Natco Pharma

At 195, Natco Trades At A P/E Multiple Of 11.5 Against Industry's 23

 

THE stock of Hyderabad-based Natco Pharma has earned impressive returns over the past six months compared with the gains in broader market indices. This was on account of better performance of the company in the March 10 quarter.

   The stock has gained around 150% in the past one year compared with around 20% and 67% gain in the Sensex and ET Pharma Index, respectively.

   The stock saw a renewed investor interest at the beginning of this week, after the company announced the launch of the generic version of Anastrazole 1-mg tablet in the US market. The company plans to partner with pharma major Dr Reddy's to market the vital drug used in the treatment of breast cancer. Market size of the Anastrazole 1-mg tablet is around $750 million. However, when a drug goes off-patent, there is a substantial market size erosion due to the lower price offered for the same drug by several generic manufacturers. This is also applicable in the case of Anastrazole, since at least five other players would be competing with Natco for a pie of the US market.

   The Rs 440-crore pharma player manufactures a range of branded and generic dosage forms, bulk actives and intermediates for both Indian as well as international markets. It operates in bulk chemicals and finished dosage formulations. It offers manufacturing services to major companies, including Dr Reddy's, Ranbaxy and John Wyeth.

   In FY10, Natco improved its consolidated operating margin by selling off one of its low-margin US drug store businesses. Its consolidated sales, however, remained flat since revenue contribution from the drug store seized to exist.

   For FY11, the management has guided for a 12% growth in its consolidated sales. The company expects to retain its net margin at the current level of 11%. At the current market price of 195, Natco's stock is trading at a P/E multiple of 11.5 against the industry P/E of around 23.