Natco Pharma Q2 Results Review - Strong Growth On Low Base; Weak Q3 Expected: Nirmal Bang

Nirmal Bang Report

Natco Pharma Ltd. Q2 FY24 revenue was below non-binding indicative estimates; however, Ebitda margins were in line.

Revenue grew by ~139% YoY, on account of a low base in the export business and ramp up in crop protection business led by calculated total peripheral resistance. Domestic Formulations grew by ~10% YoY, while export formulations grew 180% YoY aided by Revlimid sales. Ebitda margins improved to 44.4%, mainly due to Revlimid contribution.

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

Also, restructuring of the business 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 861, valuing it at 24 times price to earnings on September FY25E base earning per share of Rs 28.5 and net present of Rs 176 for Revlimid.

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