Natco Pharma seeks next level of growth

Funds raised will be used to scale up capacities; base business growing well, launches lined up

Natco Pharma plans to raise about Rs 350 crore from qualified institutional buyers at Rs 2,130 a share. The proceeds are to be used for a formulation facility coming at Visakhapatnam, expansions at the tablet manufacturing facility, and API (active pharmaceutical ingredient) facilities. The funds may also be used to pay a part of its debt, according to Natco’s company secretary M Adinarayana. The strategy is to raise funds without stretching the balance sheet, therefore, the equity route. While there will be a 2.5 per cent equity dilution, the expansions will aid growth, therefore, stock prices have remained stable after the announcement on September 18. The stock closed at Rs 2,280 on Wednesday.

The company has been growing 21 per cent annually over the past seven years. Not only revenues, but margins too have expanded from 10 per cent to about 24 per cent during the period. The company now is a dominant firm and enjoys decent market share in generic oncology space in the domestic market and has a strong pipeline of niche products in the US, as it builds a strong portfolio. This is keeping analysts and the Street positive on the company.

Sumit Singhania at Nirmal Bang Institutional Equities says the research house is more excited about Natco’s strong US drug pipeline and does not see any risk to its earnings over four to five years. Singhania continues to remain optimistic on the company’s research and development-driven US drug pipeline and believes it has enough levers to keep growth momentum intact over the medium term, even beyond multiple sclerosis drug Copaxone. The Street is awaiting the launch of the generic equivalent of Teva’s multi-billion dollar drug, Copaxone. Though Sandoz has been the first to launch the generic version of the drug, analysts believe Natco can still grab a good chunk of the market share if it becomes the second generic firm to receive US approval and launches at a significant discount. There are other products lined up that can drive earnings. Analysts at Antique Stock Broking say US sales are set to see massive growth with the launch of high-value products like Copaxone, Tamiflu, Nuvigil, Entocort EC, Vidaza, Tracleer and Prevacid OTC. They feel Copaxone and Tamiflu will add Rs 62 to FY17 earnings per share. In India, apart from the oncology portfolio, hepatitis C drug Sovaldi is boosting sales. Having clocked Rs 37 crore in the first quarter, the drug is likely to contribute more than Rs 150 crore to FY16 revenues.