Hold Natco Pharma; target of Rs 660: ICICI Direct

ICICI Direct's research report on Natco Pharma

Natco has, over the years, developed a knack for manufacturing complex generic products with few competitors, especially for the US market. India formulations mainly comprise oncology products (39 brands). For the US, it follows partnership products for risky launches and acquired Dash Pharma for front-end presence. It has six FDF, two API manufacturing facilities and two crop health sciences units • Maiden entry into crop protection was via launch of pheromone product, Natmate PBW for controlling pink bollworm in cotton • FY22 revenue break-up - domestic business: 25%, international business: 62% (mainly from the US), APIs: 13%.

Outlook

We maintain HOLD rating on the stock due to 1) impending competition in gRevlimid in US and other complex products, 2) high risk-reward play in crop protection with possible new entrants and 3) stagnancy in domestic formulations, especially oncology (yet to finalise inorganic target). Valued at Rs 660 (base business at Rs 556 with 12x P/E on FY24E EPS of Rs 46.3 + Rs 104 NPV for gRevlimid).