Torrent Pharma, Mixed bag of performance.... IndiaNivesh Securities

Slow growth in International business linked with 3% decline in Brazilian
business, while domestic business was in-line with industry.
On the back of a) 44% y-o-y increase in US business, b) 14% y-o-y increase in Europe
(Excluding Heumann), CIS & ROW business and c) 15% y-o-y growth from Heumann
(Germany) & d) 3% y-o-y decline in Brazilian business linked with government
program for Losartan & Metformin, International business grew merely 16% y-o-y
to Rs 4.49 billion in Q3FY13. Domestic branded formulation business grew in-line
with the industry and reported 13% y-o-y growth to Rs 2.60 billion. CRAMs business
declined 4% y-o-y to Rs 587 million due to lower supply of Insulin to its customer.
Hence, overall business grew 14% y-o-y (2.9% q-o-q) to Rs 7.69 billion below our
estimates. ( V/s Rs 8.04 billion)

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Operating performance:
Company’s EBITDA grew 32% y-o-y (5.6% sequentially) to Rs 1.32 billion in Q3 FY13
(V/s INSPL est= Rs 1.45 billion). EBITDA margin declined 235 bps y-o-y (45 bps q-o-q)
to 17.2% level in Q3FY13 (V/s INSPL est= 18%) due to decline in material cost &
other expenditure partially offset by increase in employee cost.
During the quarter company received income of Rs 110 million from litigation
settlement & another Rs 110 million as royalty payment, reported in other operating
income. Hence, company reported other operating income of Rs289 million in
Q3FY13 (V/s Rs 211 million in Q2FY12), & effective tax rate increased 216 bps y-o-y
to ~22% level. Company’s net profit grew 35% y-o-y to Rs 1.12 billion in Q3FY13
(V/s INSPL est= Rs 1.21 billion).
Company reported EPS of Rs 13.3 in Q3 FY13 compared to Rs 9.8 in Q3 FY12.
Additionally, company has declared interim dividend of 120% for Rs 5 face value
per share.
Valuation:
At CMP of Rs 724, the stock is trading at P/E multiple of 14x & 12x of FY13E & FY14E
earnings estimates respectively. During the quarter company’s growth in domestic
market was in line with industry growth while company missed the estimates on
international front mainly due to slowdown in Brazilian business (which declined
~3% y-o-y) partially due to currency variation. Brazilian business in constant currency
grew 4% y-o-y. Due to governments interference for pricing of certain life savings
drugs & slowdown in approval, Torrent’s growth in Brazilian market would be critical.
After muted performance in the previous year, Torrent’s domestic market has
reported 13.5% revenue growth in 9MFY13, almost in-line with industry. Currently,
company has ~3900 field force in domestic market & likely to maintain the number

for next 1-2 years. However, management has emphasized on the improvement of
productivity of field force from current Rs 0.24 million to Rs .40 million. We believe
that despite low base, company’s growth in domestic market is not satisfactory. In
our view, international business seems on auto pilot mode and likely to maintain
healthy momentum going forward. Due to inconsistence performance in the past,
stock has traded at discount valuations to its peers and likely to trade at discount in
future also. At current level, stock looks fairly valued. We maintain HOLD rating on
the stock, with the target price of Rs 787, valuing at 13x of FY14E earnings estimates.