Natco Pharma Ltd Management Discussions.

Global economy

The year has been marked by uncertainty across the world owing to the socio-economic impact of the ongoing COVID-19 pandemic. A number of low-income countries continue to face fiscal pressures in addition to the immense devastation caused by loss of life. The vaccine roll-out has further accentuated the inequalities between advanced and developing nations, with the latter still having a large population of people who are not vaccinated. In addition to this, mutations of the virus have added to the existing threat of COVID-19, making an already difficult situation even more tenuous.

The International Monetary Fund (IMF) has projected a growth rate of 6% in 2021. This was attributed to the recovery resulting from mass vaccinations, financial initiatives, and economic resurgence following the lockdowns. Overall, the economic recovery is likely to be more gradual for emerging and low-income economies relative to advanced economies. This is because countries with poor financial outlook are unable to upgrade health infrastructure or invest in policy measures to tackle the pandemic. The governments need to increase their spending towards medical infrastructure and vaccinations. Meanwhile, central banks are adopting additional fiscal measures to address the COVID-19 situation, which include slashing interest rates and providing monetary injections for financial institutions and economies.

GDP growth projections

Region Annual Percentage Change (%)
2020 2021 2022
World Output -3.3 6.0 4.4
United States -3.5 6.4 3.5
Euro Area (Germany, Italy, France, and Spain) -6.6 4.4 3.8
Japan -4.8 3.3 2.5
United Kingdom -9.9 5.3 5.1
Canada -5.4 5.0 4.7
Emerging and Developing Asia -1.0 8.6 6.0
China 2.3 8.4 5.6
India -8.0 12.5 6.9
ASEAN-5 -3.4 4.9 6.1
Brazil -4.1 3.7 2.6

Source: IMF, World Economic Outlook Update, April 2021


The pace at which economies recover from COVID-19 is mostly dependent on the effectiveness of mass vaccinations. It is still unclear to what extent these vaccines can protect against mutations and, therefore, it is difficult to predict when economies will return to pre-pandemic levels. However, countries have learnt to be wary of the effects of the pandemic over this time and adopted crucial fiscal measures while industries are adapting to the changing circumstances with agility. The efficacy of these measures will be instrumental in determining the level of foreign investment as well as domestic spending in individual countries.

Indian economy

India is expected to grow at a rate of 12.5% in FY 2020-21 per the projections made by the IMF. The estimated growth rate for the country is higher than the estimations for many advanced economies. This is due to the countrys strong recovery in late 2020 and early 2021 as restrictions eased and the economy started to open up.

The Indian economy registered a GDP growth (y-o-y) of 0.4% in Q3 FY2021, after recording negative growth of 24.4% and 7.3% in the previous two quarters. The positive growth during the third quarter is indicative of slow resumption of economic activities as well as higher consumption and activity across sectors. Industrial production contracted by 1.6% in January 2021 after recording a growth of 1.6% in December 2020.

The decline in growth is mainly due to contraction in the mining and manufacturing segment along with a prominent decrease in the output of both capital goods as well as consumer non-durables. To make India self-reliant and strengthen its fight against the impact of COVID-19, the Prime Minister of India announced stimulus packages worth Rs 120 lakh crores or 10% of Indias GDP towards the Atmanirbhar Bharat Abhiyan. The government announced additional packages under the programme in September 2020 and November 2020. The Indian economy grew by 1.6% in the fourth quarter, recording a minor pickup in growth even as the COVID-19 second wave dampened the pace. For the full fiscal year, the economy shrunk by 7.3%.


With economic activity gaining momentum post COVID-19 lockdown and rollout of vaccines, the Indian economic conditions are likely to improve. The second wave of COVID-19 along with rising input prices, stress in the micro, small and medium-sized enterprises (MSMEs) are some of the headwinds facing Indias economic revival. Monetary and fiscal support will remain crucial. The IMF has projected growth rate of 12.5% for India in 2021.

