Torrent Pharma Ltd - Q3FY14 Update, CMP Rs.550, Maintain Hold, Target Increased to Rs.600 - Sushil Finance

TORRENT PHARMA LTD. - Q3FY14 RESULT UPDATE - CMP Rs.550, Maintain Hold, Target Increased to Rs.600

Torrent Pharma Ltd. (TPL) has reported strong set of numbers for Q3FY14 registering a YoY revenue growth of 27% majorly supported by 41.5% increase in international business and a 14.7% growth in the domestic market. The following are the key highlights of the results which are summarized below:

Key Highlights of Q3FY14

- Total Income grew by 27% YoY from Rs. 7990 mn in Q3FY13 to Rs.10150 mn in Q3FY14. The company's domestic business which contributes ~29% to the sales of the company registered a growth of 14.7% whereas the export business registered a strong growth of 41.5%. CRAMS business registered a sluggish growth of 1.3%.

- Domestic branded formulations registered a growth of 14.7% from Rs.2580 mn in Q3FY13 to Rs.2960 mn in Q3FY14 on the back of new product launches, filling of portfolio gaps among existing products & increasing MR productivity. Current Field Force of the company is at 3600 with focus going ahead on rationalization of FF & increasing productivity. TPL's agreement with Elder Pharma to acquire its branded domestic formulations business for Rs.20040 mn is expected to take 2 more months to complete.

- Export formulations increased to Rs.6380 mn in Q3FY14 from Rs.4510 mn in Q3FY13 mainly on the back of growth across markets (US +61%, EU +59%, ROW+CIS +10.5% & Brazil +25.6%). Constant Currency Growth in Q3FY14 - US +41%, EU +32%, ROW+CIS -1%, Brazil +22%. TPL launched generic Cymbalta with shared FTF status in US on Dec 11 registering sales of $ 6 mn (7-8% Market Share with ~6-7 players in the market) in Q3FY14. As per the management, pricing is holding up well with a shortage for the drug ongoing in the market. As of now, 6 more players are eligible to enter the market. TPL plans to launch 8-10 products on a yearly basis in the US. Currently it has 46 ANDAs approved with 22 ANDAs pending approval in US. Heumann contributed majorly to EU growth with it receiving new tenders for products. In Brazil TPL has around 7-8 products in the generic generic space with a FF of 325 people. It has been adjusting pricing of products with the market getting competitive however it is early to say if this is sustainable.

- Operating profit reported a growth of 33.4% YoY from Rs.1612 mn in Q3FY13 to Rs.2150 mn in Q3FY14; whereas the EBIDTA margin came in at 21.2% vs 20.2% in Q3FY13. Increased sales on the back of company increasing marketing spends led to margin improvement. Excluding fx loss of Rs.200 mn EBITDA margin came in at 23.2%.

- Reported Net Profit grew by 40.7% YoY from Rs.1123 mn in Q3FY13 to Rs.1580 mn in Q3FY14 whereas margins were at 15.6%. EPS for the quarter came in at Rs.9.3 vs Rs.6.6 in Q3FY13 (adjusted for bonus issue).

OUTLOOK & VALUATION

Q3FY14 saw TPL improving its overall revenues by 27% YoY with strong growth across markets (healthy growth in Brazilian market also a key positive). However, with the company set to takeover Elder pharma's domestic portfolio, we expect TPL's consolidated EBITDA margins to improve on account of the high margin acquired portfolio of drugs (35%). Having said that, we also expect near term drag on net profit (on the back of increased interest cost, depreciation & amortization) with the long term performance of the domestic business dependent on its synergies and integration of Elder. We have factored in Elder acquisition in our FY15E and also introduced FY16E numbers. However, we continue to recommend investors to HOLD the stock with a target price of Rs.600 (rolled forward to FY16E) based on 15x FY16E EPS of Rs.40 citing healthy prospects of the base business even as short term pain persists.

Source : Equity Bulls

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