Natco Pharma – Lets read between the lines.!!! What’s the reason behind the consideration.!!!

Summary

In this video, the speaker discusses Natco Pharmaceuticals' stock, emphasizing the importance of long-term investing. They highlight the company’s strategy of accumulating cash for acquisitions and new drug therapies, especially targeting weight loss and diabetes drugs. Despite the cyclical nature of the pharmaceutical industry, Natco aims to grow by diversifying globally, reducing reliance on the US market. Investors are advised to focus on the company’s future roadmap and avoid short-term market fluctuations. The speaker encourages a patient, value-driven approach, with significant capital appreciation expected around 2031-2032.

Takeaways

• 😀 Natco's stock price can be highly volatile, leading to psychological stress for investors. It's important to focus on long-term goals rather than short-term price movements.
• 😀 Natco is currently building cash reserves to fund acquisitions, particularly outside India, and to invest in new drug therapies such as weight loss and diabetes treatments.
• 😀 Post-2026, Natco expects a downturn in revenue as its current cancer drugs will become generic. They are preparing for this by acquiring new drug therapies.
• 😀 The company aims to acquire weight loss drugs, which have shown significant market potential due to their effectiveness in managing both diabetes and weight loss.
• 😀 Natco's management has outlined a clear roadmap, targeting long-term capital appreciation for investors, with a focus on the period leading up to 2030-2032.
• 😀 Investors should focus on the company’s overall strategy and long-term growth, rather than stressing over daily fluctuations in stock price.
• 😀 Natco’s owner has indicated that the pharmaceutical industry follows a cyclical pattern, with periods of growth and decline. Investors should be aware of these cycles for better timing.
• 😀 Natco’s stock price may dip during the third quarter of each year due to industry cycles and stocking patterns. This presents potential buying opportunities for value investors.
• 😀 The company plans to diversify its revenue sources and reduce dependency on the U.S. market, aiming for growth in markets like Brazil, Mexico, and Europe.
• 😀 Natco’s management expects the years 2026-2028 to be a down period, but they are confident that the new drug acquisitions will help the company recover and grow in the following years.

Q & A

What does Venod highlight about the volatility in Natco's stock price?

Venod emphasizes the psychological toll that price fluctuations can have on investors. He describes how the market movements can cause uncertainty, where investors may react emotionally, either by buying or selling at the wrong times, based on short-term price changes. He advises against focusing on these fluctuations and suggests a long-term perspective.

Why is Natco piling up cash according to the investor call?

Natco is accumulating cash for two primary reasons: to fund acquisitions outside India and to invest in new drug therapies, particularly for weight loss and diabetes. This strategy aims to position the company for future growth, especially since its current cancer drugs will become generic by 2026.

What is the significance of the weight loss drug Natco plans to acquire?

The weight loss drug, which was originally developed for diabetes, has gained popularity due to its side effect of promoting weight loss. It has the potential for widespread use, including by non-diabetic individuals, making it a key target for Natco’s future revenue generation. The drug is expected to be a major revenue driver post-2026.

What challenges does Natco face with its current cancer drugs?

Natco’s current cancer drugs are set to lose their exclusivity and become generic by 2026. This will significantly reduce their profit margins, as generic drugs typically have lower pricing power, which is why Natco is investing in new drug therapies to maintain revenue.

How does Natco plan to address market dependency on the U.S.?

Natco is looking to expand its presence in other regions like Brazil, Mexico, and Europe to reduce its over-reliance on the U.S. market, which currently contributes 60% of its profit. This strategy aims to diversify its market base and hedge against potential market fluctuations.

What is the expected impact of the cyclical nature of the pharmaceutical industry on Natco?

According to the CEO of Natco, the pharmaceutical industry follows a cyclical pattern, with three years of strong performance followed by three years of weaker performance. Natco is currently at the end of a strong cycle and expects a downturn around 2026–2028. This is why they are focusing on securing new drug therapies to sustain revenue during the down cycle.

What role does the third quarter of each year play in Natco's earnings?

Natco typically experiences a dip in earnings during the third quarter of every year, which is largely due to factors such as stocking in the industry. As a result, the stock price may face downward pressure during this period, offering potential opportunities for long-term investors to enter at a lower price.

What advice does Venod offer to potential investors in Natco?

Venod advises investors to focus on the company's long-term roadmap rather than short-term price movements. He suggests looking at the company's future plans, including acquisitions and new product lines, and holding the stock for a long period, such as 10 years, to benefit from potential capital appreciation.

How does Venod recommend handling short-term market fluctuations?

Venod stresses that investors should not be swayed by short-term price changes. He specifically advises against trying to time the market or worrying about daily price movements. Instead, he encourages a focus on the fundamentals and long-term growth potential of a company.

What is the significance of the 'tiffen coffee range' in Venod’s investment strategy?

The 'tiffen coffee range' refers to money that can be set aside for long-term investment without the need to access it in the short term. Venod recommends using funds from this range for investments, as this reduces the emotional stress of needing quick returns and allows investors to ride out market fluctuations.