Buy Natco Pharma; target of Rs 950: Edelweiss

Edelweiss' research report on Natco Pharma

Q2FY18 revenue dipped 9%YoY/4%QoQ. Key highlights: 1) oncology business (24% of sales) grew 26% YoY; 2) non-onco (24% of sales) declined 15% YoY on price erosion in Hep-C & cannibalisation from Velpanat; (3) export formulation (32% of sales) declined 9% YoY as the base included INR999mn from gTamiflu. Profitability improved by 620bps YoY on a base that included costs, but not profit share from gTamiflu.

Outlook

We expect growth in the base business to sustain and keep valuations buoyant. FDA compliance risks are significantly mitigated post recent EIRs and approvals. We maintain ‘BUY/SO’ recommendation/rating with TP of INR 950 (20x FY19E EPS).