Industry Review

Global pharmaceutical market review

According to the reports by IQVIA, the pace of growth for the global pharmaceutical industry is expected to return to pre-COVID-19 levels by 2025. In between, it is likely that the growth rate may vary. The impact of COVID-19 is considerably greater in the short term while impact on the growth drivers in the industry for the long term appears to be subdued. Although there was greater vaccine-related spending in the pharmaceutical sector, spending on existing therapies and treatments suffered due to the pandemic, in addition to supply chain and raw material disruptions across the world.

As a result, the growth rate is projected to be 4.6% CAGR for the five years leading up to 2025. Due to the impact of COVID-19, there has been a change in the demand for existing therapies along with evolving consumer habits and behaviour.

Countries with low income have limited access to medicines, which has further declined over the past five years. This trend will have a negative impact on the pharmaceutical markets in these countries and lead to greater health risks for the population. Meanwhile, developing countries are projected to grow between 2-5% by 2025.

The global medicine market is expected to grow to ~1.6 trillion in 2025, growing at a CAGR of 3-6% over the next five years. The estimated amount is for the direct purchases made from manufacturers and does not include off-invoice discounts and rebates.

With respect to most existing therapy areas, the growth rates are considerably subdued, and vaccines are the only exception. Growth over the next five years will be based on the immense contributions of the immunology, oncology and neurology

segments as new medicines are introduced. Of these, the two most prominent therapy areas are oncology and immunology. These are projected to grow at five-year CAGR of 9-12%. It is expected that the oncology sector will introduce 100 new treatments over the course of five years, leading to medicine spend amounting to $260 billion in 2025. On the other hand, when it comes to neurology, we are likely to witness new therapies, for migraine, possible solutions and treatments for rare neurological disorders, as well as therapies for Alzheimers and Parkinsons disease.

Global Market Medicine Size and Growth

(CAGR 2010-25) (%)

Markets 2010-15 2016-20 2021-25
Global 6.0 4.6 3-6
Developed 4.8 3.8 2-5
Pharmerging 11.7 7.4 7-10
Rest of the World 6.0 3.9 3-6

Source: IQVIA Market Prognosis, Sep 2020, IQVIA Institute, Mar 2021


While the period between 2020 and 2021 saw a considerable shift in the outlook for medicine spending, the coming years will operate at pre-pandemic levels. This does not include vaccine expenditure. The gradual roll out of vaccines is estimated to add $157 billion to medicine spending across the globe. Additionally, it is projected that 70% of the worlds population can be vaccinated by the end of 2022 based on current manufacturing capacities. Should the world fail at developing herd immunity, it is possible that secondary waves of the virus will continue to have an impact on both economies and health. Government expenditure and policy towards the upgradation of medical infrastructure, healthcare and medicine spending will determine the outlook for the segment in the years to come.


Over the next five years, medicine spending in the US market is projected to progress at a CAGR between 0-3% based on net prices, as estimated by the IQVIA Institute. As opposed to this, the CAGR for the previous five years was close to 3%. Additionally, when it comes to the US, there is increased scrutiny in terms of the pricing and value of medicines. This trend will probably continue and exert greater pressure on the pharmaceutical sector.

US pharmaceutical spending and growth

(US$ billion)

Region 2019 2014-2019 CAGR (%) 2024 2019-2024 CAGR (%)
US 510 4.3 605-635 3-6


Growth in the US market, over the next five years, is expected to be gradual due to a number of factors, such as operating environment for medicine use, adoption of newer treatments, expiration of patents, and the contribution of biosimilars and generics.

Pharmerging markets

Over the past ten years, medicine use across the world has grown due to the expansion of the pharmerging markets and economies. However, it has been noted that pharmerging countries and their markets have lower per capita use of medicines. This is due to the considerable inequality in spending prowess among the populations of these countries. The national income of a country has a proportional impact on medicine

use and consequently, developed countries are likely to witness stronger performance as opposed to pharmerging markets.

