IDirect_NatcoPharma

7/29/2019 IDirect_NatcoPharma

1/5

July 29, 2013

ICICI Securities Ltd|Retail Equity Research

Event Update

WHATS CHANGED

PRICE TARGET ....................................................................... Changed from | 492 to | 716

EPS (FY14E) ........................................................................................................ Unchanged

EPS (FY15E) ......................................................................... Changed from | 39.3 to | 60.9

RATING....................................................................................... Changed from Hold to Buy

Huge opportunity beckons with CopaxoneIn a significant boost to Natco, the US Court of Appeals for the FederalCircuit has ruled in favour of the company, reversing a district courtsfinding related to Tevas US patent for Copaxone (Glatiramer Acetate).

This means Natco can launch the generic version Copaxone through itsmarketing partner Mylan Inc during May 2014 subject to USFDA approval.Copaxone (Glatiramer Acetate) is used in the treatment of relapsing-remitting multiple sclerosis. Tevas latest report has indicated US sales forCopaxone for the June quarter were US$806 million. Teva has vowed topursue the case by challenging the verdict in the Supreme Court.

Note that Natco had lost the patent litigation case against Teva in a USdistrict court regarding Copaxone. Natco has assigned distribution rightsto Mylan. The court had rejected both Momenta/Sandoz andMylan/Natcos claims that Copaxone patents were invalid. The productpatent expiry in the US market as per the orange book is on May 24,2014. Teva had maintained at that point of time that generic players may

be unable to launch the drug before the expiry of the process patent,which expires on September 1, 2015.

We have built up three scenarios to capture the potential sales based onthe following assumptions (base case) - (1) Natco will generate at least35% from Mylan sales, (2) 20% market share for Mylans genericGlatiramer Acetate and (3) 75% price erosion post patent expiry.Exhibit 1:Assumption

Bear Base Bull

Copaxone Sales in USD Million 3000 3000 3000

Price Erosion 90% 75% 60%

Market Size in US$ Million 300 750 1200

Projected Market share for Mylan 20% 20% 20%Mylan sales projected 60 150 240

Assumed Cost to Mylan 35% 35% 35%

Natco Sales 21 52.5 84

US$ to INR @ 58 121.8 304.5 487.2

Revenues (| crore) 931.5 1,114.2 1,296.9

EBITDA (| crore) 223.6 284.1 350.2

Profit (| crore) 143.6 191.2 243.1

EPS (|) 45.8 60.9 77.5

Number of share (in crore) 3.137 3.137 3.137

Base business value per share @ 11x in | 503.4 670.3 852.3

FTF oppertunities (|) 46 46 46

Target Price (|) 549 716 898 Source: ICICIdirect.com Research

Natco Pharma (NATPHA)

| 590

ting matrix

ing : Buy

get : | 716

get Period : 12 months

ential Upside : 21%

y Financials

crore) FY12 FY13 FY14E FY15E

venues 520.1 664.7 749.0 1114.2

ITDA 105.7 149.9 172.4 284.1

t Profit 59.6 72.6 100.2 191.2

luation Summary

FY12 FY13 FY14E FY15E

S (|) 19.0 23.1 31.9 60.9

(x) 28.6 23.5 17.0 8.9

rget PE(x) 35.3 29.0 21.0 11.0

to EBITDA (x) 19.6 14.4 12.2 7.0

ce to book (x) 3.9 3.5 3.0 2.3

NW (%) 12.7 13.6 16.2 24.2

CE (%) 12.3 14.7 15.8 24.2

ock data

arket Capitalisation

bt (FY13E)

sh (FY13E)

week H/L 505/330

uity capital | 31.4 crore

ce value | 10

F Holding (%) 12.6

Holding (%) 8.2

| 1851 crore

| 324 crore

| 13 crore

| 2162 crore

ce movement

200

300

400

500

600

Jul-13May-13Feb-13Nov-12Aug-12

4,500

5,000

5,500

6,000

6,500

Price (R.H.S) Nifty (L.H.S)

alysts name

iddhant Khandekar

[email protected]

rishna Kiran Konduri

[email protected] Thakkar

[email protected]


2/5

ICICI Securities Ltd|Retail Equity Research Page 2

Risk factors- 1) Both Mylan and Natco are yet to get USFDA approval. 2)Teva is going to challenge the verdict in higher courts. 3) Of late,Copaxone is losing market share in the immuno-modulators segment ofthe multiple sclerosis category (Biogens Tecfidera is emerging as apotential competitor).


3/5


Company Description

Natco Pharma (NPL) is a mid-sized pharmaceutical company with a

presence in active pharmaceutical ingredients (APIs), formulations,

contract research & manufacturing services business (CRAMS) and US

retail business. It owns six manufacturing facilities including four

formulation facilities and two API facilities. NPL is a leading domestic

player in the oncology space. The company derives ~50% of sales from

the oncology business, which is grouped in various sub-categories. For

overseas markets, NPL has built up a large base of strategic alliances with

international companies. The company has partnered with leading global

pharmaceutical and generic companies like Mylan Inc, Watson, Actavis,

Breckinridge Pharmaceuticals, Alvogen and Lupin in various jurisdictions,

including the US.

