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Chronic focus, generics to drive growth…
We met the management of Torrent Pharma (TPL), a mid-size pharma
player with a strong presence in domestic branded formulations and a
growing presence in generic generics and branded generics in the
regulated and semi-regulated export markets. TPL also has a presence
in the CRAMS space. Therapy wise, TPL has a significant presence in
the areas of cardiovascular (CVS), central nerves system (CNS), gastro
intestinal (GI) and anti-diabetic in the domestic market. In FY10, the
company signed generic supply agreements with two MNC companies,
Astra Zeneca and another MNC (name un-revealed), for emerging
markets. The CRAMS business is confined to the requirements of Novo
Nordisk for their diabetology requirements.
Business model
TPL derives sales from three broad categories, namely domestic
formulations, international formulations and CRAMS.
Domestic market
Around 39% of the total sales comes from the domestic market. Of this,
sales from the fast growing chronic segment accounts for ~ 65-70%. As
per latest IMS data, TPL is ranked second in the CVS segment and third in
the CNS segment in domestic branded formulations. To improve the
performance in the domestic market, it is increasing its presence in Tier I
cities and metros and expanding into villages. For this purpose, TPL has
added a 1000 strong field force in the last 12 months. It has recently
entered the gynaecology segment and is planning three to four product
launches in the second half.
International operations
More than 50% of sales comes from international markets. TPL operates
in markets such as Brazil, EU, ROW and the US. The company is one of
the leading Indian generic drug players in the Brazilian market. Brazil
remains a key international market for the company and accounts for
~16-17% of the total sales. It has a product basket of around 26 products
and 90% of these are from the CVS and CNS segment. TPL is planning to
add 200 people to improve its existing market share and create
awareness for the next 30-40 product launches over three to four years.
The company’s EU business is broadly classified into the German market
and non-German markets. In German markets (accounts for ~12% of
sales) it operates through a subsidiary Heumann Pharma. Majority of the
sales from the German market comes from the tender business. In EU (ex
Germany) the company drives sales mainly through dossier out licensing
and product supply agreements.
TPL was a late entrant in the US market and, currently, sales from the US
market accounts for ~4-5% of total sales. Despite being a late entrant, it is
significantly improving its presence through product launches. So far, TPL
has launched nine products and is awaiting USFDA approval for 27
ANDAs. Besides this, it is also building up a strong pipeline of 35 ANDAs.
Going forward, new product launches will drive the growth.
TPL recently entered the Mexico market. It is implementing the same
Brazilian strategy in Mexico. Till date, it is marketing six CNS products
with a field force of 35 people. It is planning to launch four more products
in CNS segment in H2FY11 and is looking to enter the CVS segment in
FY12. In the near term, TPL is also planning to enter the Thailand, South
Africa and Australian markets.
CRAMS business
Since 1992, TPL is a preferred partner for Novo Nordisk for manufacturing
Human insulin. Novo Nordisk is by far the largest player in the human
insulin space, both in India as well as abroad. To meet the growing
requirements of Novo, the company has commissioned a new human
insulin formulation manufacturing facility in the last fiscal with a capacity
of 26 million vials per annum.
In FY10, TPL signed supply agreements with two MNC companies Astra
Zeneca and another MNC (name un-revealed) for emerging markets.
Under the Astra Zeneca deal, Astra Zeneca will market 18 products of TPL
in nine emerging markets. The tie-up with the other MNC pertains to 50
products over 25 emerging markets.
Capex plans
TPL is planning to double to its current gross block over the next three to
four years. Currently, it owns two manufacturing facilities at Indrad near
Ahmedabad and Baddi. It is setting up two more manufacturing facilities
at Sikkim and Dahej with a total capex of | 1000 crore. Apart from these, it
is also expanding the Indrad facility.
View
The domestic pharmaceutical industry is expected to grow at17-18% in
the near future mainly driven by chronic therapies. Considering the fact
that ~65-70% of TPL’s domestic sales come from chronic therapies,
improving pipeline in the US market and foray into emerging markets like
Mexico and Thailand, we envisage strong growth in the long-term.
Currently, the stock is trading at | 552, at a TTM multiple of ~16x.
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