Growth of pharmerging markets over the years


Region 2010-2015 2016-2020 2021-2025
Pharmerging 11.7 7.4 7-10

Source: IQVIA Market Prognosis, Sep 2020, IQVIA Institute, March 2021

China witnessed the greatest impact in the earlier stages of the virus. As a consequence, the countrys GDP in the fourth quarter of 2019 was down by 8%. Meanwhile, the average GDP for pharmerging economies returned to pre-2019 levels while medicine use is up by 12% as compared to early 2019. This, in turn, has highlighted the adaptability of these economies and their resilience to COVID-19 related challenges.

Oncology, which is a prominent sector, has witnessed a CAGR of 30% over the decade. In pharmerging markets, the disease burden declined by 5% on a per capita basis during the same span of time.


When it comes to pharmerging markets, the use of medicine is proportional to disease burden. Subsequently, there has been reduction in the spread of communicable diseases as the number of treatments have gone up. Both oncology and viral hepatitis are expected to have new treatments. Considerable advancement has been made in mitigating the burden of disease as healthcare infrastructure and medicine availability has improved over the years.

While medicine spending in Japan is projected to fall due to price erosion and a shift to generics, China is forecasted to witness growth in spending following the pandemic as newer medicines are introduced. Overall, accessibility of medicine in pharmerging countries has been improving as more products are brought into the market.


The Indian Pharma Industry is poised for a big leap forward in this decade. Health, science and innovation have come into sharp focus. The developments over the past year have emphasised the importance of innovation, a robust infrastructure for production of drugs and pharmaceuticals and the need to constantly build a huge talent pool of scientists, researchers and technologists who can be the arrowheads for the future. India has emerged as a pharmacy to the world, supplying critical drugs and vaccines during the course of this pandemic.

Based on estimation of the Indian Economic Survey 2021, Indias domestic market is projected to grow at 3 times its previous growth rate over the next ten years. The volume of production carried out in India is the third-highest in the world and the industry covers 3,000 drug companies and ~10,500 manufacturing units. It is estimated that the value of the India pharmaceutical industry is US$ 41 billion in 2021. This valuation is expected to grow to between US$ 120 billion and US$ 130 billion by the end of the decade.

Over half of the worlds demand for vaccine supply is met by the countrys pharmaceutical industry. Similarly, the demand for 40% of generics in the US is met by Indian pharmaceutical companies. While the US is the most crucial market in terms of exports, the country supplies medicines to over two hundred countries all across the globe.

India is also the largest supplier of generics in the world contributing to almost 20% of global export volumes. Till February 2021, the countrys exports from the pharmaceutical industry amounted to US$ 22.15 billion for the fiscal year. Similarly, the market for medical devices has grown in recent years and is projected to reach US$ 25 billion by 2025.

The government has renewed its focus on supplementing the growth of Indias pharmaceutical segment. It was with this objective that Rs 1Pharma Vision 2020 was launched. In addition to this, the government established a scheme to promote self-reliance and set up greenfield projects with a cumulative outlay of Rs 16,940 crores between 2021 and 2030. In order to enhance the production of APIs in the country, the government plans to inject Rs 11 lakh crores into the pharmaceutical industry by 2023.


The Indian pharma industry has been a key contributor in improving the countrys healthcare and economic outcomes. The pandemic has enhanced several opportunities and challenges for the industry. To emerge as a winner in the post-pandemic world, the industry needs to continue building on its strength and, at the same time, make a giant leap towards innovation. New capabilities need to be introduced across the business functions to develop skills and help the industry move up the value chain. The government must continue its endeavour to provide the right enablers and business environment for growth.

Business Overview

NATCO is a vertically integrated enterprise with focus on research and development. The Company is engaged in the development, manufacturing and marketing of finished dosages and active pharmaceutical ingredients in domestic and international markets. NATCO has carved a unique space for itself in the 40+ countries where it currently operates. Currently, NATCO has six Finished Dosage Forms (FDFs) and two Active Pharmaceutical Ingredients (API) manufacturing facilities in the pharma segment. In the agrochemical space, it has two units in Attivaram, Andhra Pradesh.

