RISK MANAGEMENT (TYBFM)

Financial Analysis Project

KRISHI SHAH

Roll no: 43

March 2022

Natco Pharma Ltd.

 Executive Summary

Natco Pharma Ltd. (NPL) is a midsized pharmaceutical company with a

presence across the pharma value chain. It owns eight manufacturing facilities
including six formulations facilities and two API facilities. The company also
has a US retail business. Natco is a leading domestic player in the oncology
space. NPL’s product pipeline consists of drugs, which are used for various
types of cancer like blood cancer, breast cancer, brain cancer, ovarian cancer,
lung cancer and prostate cancer. Currently, Natco is marketing 33 oncology
products in the Indian market (FY21). On the export front, Natco exports
products to US, Canada and Europe regions.

Natco has, over the years, developed a knack for manufacturing complex
generic products with few competitors, especially for the US market.

 India formulations mainly comprise oncology products (+33 launches). For

the US, it follows partnership products for risky launches. It has six FDF, two
API manufacturing facilities and two crop health sciences units
 FY21 revenue break-up - Domestic Business: 19%, International Business:
50% (mainly from the US), APIs: 24%

 Maiden entry into crop protection via launch of pheromone product, Natmate
PBW for controlling Pink Bollworm in cotton

 Introduction

NATCO Pharma Limited (NATCO) is a vertically integrated, research and

development focused pharmaceutical company engaged in developing,
manufacturing, and marketing complex products for niche therapeutic areas. 

NATCO has established its presence in all three business segments viz. finished
dosage formulations (“FDF”), active pharmaceutical ingredients (“APIs”),
Contract Manufacturing Business.

 Company Profile
Type : Public
Industry: Pharmaceuticals
Founded :1981
Founder: VC Nannapaneni
Headquarters: Hyderabad, Telangana, India
Area served: Global
Key people: VC Nannapaneni (Chairman and MD)
Rajeev Nannapaneni (CEO and Vice Chairman)
Revenue: ₹2,155 crore (US$290 million) (FY2021)
Registered office
Natco House, Road No 2 Banjara Hills,Hyderabad,Telangana-500033
Ph: 91-040-23547532
E-mail: investors@natcopharma.co.in
URL: http://www.natcopharma.co.in

NATCO Pharma Ltd was incorporated in Hyderabad in 1981 with an

initial investment of about US$ 54,954. With a modest beginning of
operations as a single unit with 20 employees, NATCO today has five
manufacturing facilities spread across India with dedicated modern
research laboratories, capabilities in new drug development, etc.
NATCO currently consists of more than 2,500 employees, and is
consistently ranked among the fastest growing pharmaceutical
companies in India. It is well recognised for its innovation in
pharmaceutical research and development (R&D). NATCO is
utilising its collective professional experience to kickstart its
transformation into a major player in the global pharmaceutical
industry. NATCO has at present, 66 Indian and international granted
patents. Furthermore, it has filed for 41 Indian and 85 international
applications.
In addition, NATCO also exports its finished products to countries in
North America, Europe, South America, Middle East and Southeast
Asia.

 Industry Profile

Introduction

India is the largest provider of generic drugs globally. Indian pharmaceutical

sector supplies over 50% of global demand for various vaccines, 40% of generic
demand in the US and 25% of all medicine in the UK. Globally, India ranks 3rd
in terms of pharmaceutical production by volume and 14th by value. The
domestic pharmaceutical industry includes a network of 3,000 drug companies
and ~10,500 manufacturing units.

India enjoys an important position in the global pharmaceuticals sector. The

country also has a large pool of scientists and engineers with a potential to steer
the industry ahead to greater heights. Presently, over 80% of the antiretroviral
drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome)
are supplied by Indian pharmaceutical firms.

Market Size

According to the Indian Economic Survey 2021, the domestic market is

expected to grow 3x in the next decade. India’s domestic pharmaceutical market
is estimated at US$ 42 billion in 2021 and likely to reach US$ 65 billion by
2024 and further expand to reach ~US$ 120-130 billion by 2030.

India's biotechnology industry comprises biopharmaceuticals, bio-services, bio-

agriculture, bio-industry, and bioinformatics. The Indian biotechnology industry
was valued at US$ 64 billion in 2019 and is expected to reach US$ 150 billion
by 2025.

India’s medical devices market stood at US$ 10.36 billion in FY20. The market
is expected to increase at a CAGR of 37% from 2020 to 2025 to reach US$ 50
billion.

As of August 2021, CARE Ratings expect India's pharmaceutical business to

develop at an annual rate of ~11% over the next two years to reach more than
US$ 60 billion in value.

In the global pharmaceuticals sector, India is a significant and rising player.

India is the world's largest supplier of generic medications, accounting for 20%
of the worldwide supply by volume and supplying about 60% of the global
vaccination demand. The Indian pharmaceutical sector is worth US$ 42 billion
and ranks 3rd in terms of volume and 13th in terms of value worldwide.

In August 2021, the Indian pharmaceutical market increased at 17.7% annually,

up from 13.7% in July 2020. According to India Ratings & Research, the Indian
pharmaceutical market revenue is expected to be over 12% Y-o-Y in FY22.

