NATCO Pharma Limited (NATCOPHARM) Earnings Call Transcript & Summary

So let me answer one question at a time. So first, you said how much cash we have. We have about INR 3,000 crores net we have, but this is before the Adcock acquisition. So we spent, I think, INR 1,600 crores of the cash we have used for the Adcock acquisition, and we borrowed about INR 400 crores for the transaction. So of that INR 3,900 crores, INR 1,600 crores have been used up by the company plus there will be some receivables that we'll have in the next -- for this quarter, so -- for the announced quarter. So we expect the cash will be around maybe INR 2,728 crores is what we are expecting our cash will settle around, but we'll see how things go. So that's our expectation on the cash. Regarding semaglutide opportunity, I think it is an interesting opportunity. I think the FTF means that you will be the only one before everyone else. So it doesn't mean that you -- because of competition doesn't mean that you're not able to launch a product before everyone else. You can launch provided you get the FTF. This is all subject to regulatory approval and us getting the FTF. That's obviously being the most important thing here. So if we get it, then I think we're okay. So the opportunity still remains interesting. And even post exclusivity, it's such a large market, there will be a reasonable opportunity. That's my sense. I would disagree with you when you say that the opportunity doesn't exist. It is still a very good opportunity.

And my last question is that what do you think that you will be able to make up with the sale of semaglutide that you will be losing with the Revlimid sale, maybe in 3 to 4 years with the same margin or the margin will dilute...

See, I've already told what our margins are going to be in the next few quarters. So I think we already spoke about that, already there on the record. Regarding -- see, our business, the way it works is you have your base business, you have what you get. The trick in this business is that you keep doing something innovative all the time and then you get that jackpot, which can give you that something special. So we keep trying different things. I think we have a lot of FTFs that are there in the next 10 years. If you look at our pipeline, we have semaglutide, which is a few years away. We have ibrutinib, which is a few years away. We have olaparib, we have erdafitinib, and they'll play out over the next few years. I think what -- like '27 March, we don't have anything. But I think post '27 March, some of these smaller FTFs will start paying up. Will we -- when will we hit that very large number and it's all contingent on what pipeline we have and what we file and how we do things. So you just have to be patient and just look at the pipeline and somewhere we get a breakthrough.

And sir, one more question. Can I ask?

The base will grow around -- the base -- [indiscernible] I conclude. The base will grow around 10% to 15% every year, I think, with the new base that has been set. And then the upside is always there, depending on what product you got.

And sir, one more question, sorry. Sir, as the -- as Revlimid is now off patented, so can you be able to sell it on the regulated market and rest of the world market in the generic form also, at least it can give some traction to the bottom line because you have all the facilities and all. So aren't you looking for the generic product -- but you told that you have not provisioned for Revlimid sale in the quarter 3 and quarter 4.

But we get some sale. I'm not saying we'll not get any sale, but I'm not -- what I'm saying is that the sale will be driven by a very high amount of competition. So we are not giving a very aggressive guidance. That's all we said.

The next question is from the line of Hrishikesh from B&K Securities. Since Hrishikesh sir is not responding, we will move to the next question. The next question is from the line of Deepak Ajmera from IGE India.

[indiscernible] this side, instead of Deepak. So my question is regarding that -- what is the status of making Adcock Ingram from public limited companies to private Limited.

It's only private, Deepak. So what we have done is we have bought out all the public shareholdings. So right now, the company is completely delisted. So there are only 2 shareholders. It's Midwest and there's NATCO. So only 2 shareholders in the whole company. It's a private company right now.

Got it. And secondly, on the Revlimid side. So for Q3, we will get the sales. Is that the understanding correct that into Q3, we will get the sales into the previous quarter. And from Q4 onwards, the competition starts?

No, my friend. I think this is it, Q2 is the end. There's nothing in Q2. We don't expect anything. We have normal sale. I think what we have, we are present lenalidomide in multiple markets. We are expecting very heavy competition. So we're not budgeting any large budgets. I think it's very competitive. And I think depending on what market share we'll get, we'll see. But we don't expect any big numbers from -- it will be highly competitive numbers because we don't think it will be a very large number.

Got it. And on semaglutide side, so if all being well, when should we be able to launch the drug?

Is your question, if all is well, when we'll be able to launch the product in India you said or the U.S.

Correct. India, correct.

