Q1FY12 Results Update -Torrent Pharmaceuticals Ltd ::Nirmal Bang

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Results were above expectations: Torrent Pharmaceuticals
Limited reported total income of Rs 647.5 cr for Q1FY12, a
growth of 19.7% yoy and 23.0% qoq. Net profit increased by
38.2% yoy at Rs 102.6 cr
Key highlights
 EBITDA margins have jumped to 23.6% in Q1FY12 as
compared to 20.7% in Q1FY11 because of higher dossier
income, which is not sustainable, however manufacturing
cost has increased during the quarter due to
commencement of Sikkim facility, which dragged down the
capacity expansion.
 US (56.3% yoy), Brazil (22.3% yoy) and Contract
manufacturing 39.2%) were key growth contributors.
However, Q1FY12 contract manufacturing includes Rs 17.1
cr dossier licensing income as compared to Rs 2.4 cr in
Q1FY11. Management expects substantial dossier income to
flow in FY12
 India business was lackluster this quarter despite 18 new
product launches (including line extensions). Indian growth
was impacted due to slow down in acute segment.
Management has assured that they have corrective action
to check the higher competition in acute segment and
results of which would be visible from Q3FY12. The
company expects 2HFY12 to be stronger as compared to
1HFY12 in terms of domestic business and expects to
achieve full year growth of 16-18%
Valuation & Recommendations
Torrent reported results above our expectations on back of
strong export business and higher dossier income. Domestic
market is expected to recover in 2HFY12. Considering the
revenue visibility and sustainability of margins, we remain
positive on the stock. We had recommended Torrent
Pharmaceuticals on 11th Feb’11 at CMP of Rs 549. The stock has
moved 17.7% since then. At the CMP of Rs 646, TPL is trading at
a PE of 15.7x FY12E and 13.4x FY13E EPS. We recommend HOLD
on the stock with price target of Rs 700, which is 8% from current
levels




 Brazil/Mexico:
 Revenues grew by 21.7% yoy in Brazil (Rs 105.5 cr) and 50% yoy
in Mexico (Rs 2.7 cr).
 During the quarter, sales de-grew by 16% in the local currency
terms after adjusting for sales spill over in Q4FY11. Channel
inventory adjustment also impacted the growth (Rs 14 cr) in
the region during the quarter
 Company has launched two products in Brazil and planned to
launch two more in Q4FY12.
 Currently the company is actively marketing four products in
Mexico and plans to launch two more products during the year
 Torrent has 300 people in field force and 30 in Mexico
 US
 Launched two new molecules during the quarter taking the
total number of molecules to 17
 US region is likely to break even by FY13
 Heumann
 Heumann got tenders for nine products
 Growing in-line with expectations
 Contract Manufacturing
 The company strong growth of 39% yoy in contract
manufacturing business because of existing contract with novo
for insulin; 35% growth
 Sales from another crams partner Astrazeneca would start
contributing after FY13
 The company has guided for tax rate improvement in FY12 (18%) from
21% in FY11
 Capex for the year expected is Rs 200 cr