Exports

India’s drugs and pharmaceuticals exports stood at US$ 24.44 billion in FY21.
India is the 12th largest exporter of medical goods in the world. The country’s
pharmaceutical sector contributes 6.6% to the total merchandise exports. As of
May 2021, India supplied a total of 586.4 lakh COVID-19 vaccines, comprising
grants (81.3 lakh), commercial exports (339.7 lakh) and exports under the
COVAX platform (165.5 lakh), to 71 countries. Indian drugs are exported to
more than 200 countries in the world, with US being the key market. Generic
drugs account for 20% of the global export in terms of volume, making the
country the largest provider of generic medicines globally. India’s drugs and
pharmaceuticals exports stood at US$ 3.76 billion between April 2021 and May
2021. The foreign direct investment (FDI) inflow in the Indian drugs and
pharmaceuticals sector stood at US$ 18.12 billion between April 2000 and June
2021. The foreign direct investment (FDI) inflows in the Indian drugs and
pharmaceuticals sector reached US$130 million between April 2021 and June
2021. In FY21, North America was the largest market for India’s pharma
exports with a 34% share and exports to the U.S., Canada and Mexico recorded
a growth of 12.6%, 30% and 21.4%, respectively.

 Financial Analysis
RATIO NATCO PEER #1 PEER #2
ANALYSIS PHARMA AJANTA ALEMBIC
PHARMA PHARMECEUTICALS
 I. LIQUIDTY RATIO
CURRENT 3.84 4.11 1.49
RATIO
QUICK RATIO 2.45 2.71 0.67
Interpretation
 CURRENT RATIO
The current ratio for NATCO PHARMA is 3.84x, for AJANTA PHARMA
its 4.11x and for ALEMBIC PHARMECEUTICALS its 1.49x. Compared
to its peers Natco pharma ltd, has a strong current ratio as in the short
term it has only Rs 3.84 of current assets for every Re.1 held in
liabilities.
 QUICK RATIO
The quick ratio for NATCO PHARMA is 2.45x, for AJANTA PHARMA
its 2.71x and for ALEMBIC PHARMECEUTICALS it is 0.67x. A ratio
below 1x suggests lower liquidity on cash basis for clearing liabilities.
Clearly Natco Pharma & Ajanta Pharma has enough quick assets to
clear liability.
II. EFFICIENCY ANALYSIS
INVENTORY 0.84 1.09 1.03
TURNOVER
DAYS SALES IN
TURNOVER
RECEIVABLE
TURNOVER
AVERAGE
COLLECTION
PERIOD
OPERATING
CYCLE
PAYABLE
TURNOVER
AVERAGE
PAYABLE
PERIOD
CASH
CONVERSION
CYCLE

Conclusion
Exports of formulations - Complex Generics (51% of sales)
Differentiated approach of manufacturing hard-to-make complex generic drugs
including Para IV filings and FTF opportunities
US formulations have grown from 113 Cr in FY16 to 783 Cr in FY20 on the
back of complex generic launches of drugs like copaxone, tamiflu, doxil and
fosrenol.
Have a very rich pipeline of Para IV filings in US with large contributions
expected from drugs like Revlimid ($8bn market size; to be launched in FY23),
Imbruvica ($4bn market size; currently under litigation), and Pomalyst ($1.4bn
market size; expected launch in 2025).
Other International markets mainly comprise sales in Canada and
Brazil.  Canada sales has grown from 74 Cr in FY18 to 128 Cr in FY20, and
Brazil sales has grown to 39 Cr in FY20.
India - Specialty business (27% of sales)
Oncology business has grown from 124 Cr in FY11 to 308 Cr in FY20. COVID
has affected this business adversely as patients avoided visiting hospitals with
fears of contracting COVID. 
Sales of HepC drugs peaked in FY17 at 513 Cr and has since reduced to 117 Cr
in FY20 as treatment of HepC leads to a complete cure of disease hence
reducing overall patient pool. 
Cardiology & diabetology is expected to be a key growth driver with FY20
sales of 45 Cr 
MR count of 350
API business (18% of sales) 
Has grown from 163 Cr in FY16 to 355 Cr in FY20
Foray into Crop health
Use expertise in organic chemistry to foray into agrochemicals, with a focus on
a unique set of molecules such as Chlorantraniliprole to be launched first in
India and then globally. 
RATIO NATCO AJANTA ALEMBIC
ANALYSIS PHARMA PHARMA PHARMECEUTICALS
CURRENT 3.84
RATIO
QUICK 2.45
RATIO
INVENTORY 2.15
TURNOVER
DAYS SALES 140.07
IN
TURNOVER
RECEIVABLE 3.6
TURNOVER
AVERAGE
COLLECTIO
N PERIOD
OPERATING
CYCLE
PAYABLE
TURNOVER
AVERAGE
PAYABLE
PERIOD
CASH
CONVERSION
CYCLE
DEBT-TO-
TOTAL-
ASSETS
RATIO
DEBT-TO- 0.09
EQUITY
RATIO
TIME– 44.57
INTERSTED -
EARNING
OPERATING 20.9
MARGIN
NET MARGIN 17.2
RETURN ON 6.59
ASSETS
RETURN ON 7.82
EQYITY
RETURN ON 7.58
INVESTED
CAPITAL
DIVIDEND 30.96
PAYOUT
RATIO
DIVIDEND 0.63
YIELD
PRICE 59.69
EARNING
MULTIPLE
PRICE BOOK 3.61
VALUE
MUTIPLE