Buy This Midcap Pharma Stock, Reported 67% Revenue Growth In H1FY23, Shares Likely To Surge: Geojit

Leading brokerage firm Geojit is bullish on Natco Pharma Limited (NATCO), Suggests buy. The brokerage has estimated a target price of Rs 704 apiece for the stock of the company. If you buy the stock at the Current Market Price (CMP) you will likely get a potential upside of 24% in 12 months.

NATCO is an India-based vertically integrated and R&D-focused enterprise, engaged in developing, manufacturing and marketing finished dosage formulations and active pharmaceutical ingredients and intermediates. Natco witnessed 67% revenue growth in H1FY23, owing to robust Revlimid sales. Natco Pharma is a mid-cap pharmaceuticals company having a market capitalization of Rs 10,370.16 crore.

Stock Outlook & Returns

The stock of Natco Pharma last traded on NSE at Rs 568.05. It is trading 4.23% up from its 52 week low. It has recently hit the fresh 52 week low at Rs 545 on 14 November 2022. The 52 week high of the stock was recorded on 17 January 2022 at Rs 944. 

The stock has continuously given negative returns over the past 5 years. In a week it has given 2.39% negative returns, 7.48% negative returns in 1 month, and 5.62% negative returns in 3 months, respectively. In 1 year, it has given 34.31% negative returns, 2.12% negative returns in 3 years and 39.01% negative returns in the past 5 years, respectively. 

Revenue effected by price erosion in the US

An uptick in export formulation, led by Revlimid sales, delivered strong growth of 67% in H1FY23 revenues, with an EBITDA growth of 172%. However, lower contribution in Q2FY23 resulted in a 51% QoQ de-growth of revenues. Export formulations grew 49% YoY while API and domestic formulation businesses degrew 42% and 6% respectively. EBITDA was reported at Rs. 95 cr (up 32% YoY, -76% QoQ) which was mainly driven by the base business. Additionally, EBITDA margins expanded 340bps YoY. Adj. PAT was registered at Rs. 58.6cr.

Growth going ahead...

Although the profit share associated with Lenalidomide product in the US was minimal during the past quarter, it is expected to gain traction by Q4FY23 and Q1FY24. In terms of growth of the domestic business, Natco plans an acquisition in order to fill the gaps in their portfolio. Strong orderbook and new launches in the Brazilian and Canadian subs will aid in continuous growth of the subsidiaries. The launch of Apixaban in Brazil and Canada has seen a rise in profit shares from the subs. The launch of CTPR in the Crop Health Science Division is expected to drive earnings in the future quarters. 50-60% of the revenue is expected to come from B2B. In the pharma specialty space, Natco aims to strengthen the product range through launch of anti-infective therapy molecules.

Crop Sciences to drive earnings

In the agro-chemical business front, revenue from Crop Heath Sciences grew 100% to Rs.1 cr. The onset of the Rabi and Kharif season bodes well for the agro business, and is expected to drive sales in the near-term. The management has indicated addition of field force during these seasons to enhance sales.

Outlook and valuation

Brokerage commenting on the valuation said, "We expect Natco's revenue and operating performance to improve on the back of a strong agro sales, focus on US front end business, increased R&D and new launches of niche molecules with high entry barriers. The sale of Revlimid and CTPR promises strong growth in terms of revenue and profitability in the nearterm. Hence, we upgrade to a Buy rating with a target price of Rs.704 based on 16x FY24E EPS."

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.