Natco Pharma and Bikaji Foods: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Natco Pharma and Bikaji Foods International. These two stocks have shown great potential with positive financial estimates for the coming two financial years. So, let’s go through the details of the two stock recommendations for the period between October 14, 2024, and October 18, 2024.

Natco Pharma Limited

Its CMP was ₹1,436.20 (as on October 11, 2024) and its target price is set at ₹1,687 with an upside potential of 17%.

Investment Rationale

• Natco Pharma is engaged in the business of pharmaceuticals, which comprises research and development, manufacturing, and selling of bulk drugs and finished dosage formulations comprised of FDFs and APIs. APIs business is strategic and serves captive requirements and third-party sales.
• The company has manufacturing facilities in India, which cater to both domestic and international markets including regulated markets like the United States of America and Europe. According to the management, the company has started registration of its key products in the major markets in the U.S., Australia, Brazil, and the Middle East and it expects the impact of that would probably be seen in a couple of years. It has a portfolio of 45 active US DMFs with niche products under development.
• On the development front, it has acquired a 5.38% shareholding of Cellogen for a total cash consideration of ₹15.01 crore. The investment has been made to support the development of affordable cell and gene therapies in India. Currently available products in the market cost around US$ 500,000 – 700,000 which Cellogen aims to bring down to US$ 60,000 – 70,000. Another program on which Cellogen Therapeutics is working is a gene therapy program for transfusion-dependent thalassemia and sickle cell disease.

• Its wholly-owned Canadian subsidiary, NATCO Pharma (Canada) Inc., has made an investment of US$ 8 million in eGenesis, Inc., a biotechnology company at the forefront of xenotransplantation focused on developing safe and effective human-compatible organs for transplant. The transplant was authorized by the U.S. Food & Drug Administration (FDA) under the Expanded Access pathway. eGenesis is pioneering a genome engineering-based approach in the development of safe and effective transplantable organs to end the global organ shortage and transform the treatment of organ failure.
• The company is experiencing organic growth in its Chlorantraniliprole (CTPR) business in India and is also registering the product in international markets, with Brazil already being completed. The management expects CTPR to contribute significantly to both the company’s bottom line and top line, growing the business to ₹400-500 crore within the next 3-4 years. It has successfully launched broad-spectrum insecticide Chlorantraniliprole (CTPR) based products in India across key agrarian states.

Shareholding Pattern

Promoter shareholding is highest in Natco Pharma at 49.71%, while public and others hold 22.16% shares.

Valuation

The company has effectively established a local presence through its partners, ensuring sustained business growth. The management of the company plans to focus more on markets like Canada and Brazil, which offer robust growth opportunities going forward. The company continues to lay a good foundation for business growth in the Asia-Pacific region. Thus, it is expected that the stock will see a price target of ₹1,687 in an 8 to 10-month time frame on a one-year average P/BV of 3.44x and FY26 BVPS of Rs.490.27.

Risk

• Strict operational and strategic regulation
• Currency fluctuation

Bikaji Foods International Limited

Bikaji Foods International’s CMP was ₹845 (as on October 11, 2024) and its target price is set at ₹973 with an upside potential of 15%.

Investment Rationale

• Bikaji Foods International is the third largest ethnic snacks company in India with an international footprint, selling Indian snacks and sweets, and is among the fastest growing companies in the Indian organized snacks market.
• On the distribution front, over the years its territories have been increasing and in the past 1 year, has added almost about 100,000 outlets in its direct reach. Also, this year CFAs (Carrying and Forwarding Agencies) Ghaziabad and Varanasi, UP, in the West of India, Ahmedabad, and Pune to strengthen its distribution network. According to the management of the company, direct reach by FY26-end is expected to be at 400k outlets. 150k outlets are likely to be in focus markets.
• On the development front, the company plans to expand geographically and is also eyeing exports and intends to keep up with double-digit volume growth for the next ten years. It has plans to open 2-3 QSR (Quick Service Restaurants) in FY25 and expects a big jump in exports.
• For FY25, the management of the company has targeted a volume growth of 13%-15% for the next two years with the expectation of a 2-4% price rise in FY25. Also guided for 32.5-33% gross margin for FY25 on account of focus on utilizing existing capacity and looking for potential acquisition opportunities.

• The management of the company expects a boost in quick commerce sales by around 50 bps during the festive season, fueled by consumer demand for impulse purchases, particularly in larger product packs.
• During Q1FY25, it has reported 15.24% topline growth with 16.20% volume growth. EBITDA improved by 240 bps year-over-year, reaching 91.60 crores, and reported a significant 40% increase in net profit, reaching ₹58.06 crores as compared to ₹41.41 crores in the same period last year.
• Recently, it has acquired 55% stake in Ariba Foods. This acquisition is part of an overall strategy to develop and expand the frozen snacks and sweets business of the company both in India and globally. It will partly shift its current frozen snacks and savories manufacturing to Ariba Foods’s manufacturing facility located in Ujjain, Madhya Pradesh. This strategic decision will also strengthen its Quick Service Restaurant (QSR) business by integrating comprehensive back-end operational support from Ariba Foods.

Shareholding Pattern

In the overall shareholding of Bikaji Foods International, promoters have the highest shareholding of 74.98%.

Valuation

The company is doing well and according to the management of the company, it has delivered a remarkable volume growth of 16.20% during Q1FY25. On the bottom-line front, EBITDA margin improved too, which is led by a reduction in commodity prices, superior mix, operating leverage, and effective cost management. Moreover, the company is strengthening its distribution network to achieve deeper distribution across its core and focus markets. Thus, it is expected that the stock will see a price target of ₹973 in 8 to 10 months’ time frame on 1 year’s average P/BVx of 14.03x and FY26 BVPS of Rs.69.36E.

Risk

• Intense competition
• Economic slowdown

Conclusion

These two stocks Natco Pharma and Bikaji Foods, one from the pharmaceutical sector and the other from the FMCG sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.