Natco Pharma (Natco) missed Q4FY21 income/Ebitda 24%/38% as weak flu season and sustained strain on home oncology hit income and working deleverage led to 23% Ebitda margin. The corporate is coming into a interval of excessive progress given: (i) near-term restoration from Covid molecules and everolimus US launch; (ii) probably two agrochem launches in Q2FY22; and (iii) gRevlimid launch in March 2022 & probably gNexavar in Q4FY22.
Nevertheless, uncertainties to home oncology, rising competitors in present portfolio and restricted room for additional gRevlimid upgrades limit us to Maintain. We revise goal value to Rs 1,045 (from Rs 905) as we roll over to Sep 2022E, add gKyprolis and improve gImbruvica revenue share.
Q4FY21 takeaways: Income of Rs 3.3 bn dipped 27% y-o-y and seven% q-o-q, whereas Ebitda at Rs 762 mn plunged 40% y-o-y and eight% q-o-q. Non-existent gTamiflu gross sales, additional strain on home oncology and competitors in gDoxil have been the explanations for below-par efficiency. Impression of working deleverage was seen as margin stood at ~23% – the bottom in 18 quarters.
Base enterprise shrinking; new launches to drive progress: Natco will enter a excessive progress section from H2FY22 pushed by gRevlimid. Earlier than this, everolimus launch within the US, potential gCoreagen launch in agrochem house and Covid launches like molnupiravir are probably.
Whereas this provides visibility to earnings, a number of are finite alternatives with greatest enterprise dynamics between FY23 and FY25 earlier than petering out sharply. Natco’s present base enterprise comprising home oncology has suffered from Covid and must get well to maintain present valuations as we see.
Outlook: Alternatives priced in– We worth Natco utilizing SOTP giving 22x to base enterprise that yields Rs 540. We worth gNexavar, gRevlimid and different P-4 alternatives utilizing NPV that yield a good worth of Rs 505. We preserve ‘HOLD/SN’ with revised TP of Rs 1,045 (Rs 905 earlier).