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Wednesday, August 27, 2008

Natco Pharma:-Cheapest bet in the pharma sector

ScripScan:Natco Pharma Ltd
Cmp:74
Traded on:Nse-Bse

Story:Natco Pharma is engaged in manufacturing and marketing bulk drugs,formulations,contract manufacturing and retail pharmacy.Bulk drugs in its portfolio include Citalapram, Serfroline(anti-depressant),Sumatriptan succinate (anti-migraine),imatinib mesylate,gettinib and zoladronic acid (anti-cancer).In the domestic market it has significant presence in oncology (anti-cancer) formulations segment.Formulations include Veenot (blood cancer), Bortenat, Gettinat (lung cancer), Temonat (brain cancer),Zaldon(bone cancer),tetronat (breast cancer).Exports contributes a significant part of its turnover with almost entire bulk drug production is exported mainly to regulated markets of USA and Europe.Formulation sales are mainly in the domestic market.The company is engaged in contract manufacturing of formulations for domestic companies like Novartis, Glaxo,Ranbaxy, Sun Pharma and Dr. Reddy's Lab.The company is persuing strategy to de-risk the cost of filing ANDA. It has signed an agreement with Akorn under the terms of which it will supply API while Akorn will bear the cost of ANDA.Natco is planning big thrust in retail stores due to: it will help company to push its own formulations in U.S. Market, profit margin in retail stores is around 10%,acquisition cost for a retail store with revenues of USD 15-20 mn works out to hardly USD 2.75 -3.00mn.Company may acquire a total of 6-8 retail stores soon which ultimately will be merged with Natco.Subsequently, to unlock value for Natco, stake holders, retail division may come out with IPO.Company has a land bank of approx.350 acres around 40 Km. away from Hyderabad city (near New International Airport).Current market value of this land is approx. Rs. 320 crs. which works out to Rs. 110/- per share.Company is likely to set up an SEZ on this land which will provide huge revenues from 08-09 onwards.It may be noted that acquisition cost of this land is perhaps less than 20 crs.Stock is trading at 4.6 times its FY09E Earnings which is one of the lowest in pharma sector.CMP is less than value per share of its land bank which means investors are getting Natco for free (its pharma business). Once company launches SEZ, it will be a BIG Trigger for this scrip.Moreover, market value of this land bank can still rise significantly once New International Airport becomes operational.Natco Pharma is highly undervalued, least risky and extremely attractive buy.Investors can easily appreciate their money by 60-100% in next 12-15 months by buying Natco Pharma.


Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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