On the domestic side of the business, NATCO is one of the leading players in the oncology segment and has an extensive portfolio of products across therapeutic areas. Cardiology and Diabetology are two other major segments in the Company. Additionally, using NATCOs technical and manufacturing capabilities in the pharma segment , the Company has started operations and launched initial products in the agrochemical sector.

The Company continues to take strategic steps driven by R and D and manufacturing to stay ahead of competition and launch niche products in India and international markets. The Company believes that it is at a point of inflection of growth starting from this year.

Business segments

NATCO operates in two different business segments: pharmaceuticals and agrochemicals. Within the pharma business segment, the Company drives its sales through Finished Dosage Forms (FDFs) and Active Pharmaceutical Ingredients (APIs). The Companys formulations business is geared towards meeting international requirements and catering to regions and countries, such as the US, Europe, Brazil and Canada. In addition, the Company has a strong pipeline of products in oncology, pharma specialties, cardiology and diabetology to cater to domestic markets.

Our API business has enhanced capabilities that allow us to establish a unique position in the market. These include multi-step synthesis, semi-synthetic fusion technologies,

high-potency APIs and peptides. Additionally, the Company offers contract manufacturing facilities too.

In 2019, NATCO has established a crop health sciences division and has since been committed to expanding presence in the agrochemicals business by providing a broad spectrum of products.

Manufacturing facilities

During the last few years, NATCO built adequate manufacturing capacities across plants both in the pharma as well as in the agri segments. All NATCO units stand in good stead with the regulatory authorities. This year, the Vizag facility has been commissioned and is operational.

Domestic formulations

NATCO has a robust formulations business in India.

The Company is one of the leading players in the oncology segment and has a strong pipeline of non-oncology products. These include products under the Hepatitis C portfolio.

NATCO has made considerable advancements in cardiology and diabetology (CnD) during the year. The Company launched 10 new products across its three different therapeutic segments during the year.

FY 2020-21 was a difficult year for the oncology business. Despite various challenges posed by the pandemic, such as patient mobility and low hospitalisation, NATCO launched several new products. The Company was able to mitigate the contraction in the pharma specialty sector. The Company remains focused on filling the gaps in untapped markets.


Due to COVID-19 and the growing fear of hospitalisation and travel among Cancer patients the Company could not witness the same level of commerce as it would have otherwise.

While patients shifted to oral therapies, sales for high-margin injectables were negatively impacted.

Although net profit was affected as a consequence of fewer sales, oncology continues to contribute to the majority of sales on the domestic front and has retained its position as the Companys most important segment.

NATCO is an established brand with a loyal customer base.

It has an extensive pipeline of products constituting 38 active products as on 31st March 2021 with 7 brands clocking sales over Rs 1100 million in FY 2020-21. NATCO is also planning to launch a number of products in the coming years.

Revenue from the segment amounted to Rs 12411 million in FY 2020-21, as compared to Rs 13,078 million in FY 2019-20. Oncology has witnessed the largest comparative rise in medicine use over the past decade across the world and the segment is expected to bounce back once the impact of COVID-19 wanes and people start visiting hospitals for oncology-related treatments.

Non-oncology business

NATCOs non-oncology business consists of pharma specialty, cardiology and diabetology products. It also includes third-party manufactured products. Revenue from the non-oncology segment amounts to Rs 11690 million in FY 2020-21 as compared to Rs 12,327 million in FY 2019-20.

Pharma specialties

NATCOs products under the pharma specialty segment deal with Gastroenterology, Hepatology, Orthopaedics, Neurology, Critical care and Covid care. Currently, the Company has 22 active products in this segment.

The company is looking into the introduction of novel molecules that would fulfil the unmet need in the therapy of HIV, Covid and anti-infectives. Moving forward the company will have a pipeline of molecules in each portfolio that will have an edge in treating patients.