India. India, we expect in the first wave. I think our clinical trial will get done in December. So we hope to file for approval by December and early January. All the work is done. I think all the review is completed. So we're only waiting for the clinical trial to be reviewed and then they'll clear it. So we're hoping we'll be in the first wave in around March, April when the market opens up.

Okay. And what about U.S.?

U.S. will take some time. The launch is a few years away. And our regulatory file is still under review, and we're asking some queries, and the launch date is a few years away.

Got it. And we have recently won some court case into Delhi for a drug. So what kind of impact does it will create on our P&L?

It's a small product. I mean it has got a lot of attention because of the nature of this therapy. It is for spinal muscular atrophy, SMA. It affects young children who have a genetic defect. It's good that we have launched it. We are the only generic in the market right now. So we're doing extremely well with the product. But it's not a large market. It's not like semaglutide type of market, very small niche limited market, but we're doing well in that segment and gives us entry into the neurology segment.

The next question is from the line of Zain from Dolat Capital.

I would like to ask that you have said INR 200 crores to INR 250 crores PAT in H2, additional PAT will include Ingram -- Adcock Ingram or how will it come?

We are saying about -- yes, we're doing about INR 135 crores to INR 150 crores a quarter from Q3 onwards and partially in this quarter and fully in Q4. Yes, that includes Ingram. That's correct, yes.

Okay. So INR 250 crores will be including Ingram. And sir, for the upcoming payments...

I said INR 135 to -- once second, INR 135 to INR 150 crores per quarter. So it will be INR 270 crores to INR 300 crores for the second half of the year.

And upfront payment of [indiscernible] million will -- how will you pay [indiscernible], or it will go to intangibles and how would be the balance sheet, where it will be affected?

You mean the Adcock investment you're saying?

Yes, yes.

So basically, what happens is Adcock investment gets -- becomes investment in the balance sheet. So it will be long-term investment. It will go to noncurrent assets, I think if I know my accounting correctly. And then basically, what happens is there will be an element of book value, there's an element of what you call intangible, there will be an element of goodwill. So the -- some portion you need to sort of amortize, but most of it, I think, will remain as an investment. So the numbers are being worked out, but there will be some small element of amortization. But otherwise, yes, it will -- but the profits will be shown as associate, not as controlled because we don't own 51%.

Okay, sir. And any guidance you'd like to give -- yes, any guidance you'd like to give for FY '26 R&D or any filings from the U.S.

I think the number -- the guidance covers everything. So we have done INR 1,000 crores for the first half, and I'm giving guidance for about INR 275 crores to INR 300 crores for the second half. So we'll end the year with about INR 1,275 crores to INR 1,300 crores PAT. I think that's what we're giving guidance. I think it's more or less consistent with what we have given at the start of the year. I think we are on track to meet the guidance.

The next question is from the line of S.C. Gupta, an individual investor.

No, my question has been answered. I have no more questions.

The next question is from the line of Rahul, an individual investor.

Right from 2010, '12 to '17, our share price is [indiscernible], and you had started this challenging [indiscernible] the innovators. But don't you think right now, it's a crowded market with even the big Indian domestic pharma company is doing -- copying your playbook. I mean everyone is doing the same thing now, which we did earlier. So in the sense like why -- don't we have others to copy from...

So what's your question, Rahul? So you think it's a very competitive business, and you should not do it? Or what is your question?

My question is that why -- I mean, that like CDMOs, there are other spaces also, why aren't we expanding in other places where there are margins as well? Yes, I mean, isn't now -- we are not getting the premium by the market for a long time now for doing what we are doing, and we continue to do that. In fact, we are getting beaten [indiscernible] we are becoming rich, but only on...

I understood, let me answer your question. See, what does NATCO do? Let us understand this. NATCO does generics, okay? It does high-quality generics, complex generics, and it does it for India and does it for the world market. And this is the business model that we do. And have we been successful in this business? Absolutely, yes. I think you look at the balance sheet, even though last 7, 8 years has been very challenging, if you look at our balance sheet, we have grown dramatically. I think the strength of the balance sheet has been dramatic. We have -- our assets have increased went past INR 10,000 crores this quarter. So I mean, have we done well? Absolutely. And if you look at the buying of Adcock and all, these are very large transactions we did, which we couldn't have dreamed about 7, 8 years ago, since our size of our balance sheet then. So -- and we again have a very good pipeline in the future. Regarding CDMO businesses, it has been -- maybe challenge patents, you can't do CDMO. You can't play both sides. You can either do generics or you do CDMO. You can't do both. So you have to choose which camp you're in. And I believe that this is where our future is. This is where our strength is, and this is what we want to do. Regarding like market multiple fancy and all, that is -- it is left to you guys. Everybody has a fad and then it goes through a cycle. What really in the end sustains is the business execution and what your vision for the larger. And you have to just ignore the noise. I think we start looking at stock prices and P/E ratios and you're never able to execute anything. I mean I'm giving you a general philosophical thinking. And I've been very strong proponent of this. I think you cannot do business thinking about the next quarter. You should be thinking about what the future holds in the next 5, 10 years. This is what we focus on. In the long run, it always fails.

