Buy Natco Pharma at Rs 115: Tulsian

Excerpts from Your Stocks on CNBC-TV18 Watch the full show » ALSO READ See what other Experts & Brokerages are saying about Natco Pharma See messages about Natco Pharma Natco Pharma BSE | NSE 28/05/12 Are Mutual Funds betting on Natco Pharma?

Investment Advisor SP Tulsian is of the view that one can buy Natco Pharma at Rs 115 with long-term perspective for good returns.

 

Tulsian told CNBC-TV18, "Natco Pharma is mainly into API and the formulations and they have been supplying. They are into the low volume and high margin API and supplying to the US companies mainly. In some of the cases they are supplying APIs on joint marketing basis where they get a higher margin and in the domestic market they are focusing more on oncology and cancer base where the API manufactured by them are used for making the cancer drugs."

 

He further added, "If you take the overall performance of the company taking clue from FY06 and even Q1 results of FY07, this company looks quite interesting. They have been clocking a turnover of close to Rs 100 crore and for FY06 they had sales of about Rs 160 crore and in Q1 of FY07 they had sales of Rs 43 crore. So probably FY07 should be closed with a turnover of close to Rs 200 crore, on which they should be having a profit of Rs 40 crore resulting into an EPS of close to Rs 15."

 

"The share is now available in the market at Rs 115 that means at a PE multiple of less than 8. The company has announced the buy back programmed, which has been deferred this morning. The company has been sitting on huge cash and bank balances for the last quite some time of close to Rs 30 crore. So they thought that maybe Rs 7.5 crore could be used for buyback the shares by which the floating stocks can get reduced because the promoters holding is quite high at 62%. So maybe to obtain some statutory clearances because there are certain clarifications and confusions that if a promoter has more than 55% share holding he cannot go for the share buyback which fact has not been examined by the company, so they will be going for statutory clearances and then they will reopen their buying programme of buying from the market."

 

"But I don't give much weightage to the buyback by the company because that will translate to a reduction of equity by 2% and purely going on the fundamental basis as I said in FY07 the company should be able to post an EPS of close to Rs 15 and the share is available to you at a PE multiple of 8. The future growth of the company is quite interesting which can get unlocked or which can get reflected in the next two years working. Those who have a little longer horizon can buy this share at Rs 115 for reasonably good returns."

 

Disclosure: My clients and me have interest in the above stock.