| Recommended Price | Rs. 1,201 |
|---|---|
| Target (Rs) | Rs. 1,392 |
| Upside | 16% |
| Holding period | 1 Year |
Natco Pharma is a major player in making and marketing finished dosage formulations (FDFs), backed by strong production of active pharmaceutical ingredients (APIs). The company operates in pharmaceuticals and agrochemicals. In FY24, domestic formulations made up about 10% of sales, export formulations 78%, APIs 8%, and crop health sciences 4%. They serve markets in the U.S., Europe, Brazil, Canada, and the Philippines. The API business supports both internal needs and direct sales, while the Crop Health Sciences division is set to grow with new high-value products. Natco Pharma runs five formulation facilities and two API manufacturing units in India, with dedicated R&D centres focusing on cancer, cardiology, and diabetology. This strong drug pipeline suggests promising business growth.
Investment Rationale
Complex and niche pharma play, with tailwinds to accelerate growth ahead
Natco Pharma reported strong annual performance, mainly due to gains from international formulations and a one-time tender benefit. The management is optimistic about continued growth from Revlimid sales in new markets. Natco plans to focus on niche, high-potential molecules and invest in complex generics, drug delivery systems, and oligopeptides. The company is also filing for differentiated products in the U.S., with 24 Para IV applications, 15 of which are approved. Future growth will be driven by new opportunities with Semaglutide and Olaparib beyond FY26. Additionally, Natco is exploring geographical expansion, niche product filings, and potential acquisitions to ensure sustained growth.
Easing pricing pressure and new product launches to aid agrochemical business in the coming years
Natco Pharma plans to launch several new products in its agrochemical business over the next three years, aiming to triple its revenue to Rs. 300-400 crores. The company is building its brand with farmers in key states like Maharashtra, Andhra Pradesh, and Telangana through targeted advertising. Once raw material prices stabilise and the brand is well-established, Natco will explore export opportunities. Despite a recent setback with a Rs. 30 crore provision due to underutilised capabilities, Natco expects its domestic business revenue to recover from Q1FY25 with new product launches. The company remains optimistic about the agrochemical segment’s growth potential despite past challenges.
Valuation and Outlook
Natco Pharma, an India-based company, develops, manufactures, and markets FDFs, APIs, and intermediates, focusing on oncology and non-oncology products in India. In the U.S., they target complex patented products soon to go off-patent and have acquired Dash Pharma to establish a front-end presence. They have also entered the crop protection segment. Natco recorded its highest-ever consolidated revenue and profits in FY24. The company aims for consistent growth by focusing on niche, high-potential molecules, new agro brands, and price stabilisation in the U.S. Management expects 15-20% topline growth for FY25. We believe Natco’s revenue and performance will improve due to the strong launch of gRevlimid, expansion in agrochemicals, a robust U.S. pipeline, and potential acquisitions. We rate the stock a “Buy,” valuing the company at 14 times FY24 earnings, targeting a price of INR 1,392 (16% upside) within 12 months.
