Shares of Natco Pharma Ltd have experienced a four-day rally, increasing by 26 percent. This surge is attributed to the significant rise in consolidated profit, which reached Rs 212.70 crore in the December quarter compared to Rs 62.30 crore in the same quarter the previous year. Additionally, total revenue has jumped from Rs 513.30 crore to Rs 795.60 crore year-on-year (YoY). The Ebitda margin for the quarter has also expanded to 38.4 percent from 24.7 percent YoY.
Nuvama Institutional Equities has stated that Natco Pharma’s Q3 results exceeded consensus estimates on both revenue and Ebitda fronts. Revenue beat estimates by 33 percent, while Ebitda beat estimates by 84 percent. This outstanding performance is credited to higher gRevlimid share and improvements in the RoW market. Natco Pharma’s stock rose by 18.18 percent to reach a high of Rs 1,048.15 on the Bombay Stock Exchange (BSE).
Nuvama explains that Natco Pharma’s focus on complex opportunities has led to a significant gRevlimid opportunity and a robust US pipeline, featuring drugs like olaparib, erdafitinib, and semaglutide. The company’s subsidiaries have also contributed to growth in the RoW markets. A strong balance sheet provides Natco Pharma with opportunities for inorganic growth and investments in innovation such as CAR-T. Although Q3FY24 showed soft performance in the Indian and Agrochem markets, a pickup is expected in the coming year.
Due to the positive results, Nuvama has raised its FY24E and FY25 EPS estimates for Natco Pharma by 21 percent and 12 percent, respectively. These upgrades take into account the revenue beat, the higher gRevlimid share, and lower taxes. Nuvama believes that the gRevlimid opportunity for Natco Pharma is exceeding expectations and will continue to do so until January 2026 as the company gears up to supply higher volumes.
Nuvama highlights a robust US pipeline for Natco Pharma beyond FY25, featuring First-to-File (FTF) products such as olaparib, semaglutide, and erdafitinib. In addition, other drugs like gLonsurf, Yondelis, Calquence, and gKyprolis are expected to contribute to future growth. The growth engines of RoW markets and subsidiaries have already begun contributing to the company’s expansion.
Although there is a possibility of adverse action on the Kothur plant and risks related to pipeline monetization, Nuvama anticipates limited impact on their estimates. Natco Pharma is pursuing complex opportunities, such as CAR-T therapy in India, semaglutide, and olaparib, with the cash generated from gRevlimid. This long-term strategy is expected to improve the company’s outlook.
Nuvama values Natco Pharma using a Sum of the Parts (SoTP) method, assigning a multiple of 25x to the base business’s Q3FY26E EPS, resulting in a value of Rs 483 per share. The value of gRevlimid is estimated at INR380 per share, while other P-4 opportunities are valued at Rs 194 per share. Nuvama maintains a “BUY/SO” rating with a target price of Rs 1,055 (previously Rs 980).
