Natco reported results better than expected led by strong Hep-C portfolio. Branded Hep-C sales were up 22% q-o-q. Key US launches timeline remains on track led by Tamiflu. We expect this to drive 55% EPS CAGR over FY16-19E. Additionally, it has a pipeline to grow at 20% CAGR post FY18. The stock is not impacted by any of the near term headwinds for the sector and we retain buy.
Natco reported a good set of results with revenues inline with expectation and margins 200bps ahead of expectation. Profit after tax came 6% ahead of expectation.
The key driver in the results was the strong growth in India business, especially Hep-C branded portfolio. Natco branded Hep-C sales stood at R1,310 million, up 22% q-o-q. Oncology business grew 17% y-o-y. Hep-C third party sales though were weaker at R136 million as competitors have started their own manufacturing. The company saw small R36 million sales from Hep-C in exports market.
We believe Natco is on the verge of a breakout in its US business with key launches in the next 12 months. We expect this to drive FY16-19E EPS CAGR of 55%. Its ‘known’ product pipeline would drive 20%+ earnings growth even post FY19E, in our view, a rarity in Indian pharma. We believe it is one of the best positioned Indian generic players to face sector headwinds. At 22.7x FY18E P/E, Natco is trading at a premium to the sector.
We believe that the premium could sustain given the better near-term growth and stronger medium-term product pipe-line. Retain buy and PT of R730.