Cardiology and diabetology

NATCOs performance in the cardiology segment was satisfactory and the Company estimates that the segment will contribute to ~15-20% of domestic sales, adding to the base earnings. In FY 2020-21, NATCO launched 2 new products in the market, further supplementing its presence in the segment.

Third-party manufacturing

NATCO offers contract manufacturing of products for third-party companies.

International formulations

NATCO has a robust presence in the US, which is a key strategic market for the Company. The Company has over a decade of experience in dealing with regulatory requirements of the country and has successfully established a local presence through the reach of its partners to grow the business. On the other hand, in countries such as Brazil, Canada and Singapore, the Company operates through its subsidiaries/step-down subsidiaries. Revenue from international operations amounted to Rs 110,771 million in FY 2020-21 as compared to Rs 19,334 million in FY 2019-20.


The US market is dominated by Indian players since India has a large number of FDA approved facilities. Despite this, it is a key market for NATCO. The Company is able to leverage its unique product selection and local partnership model to carve a space for itself. Revenue from US business constituted Rs 17,910 million in FY 2020-21, inclusive of revenue from both FDFs and APIs.

NATCO plans to increase the rate of filings in the US. The Company is focused on increasing the niche molecules for filing in the US.

NATCO has been facing pricing pressures, but at the same time, it benefits more from integrated products as opposed to outsourced products.

All NATCOs manufacturing facilities supplying to the US remain in good stead with the USFDA. The Company is constantly looking at ways to propel its business growth in the US, through niche filings and by increasing its portfolio of products. Towards that goal it is also considering establishing a front-end entity in the US.

Niche products in current portfolio

Key Brand Molecule Therapeutic Segment/Primary Indication
Copaxone Glatiramer Acetate CNS/Multiple Sclerosis
Doxil Liposomal Doxorubicin Cancer/Ovarian and other
Fosrenol Lanthanum Carbonate Renal disease
Afinitor (2.5 mg, 5 mg and 7.5 mg) Everolimus (higher strength) Cancer/Breast
Tykerb Lapatinib Ditosylate Cancer/Breast
Tamiflu Oseltamivir Anti-Viral/Influenza

Product pipeline

Key Brand Molecule Therapeutic Segment / Primary Indication
Nexavar Sorafenib Cancer/Kidney & Liver
Revlimid Lenalidomide Cancer/Multiple Myeloma
Afinitor (10 mg) Everolimus (higher strength) Cancer/Breast
Zortess Everolimus (lower strength) ImmuneSupression/Organ Transplant
Aubagio Teriflunomide CNS/Multiple Sclerosis
Kyprolis Carfilzomib Cancer/Multiple Myeloma
Pomalyst Pomalidomide Cancer/Multiple Myeloma
Sovaldi Sofosbuvir Anti-Viral / Hep C
Imbruvica Ibrutinib Cancer/Leukaemia
Lonsurf Trifluridine/Tipiracil Metastatic colorectal cancer
TracleerTFOS Bosentan Pulmonary Arterial Hypertension

RoW markets


NATCOs Canada business continues to be agile and resilient. The Company clocked a revenue of Rs 1 4,241.93 million in FY 2020-21 from its Canada business as opposed to Rs 11,283 million in FY 2019-20.

Approvals as of 31st March, 2021

NATCO has launched several niche generic products in the market and are confident of future growth driven by regulatory experience and a growing local presence.


NATCOs step-down subsidiary in Brazil operates under the name NATCOFARMA Do Brazil. Brazil has a unique patent landscape which provides opportunity for several early launches. The Company is focused on growing both in tender-based business and direct sales. The oncology segment in the country proposes a unique opportunity. Revenue for business in Brazil amounted to Rs 1288 million in FY 2020-21.

Approvals as of 31st March, 2021

Other RoW markets

NATCO is focused on growing its geographical reach and enhancing its presence in a number of countries, such as Singapore, Taiwan, Philippines, Thailand, Vietnam, China and Australia. The company is diversifying through growth in newer territories to ensure consistent profits and expansion. The company has been able to build its presence in Singapore through branded generics even though it is a market partial to established brands.