If I were to critique your Adcock investment, sir -- sir, if I were to critique your Adcock investment, which is basically doing the normal products, right, [Foreign Language], like all that stuff. Why didn't -- we are in India, why couldn't we buy a company here? I mean what is -- our population is also much higher than entire South Africa. And in fact, entire continent of Africa. So why are we not -- because you are specialists like in these complex generics, and we are from India. So why are we not doing -- expanding more here? What prevents us?

No, absolutely. I'll answer your question. I have a very reasonable answer for that question. So basically, in my sense -- again, this is my personal view, I know the world doesn't believe it, but it is what I believe. So I'll tell you what I believe. I believe assets in India are extremely expensive. You can't buy any acquisition in India unless you pay 30 to 40x EBITDA, any high-quality assets. Second, our assets buy like Adcock. You will get it -- we got it at a much -- we got it at 10x EBITDA, if I recollect correctly, 10 or 12x EBITDA. There is no comparison to the multiple that you have outside India and in India. India, everything is highly valued. And second thing is you need to look at return on capital, which is one of the most important criteria that drives my decision. And I believe you have a better return on -- that asset has to perform 4x better than -- just to meet my South Africa investment. You know what I mean, buying something 35x, 40x and buying something 10x, it has to perform 3x or 4x better just to match the return. So I believe these are better returns. And also, it is diversifying our business because, as you said, our business is very volatile because it's very U.S. dependent. So what I'm trying to do is bring stability and bring a business, cough and cold is something that we never had in our portfolio. So you have a very strong base business, which I get criticized a lot, right? So you don't have a very strong base business. Now -- you can't say that now because we do have a strong base business and South Africa will contribute 25% to 30% of our base earnings, which I think helps give you a more sustainable business and hopefully more stability in our earnings.

The next question is from the line of Alok Choudhary, an individual investor.

Sir, in June 2025, Novo and Emcure, they have launched Poviztra, semaglutide 2.4 injection. So sir, by the time you will -- you are saying that you will be in the first wave in March 2026, that drug will be around 9 months old in the Indian market. And when you will be launching that drug? Maybe they can go for a predatory pricing. So how will you manage to save your margins? And how you will be able to do the domestic sale because by the time 3 to 4 months or maybe 5 months, 6 months down the line, many of the companies will come in semaglutide. So the margins will shrink. Again, it can it become another case like Revlimid, that okay, you can generate volume, but margins will not be there. And NATCO by genetically, they work maximum on margin than on volume-driven sales. So what do you think about that? How you will navigate your sales?

Let me answer that question. Yes, fair enough. See, first, let's answer that question one piece at a time. So I think you're alluding to the Emcure transaction with Novo Nordisk. I think they've taken an in-license deal from Novo Nordisk. Yes, they have launched before. And obviously, they have their reach, and they will do reasonably well. And -- but the generics will have a price advantage because obviously, we'll launch at a substantial discount to the innovative prices. So we believe that the discount will be substantial, which will actually increase the size of the market. I'm not going to tell you that we're going to make a lot of money in India. I will never say that. I actually agree with you. It will be very competitive. But I think if you're in the first wave, we'll at least make some money. We'll be able to build some brand and able to do something. Will it be like a jackpot or [indiscernible] disruptive, for our domestic business, which is not a very large business. Our domestic is only INR 450 crores annualized. So for our business, if you add like even INR 80 crores, INR 90 crores for us, it's like a 20% jump in our base business of our domestic, which is a pretty nice number. Will it be like a jackpot, which will generate, let's say, INR 800 crores, INR 1,000 crores for us in semaglutide India launch? No, it's not going to happen. It's not going to happen. You're absolutely right. There are too many guys in it, and they won't just -- it will be very competitive. But it's the nature of the beast, right? We accept what it is and then you just move on. But the thing is you got to keep doing these things, but you'll never know what will work, right? So that's how the nature goes.

