Torrent pharma has a successful track record of consistently delivering
profitable growth: It is one of the better managed companies in the Indian
pharma space with high standard of corporate governance. Company’s
international formulation business is expected to lead the performance of
the company in the medium term.
It is a play on highly profitable and fast growing lifestyle segments in
domestic formulation business: Torrent derives its strength from being
leader in some of the lucrative and fastest growing chronic therapy
segments of CVS and CNS. It has consistently maintained its leadership in
these therapeutic segments with strong brands and new product launches.
It has one of the most profitable domestic formulation business among its
peers and even compared to larger counterparts. We believe that the
recent slowdown in domestic formulation business is transitory and the
management has taken corrective measures to address the slowdown.
Expect growth to come back on track from 2HFY13 onwards.
Torrent’s international business is on strong footing and expected to lead
the performance: The company’s investment in international business
have started paying off and we expect profit margins to expand as
operations scale-up. Healthy revenue growth expected in markets like US,
Europe and Brazil and entry into some of the largest branded generics
markets like Mexico, will drive revenue growth and increase profitability.
Next phase of growth will be led by regulated markets (ex-Germany).
Expect revenue from regulated markets (Ex-Germany) to grow at a CAGR
of 34% over FY12-14, led by US market.
Outlook and Valuation: We expect strong EPS CAGR of 24% over FY12-14
led by 24% CAGR in international business. The company has strong
balance sheet with lean working capital and zero net debt. Expect RoCE to
remain above 25% over next 2 years and free cash-flow generation of Rs6b
during the same period. The stock is trading at 14.1xFY13E and 11.9xFY14E
earnings which is at significant discount to large cap and some of the midcap
companies in the sector.
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