Active Pharmaceutical Ingredient (API)

NATCO has a robust presence in the API segment and focuses on the manufacturing of niche molecules to supplement its formulations business. The API business accounted for Rs 15,120 million (including trading revenue) in revenue in FY 2020-21 over Rs 13,552 million in FY 2019-20. As of 31st March 2021, the Company owns a total of 39 active DMFs with USFDA for products under the oncology segment, cardiology segment and orthopaedic therapies. NATCOS vertically integrated API facilities help maintain business continuity and margins when faced with disruptions in the raw material supply chain.

Segmental Breakdown

Revenue division (Rs in million) FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21
API Revenue (total) 1,838 2,854 3,019 3,552 5,120
Domestic 8,810 7,202 7,347 5,405 4,101
International (including subsidiaries) 8,911 11,364 9,933 9,334 10,771
Crop Health Sciences - - - - 21
Other operating and non-operating incomes 1,230 1,004 1,948 1,933 1,544
Total revenue 20,789 22,424 22,247 20,224 21,557

Crop Health Sciences

NATCOs Crop Health Science Division has received approval for Chlorantraniliprole (CTPR) for the development of wide- spectrum insecticides. NATCO is focused on enhancing its own brand and presence with a robust pipeline of products that are environmentally friendly. The Company plans to launch a number of niche products in the coming year.

Financial overview

NATCOs consolidated revenue from operations for the year FY 2020-21 stood at Rs 121,557 million, growing by 6.6% year-on-year at a CAGR of 14.6% over the last five years. Meanwhile, EBITDA for the year was Rs 17,098 million and EBITDA margin amounted to 32.9%. CAGR for EBITDA over the past five years stood at 20.2%, reflecting a period of gradual growth in the Companys margins. Net profit for the year was Rs 14,424 million as opposed to Rs 14,581 million the previous year, while PAT margin stood at 20.5%. The Companys profit after tax has grown at a CAGR of 22.9% over the past five years.

NATCOs market capitalisation stands at Rs 1153.53 billion as on 31st March 2021. The Company declared three interim dividends during the year aggregating to Rs 15.25 per share amounting to Rs 1956.48 million resulting in a pay-out of 30.90% of the standalone profit after tax of the Company. In addition, the Company was able to sustain Return on Equity (ROE) at 12% and Return on Capital Employed (ROCE) at 17%. Due to several high-value product releases in the United States, a resurgence in the domestic India sector with new product launches, and growth in the crop health sciences division, the Company forecasts substantial growth in the coming years.

Threats, risks and concerns

Adverse assessment of a manufacturing facility by any key regulatory body has the potential to significantly change the business prospects of a pharmaceutical company.

Read more about Risk Management on page 30


Environment, health and safety

NATCO is aligned to both regulatory environmental guidelines and larger objectives to contribute to a holistic and sustainable workplace. NATCO is compliant with all regulations and every employee is motivated to operate within the frameworks adopted by the Company.

NATCOs strategy is aligned to the objective of operating with a sustainable footprint. Therefore, NATCO is looking for alternative and innovative methods to mitigate the environmental footprint of its operations.

With these objectives in mind, NATCO contributed to a greener environment and ensured health and safety by adopting the following measures:

• At the Chennai unit, a separate 30 KLD capacity Sewage Treatment Plant (STP) was established with a capital cost of Rs 15 million for treating and reusing domestic wastewater for gardening

• Hydro jets provided for equipment cleaning in process areas and dish washers in canteen areas in all units

• Descaling of evaporatortubes for enhancing heat transfer efficiency, thereby reducing the energy consumption of chiller by implementing closed monitoring and ensuring the preventive maintenance schedules at Vizag unit

• VFDs installed for feed water pumps, AHU blowers to reduce the energy consumption by 10% at Dehradun units