA 747.2 775 HOLD 20328.6 20.0 28.0 33.4 37.3 26.7 22.3 17.4 15.4 12.0 16.0 21.0 22.7 18.3 21.8 22.2

Indoco Remedies INDREM 320 375 BUY 2945.3 6.3 9.5 13.3 50.9 33.7 24.0 24.9 17.0 13.1 16.6 21.8 28.1 12.6 16.4 19.4

Ipca Laboratories IPCLAB 670.2 622 HOLD 8243.6 37.9 25.6 31.8 17.7 26.2 21.1 10.8 14.2 13.7 27.6 16.1 17.8 24.4 14.7 16.0

Jubilant Life Sciences VAMORG 155.3 138 SELL 2538.3 6.8 -6.5 20.0 22.7 -24.0 7.8 6.4 11.6 5.6 10.1 4.5 7.6 4.2 -3.5 7.6

Lupin LUPIN 1618 1866 BUY 70414.6 41.0 54.4 61.0 39.5 29.7 26.5 24.2 18.4 16.6 34.5 34.7 32.0 26.5 27.4 24.6

Natco Pharma NATPHA 1402 1354 HOLD 4787.9 30.3 32.5 44.9 36.3 33.8 24.4 28.0 23.2 18.5 15.3 16.7 18.7 14.1 13.5 16.1

Sun Pharma SUNPHA 923.6 1036 BUY 191001.3 29.0 34.8 39.9 31.8 26.5 23.2 19.5 18.8 16.0 32.4 31.2 28.8 27.0 25.3 23.1

Torrent Pharma TORPHA 1151 1165 HOLD 19353.6 39.2 47.2 50.4 29.3 24.4 22.9 20.5 18.3 14.7 28.5 21.4 26.7 34.9 32.4 28.0

Unichem Laboratories UNILAB 215 206 HOLD 1989.1 18.7 6.4 13.2 11.5 33.9 16.3 11.0 18.3 11.3 15.7 6.5 12.8 20.7 7.1 14.0

RoNW (%)Company

EPS (|) PE(x) EV/EBITDA (x) RoCE (%)



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Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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Natco Pharma (NATPHA) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_NatcoPharma_Q3FY15.pdf · Q3 numbers were affected by loss of business in Venezuela overshadowing the