Torrent Pharma: Growth in chronic therapies  TP of INR715::HSBC Research,

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Torrent Pharma: Growth
in chronic therapies
 Strong positioning in two large branded generic markets, India
and Brazil, with two-thirds of portfolio focused on chronic
therapies
 US small but scaling up; RoW market has potential to surprise,
with increasing contribution from alliances
 Initiate as N(V) with a TP of INR715
Investment thesis
Our bullish view is driven by a strong growth
outlook in India and Brazil, which together formed
c55% of total sales in FY11. The company’s US
business is at an inflection point and is scaling up.
We expect a net profit CAGR of 20% over FY11-13,
with margin expansion of c50bps.
Indian formulations – growth in chronic
therapies: Torrent is ranked in the top 20 in the
domestic market, with a market share of c2%.
Two-thirds of its products are therapies for
chronic diseases like CVS, CNS and diabetes,
which should drive sustainable growth. Domestic
formulations, which contribute c40% to total
sales, have increased at a CAGR of c16% over the
last five years. We forecast 15% growth over the
next two years.
Brazil and the US are strong contributors:
Brazil (16% of total sales) is forecast to grow at a
c16% CAGR over the next two years on the back
of new launches and increasing share in existing
products. The US is likely to add scale as patents
expire. We expect the US to contribute c8% of
sales in FY13, from 5% in FY11.
New markets and alliances to be material in
FY13: Torrent has entered new markets like
Mexico, the UK, Romania, Canada and parts in
Asia; it has also tied up with AstraZeneca and two
other MNCs for emerging markets. We have built
in modest growth assumptions for RoW markets.
Early ramp-up could offer potential upside.
Margins to remain steady: We expect FY12
margins to be essentially flat but expect higher
margins in FY13. We believe improvement in
sales force productivity in the domestic market,
control on costs and material contribution from
Sikkim will be key factors in margin expansion.
Initiate as Neutral (V), TP INR715: We value
TRP at 15x our FY13 EPS of INR47.8, in line
with the recent historical average. Key risks
remain inconsistency in domestic and Brazil
growth. Currency fluctuation could impact
reported profit.