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Maintain ADD on Torrent Pharma - In-line quarter; positive outlook reaffirmed - HDFC Securities

Posted On: 2021-07-28 17:21:26 (Time Zone: UTC)


Mr. Bansi Desai, CFA, Institutional Research Analyst, HDFC Securities and Mr. Karan Vora, Institutional Research Analyst, HDFC Securities

Torrent's Q1 results were in line with estimates as strong growth in India and Brazil offset muted performance in the US. We believe the US business (USD36mn) has largely bottomed out and is likely to improve from current levels. In India, Torrent's decision to foray into the Trade Gx business will enable it to enhance coverage in acute/sub-chronic therapies. While this may dilute the margin, it will allow the company to expand its growth horizons. The overall outlook for all key markets (ex-US) remains healthy as we expect Torrent to outperform the industry growth. We forecast high FCF generation (INR56bn) and debt repayment of INR22bn over the next two years. We increase our EBITDA estimates by 4%/7% for FY22/FY23e and revise the TP to INR3,155, based on 16x FY23 EV/EBITDA. Maintain ADD.

In-line quarter: Revenue increased by 4% to INR21bn as strong performance in India (+18% YoY, acute/ sub-chronic portfolio) and Brazil (+9% YoY, +14% in cc terms) was offset by muted growth in the US (-3% QoQ, price erosion), Germany (6% YoY, flat in cc terms, COVID impact) and other markets (-7% YoY). EBITDA margin increased to ~32% (+168bps QoQ) as a decline in gross margin (-195bps QoQ, product mix) was offset by lower R&D (-178bps QoQ) and other expenses (-228bps QoQ, savings in marketing costs).

India business on a strong footing; forays into the Trade Gx business: Revenue grew by ~18% YoY in Q1, led by robust recovery in volumes for acute and sub-chronic portfolio (low base, higher COVID-led demand). The company managed to achieve an MR productivity of INR 1mn per month (vs. 0.85 in FY21) as guided in Q4. It has also ventured into the Trade Gx business with an aim to explore growth opportunities in acute/sub-chronic segments. It plans to grow this business to ~3-4% of India revenues in the near term. However, margins from this business are expected to be lower than those from the Rx business.

US bottoming out, likely to maintain current run-rate in the near term: The US revenue declined by 3% QoQ to USD36mn on account of price erosion (high single digit) and limited new launches. The company aims to file 10-12 ANDAs, including 1-2 505b(2) opportunities. It plans to launch 10-15 products every year, post the facility clearance from the FDA.

Key call takeaways: (a) India growth break-up - volume: 14%, price: 6%, new launches: 4%; (b) Germany - targets ~7-9% growth vs. 3-4% for the market; (c) Brazil - guides to outperform local market growth of ~10%, led by price increase, new launches with 1-2 being meaningful; (d) Developing onco products for all the markets; (e) the company expects double digit topline growth from Q3; Trade Gx business can lead to slight moderation in gross margins; ETR: 30-31%, Cash tax: ~17%, repaid debt of INR3.5bn in Q1.

Shares of TORRENT PHARMACEUTICALS LTD. was last trading in BSE at Rs. 3084.1 as compared to the previous close of Rs. 3003.75. The total number of shares traded during the day was 46565 in over 6628 trades.

The stock hit an intraday high of Rs. 3105.85 and intraday low of 2890. The net turnover during the day was Rs. 140756722.


Source: Equity Bulls

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