Natco Pharma is a Hyderabad based pharma company with focus on limited
competition and high margin products. It has presence in domestic and global
markets and has two main business segments i.e. API and Formulations. Natco’s topline and bottomline is set to grow at 36%
and 61% CAGR over FY16-FY19E due to 1) strong performance of domestic
formulations and 2) monetization of high value ANDAs. The stock at the CMP of
Rs769 is trading at P/E of 21.2x of FY2019E EPS of Rs37. This is 15% discount to its
3 year average P/E multiple of 26x. We initiate coverage on Natco Pharma with
buy rating and SOTP value of Rs926 (Rs890 base on 24xFY19E EPS + Revlimid
NPV at Rs37. ) implying 18% upside from current level.
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