Exhibit 2:Recommendation History

150

200

250

300

350

400

450

500

550

600

650

Jul-13Jun-13May-13Mar-13Feb-13Dec-12Nov-12Sep-12Aug-12

Price Target Price

[

Source: Company, ICICIdirect.com Research

Exhibit 3:Recent ReleasesDate Event CMP Target Price Rating

8-Oct-12 Q2FY13 Preview 380 378 HOLD

12-Nov-12 Q2FY13 Result Update 404 452 BUY

8-Jan-13 Q3FY13 Preview 455 452 HOLD

18-Feb-13 Q3FY13 Result Update 435 473 BUY

9-Apr-13 Q4FY13 Preview 445 473 HOLD

3-Jun-13 Q4FY13 Result Update 442 492 BUY

5-Jul-13 Q1FY14 Preview 461 492 HOLD

Source: Company, ICICIdirect.com Research


4/5


ICICIdirect.com coverage universe (Healthcare)I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E

Apollo Hospitals APOHOS 957 963 HOLD 13,226 21.9 24.0 31.6 43.8 40.0 30.3 22.6 18.8 14.8 11.7 13.5 17.2 11.1 11.3 13.4

Aurobindo Pharma AURPHA 178 200 BUY 5,236 10.1 22.5 26.4 17.6 7.9 6.7 9.5 6.8 5.6 10.6 14.3 16.8 11.3 20.5 19.8

Biocon BIOCON 331 315 HOLD 6,434 25.4 20.3 24.3 13.0 16.3 13.6 11.2 9.1 7.6 13.6 16.4 17.5 18.9 13.7 14.8

Cadila Healthcare CADHEA 734 976 BUY 15,151 32.0 43.9 57.4 22.9 16.7 12.8 14.3 11.3 8.9 19.2 20.8 24.4 24.6 27.7 29.3

Divi's Laboratories DIVLAB 962 1191 BUY 12,592 46.1 52.6 62.7 20.9 18.3 15.4 14.8 12.3 10.1 26.3 27.2 28.7 23.4 23.0 23.6

Glenmark Pharma GLEPHA 587 603 HOLD 16,104 22.7 25.8 33.5 25.9 22.7 17.5 18.0 15.3 12.3 19.3 22.3 25.5 22.5 22.7 24.1

Indoco Remedies INDREM 63 74 BUY 583 4.6 7.8 9.3 13.6 8.1 6.7 7.5 5.9 4.9 13.3 15.5 16.5 10.3 14.9 15.5

Ipca Laboratories IPCLAB 645 621 HOLD 8,082 25.6 35.7 44.3 25.1 18.1 14.5 13.9 12.1 9.7 24.7 24.7 26.2 20.8 23.1 23.0

Jubilant Life Sciences VAMORG 89 162 BUY 1,444 9.6 17.2 37.6 9.3 5.2 2.4 4.7 4.1 3.0 12.3 13.9 16.7 6.1 10.2 18.7

Lupin LUPIN 856 833 HOLD 38,335 29.4 34.5 41.7 29.1 24.8 20.5 17.3 14.7 12.2 30.9 32.7 33.3 25.8 25.1 24.5

Natco Pharma NATPHA 590 716 BUY 1,851 23.1 31.9 60.9 23.2 16.8 8.8 14.4 12.2 7.0 14.7 15.8 24.2 13.6 16.2 24.2

Opto Circuits OPTCIR 25 NA UR 633 15.7 NA NA 2.0 NA NA 3.8 NA NA 14.2 NA NA 19.9 NA NA

Strides Arcolab STRARC 695 NA UR 4,235 44.4 NA NA 15.6 NA NA 10.2 NA NA 12.2 NA NA 43.5 NA NA

Sun Pharma SUNPHA 569 488 HOLD 115,868 29.0 13.5 42.5 19.6 42.1 13.4 22.3 20.6 17.8 34.3 35.3 32.4 21.3 9.7 24.4

Torrent Pharma TORPHA 421 466 BUY 6,956 25.6 30.7 33.3 16.5 13.7 12.7 10.1 8.7 7.5 28.8 28.4 29.0 30.4 30.2 27.5Unichem Laboratories UNILAB 166 200 BUY 1,474 12.5 18.8 16.7 13.3 8.8 10.0 8.5 7.4 6.1 18.0 17.7 19.4 15.6 20.2 16.1

RoNW (%)

Company

EPS (|) PE(x) EV/EBITDA (x) RoCE (%)


5/5


CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assignsratings to its stocks according to their notional target price vs. current market price and then categorises themas Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notionalarget price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;Buy: >10%/15% for large caps/midcaps, respectively;Hold: Up to +/-10%;Sell: -10% or more;

Pankaj Pandey Head Research [email protected] Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)Mumbai 400 093

[email protected]

We /I, Siddhant Khandekar CA INTER Krishna Kiran Konduri MBA FINANCE Darpan Thakkar DARPAN THAKKAR MBA FINANCEresearch analysts, authors and the names subscribed to this report, hereby

ertify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensationwas, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person ofhe ICICI Securities Inc.

CICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leadingnderwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage ofompanies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securitiesenerally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analystsover.

he information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential andmeant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

rior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors andmployees (ICICI Securities and affiliates) a re under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securitiesrom doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securitiesolicies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

his report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. Thiseport and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financialnstruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of theireceiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specificircumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investmentbjectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate

he investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for anyoss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand thesks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject tohange without notice.

CICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have receivedompensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment

anking or other advisory services in a merger or specific transaction. It is confirmed that Siddhant Khandekar CA INTER Krishna Kiran Konduri MBA FINANCE Darpan Thakkar MBA FINANCEDarpan

Thakkarresearch analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals areaid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business.

CICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of theesearch report.

is confirmed thatSiddhant Khandekar CA INTER Krishna Kiran Konduri MBA FINANCE Darpan Thakkar MBA FINANCEresearch analysts and the authors of this report or any of their family members doesot serve as an officer, director or advisory board member of the companies mentioned in the report.

CICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make usef information contained in the report prior to the publication thereof.

his report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,ublication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securitiesescribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and

o observe such restriction.

Documents

IDirect_NatcoPharma