Sir, can't it be that once it's off patent, then you can launch in rest of the world and maybe other markets or which will be more profitable for you, the USA FTF or the Indian launch of semaglutide?

U.S. any day. U.S. by far. There's no comparison. It's 100x difference.

So that means most of the thrust will be on the FTF of 6 months in U.S., then you will be giving attention to the Indian market given a choice.

Right, our thrust will be mostly on U.S. and the other regulated markets with our partnership with Viatris, where I think it is a larger opportunity than India.

The next question is from the line of Thadavarthi Sai Surendra, retail investor.

First of all, congratulations to the management for the stable performance this quarter. Going ahead, do you expect the next quarter to be even better than this? And also the South Africa investment you completed, can you start seeing some contribution from that thing.

Yes. I think I already answered this question. I'll repeat it one more time. I think the contribution from Revlimid will drop dramatically for the next 2 quarters. We've given a guidance of about, I think, INR 750 crores to INR 800 crores for the quarter. And I think a PAT guidance of about INR 135 crores to INR 150 crores per quarter. And South Africa will be consolidated partially from this quarter, but fully from next quarter.

The next question is from the line of Guru, an individual investor.

Congratulations on your performance so far. I think what I want to understand is like the pipeline that what you have mentioned, right? What are the net expectations in terms of projections, right, revenue projections for next 5 years? What is your projection of the pipeline what you mentioned in terms of value? How much of revenue you expect for the next 5 years from the pipeline...

What I -- I think [indiscernible] want to answer your question. What is my expectation of the pipeline? Is that what you're saying?

No, no. Let me be clear, right? So what is the revenue expectation or projection from your perspective for the next 5 years from the pipeline perspective, whatever you have in pipeline, past, present, emerging, right? All of these put together for the 5 years down the line from now, what is the amount of revenue that you project in the order book, right?

I think -- see, I think right now, we expect a 10% to 15% growth in our base business. And once exclusivity start coming in, I think we'll see a little more jump. We'll have some years where we'll have 50%, 60% jump in our profits. So had to start again, do a reset, I think, starting from, let's say, '26, '27 will be a bit slow, I think, based on what guidance we have given. But I think all the big launches are coming in '27, '28. And then slowly, we have things in '29. And -- so I think what you need to do is think of it as 2 buckets. The base business with the ROW spread where we have -- should grow around 10% to 15%. And when the years that we have exclusivity, you'll see a substantial jump in the profit. And the opportunities are already there in our presentation. So depending on the size of the opportunity, it will play out. So some of them are $25 million, $30 million type of opportunities. We have a couple of them which are $100 million, $150 million type of opportunity. So depending on which comes in, I think that's what you'll see. So I think that's how we want to look at it.

Okay. The other question, part of it is like real debate. Is there any opportunity of value unlocking for the shareholders when it comes to the agro business, right? I mean what would be the value unlocking that we can expect, right, not accurately, but at least some kind of an indicative thing on the value unlock that you probably plan for the agro diversification or whatever is in the pipeline?

I think the idea here is that we'll demerge the company, Guru. I think we are planning the demerger. I think we have announced it. So we will list that entity maybe sometime in 2026 once all the clearances come through. Value unlocking means I think what we see is this business now is about breaking even now. So we'll list it separately, and then we'll have a special focus on this. And it can raise its own capital and grow by somewhere -- I think that business gets -- in our setup, it's a very small business. So I think it will be good for the shareholders. You'll get a complete feed through in our crop businesses and you also have a pharmaceutical business. So I think -- the real value, I think you'll see it in '26. What numbers and all, it's very hard to predict right now because...

That's understood. Sorry, that's understood. I mean can we expect some value unlocking? Can we see that as an opportunity? Sorry about that. I think my question more is not on numbers, more of like indicative comments from your side on would that be a good opportunity for shareholder value unlocking, this demerger...

Yes, absolutely, yes. I think you'll get a -- yes, yes, you'll get another business, which is not being diluted in our system because it's getting -- it is a very tiny business in a very large business in pharma. So this business will get more attention, and I think shareholders will be duly rewarded for the fact that it's been demerged.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

All right. Thank you all for a wonderful set of questions. Again, once we receive the transcripts, it will be uploaded to the website. Otherwise, all of you, have a great day. Thank you very much.

Thank you very much. On behalf of NATCO Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.