¾ Natco Pharma is a mid-cap pharma company with niche US pipeline and a robust oncology and hepatisis C portfolio in the domestic formulations market. Strong R&D capabilities and focus on creating a niche product portfolio sets Natco apart from its peers. Over FY11-15, It has posted 15%/23.5% CAGR in Rev/PAT driven by steady domestic formulations growth (15.5% CAGR) and 49% CAGR in US revenues. For the coming years we expect both US and domestic formulations to further lead the growth and enable the company in posting 50% CAGR in revenues and 64% CAGR in PAT over FY15-18E. Adjusted for limited competition opportunities like gTamiflu and gCopaxone, we expect PAT to grow at 46.5% CAGR over FY15-18E. We have conservatively assumed gCopaxone 20mg launch in 4QFY17 due to no clarity on launch timelines. We are valuing the company at 22x FY17E Core EPS (ex-Tamiflu and Copaxone) of Rs 18.4 and adding NPV of Rs 159 for limited competitions/FTFs. Recommend BUY with a target price of Rs 563, an upside of 17%.
¾ Key Risk - Delay in approvals, Compliance issues
Company Update: Siemens India Ltd
¾ Siemens India board has approved the sale and transfer of its healthcare business to a subsidiary of its parent Siemens, AG for a consideration of Rs 30.5 Bn (2x FY15 reported sales in healthcare business). We believe that the valuation is fair and the transaction would be value accretive in future.
¾ We value Siemens India at 38 x FY17 earnings (37x earlier) to factor in 1) enriched balance sheet from the healthcare transaction and 2) potential margin expansion from improved focus on company's core business. We arrive at a target price of Rs 1130 (Rs 1095 earlier) and maintain'ACCUMULATE' rating (buy on declines) on company's stock.
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