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Currency benefits
Torrent Pharma’s reported numbers were ahead of estimates primarily on
account of one-time licensing income of Rs170m and better than
expected margins due to benefit from favourable currency. Revenue
growth was weaker than expected especially on domestic front. Export
formulations grew strongly because of reasonable benefit from currency
in Brazil and Germany. Torrent’s working capital requirement reduced in
FY11 led by increase in creditors (payments due to insurers in Germany).
Key risk to earnings growth could come from appreciation of rupee.
Sales growth muted due to weaker domestic formulations
Domestic formulations growth was lower than expectations at 10% YoY led by
pressures in acute portfolio as per the company. The company plans to maintain
momentum on new launches with 18 new products launched during 1QFY2. The
management guided for 18-20% growth in residual quarters of FY12. Contract
manufacturing growth improved (44% YoY for 1QFY12) led by ramp up in recently
expanded facility for Novo Nordisk. Exports growth was stronger especially Brazil and
Germany due to currency benefit in both the cases. Underlying volume growth was
lower than expected. While US is a small proportion of total sales, Torrent’s sales grew
58% YoY in the US. The company filed 3 ANDAs during the quarter.
Favourable currency benefits Ebitda margin
Torrent’s Ebitda margins for the quarter picked up well and were higher than our
expectations. The company guides for FY12 margins to be slightly better than in FY11
despite commissioning of new facility for domestic formulations at Sikkim that leads to
higher upfront costs. We build 100bps Ebitda margin expansion both in FY12 and FY13.
While a favourable currency benefited Torrent’s margin this quarter, a reversal of trend
could pose risk to earnings.
Cash flow boosted by decrease in working capital
Torrent’s working capital requirement reduced during FY10 and FY11. During FY11, this
was led by increase in creditors that reflects payments due to insurers in Germany.
Torrent’s balance sheet is nearly zero net debt (incl. investments in mutual funds). The
company has optimised tax out go by differential transfer pricing for subsidiaries.
Valuations reasonable, risk from rupee appreciation
With substantial investments in domestic and other branded markets, we expect
Torrent Pharma’s net profits to grow 21% and see strong cash flows in FY12-13. With
valuations at discount to larger pharmaceutical names and reasonably strong core
earnings growth, we expect the stock to deliver strong return from current levels. Key
risk to the earnings could come from rupee appreciation that would impact both
reported growth as well as margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Currency benefits
Torrent Pharma’s reported numbers were ahead of estimates primarily on
account of one-time licensing income of Rs170m and better than
expected margins due to benefit from favourable currency. Revenue
growth was weaker than expected especially on domestic front. Export
formulations grew strongly because of reasonable benefit from currency
in Brazil and Germany. Torrent’s working capital requirement reduced in
FY11 led by increase in creditors (payments due to insurers in Germany).
Key risk to earnings growth could come from appreciation of rupee.
Sales growth muted due to weaker domestic formulations
Domestic formulations growth was lower than expectations at 10% YoY led by
pressures in acute portfolio as per the company. The company plans to maintain
momentum on new launches with 18 new products launched during 1QFY2. The
management guided for 18-20% growth in residual quarters of FY12. Contract
manufacturing growth improved (44% YoY for 1QFY12) led by ramp up in recently
expanded facility for Novo Nordisk. Exports growth was stronger especially Brazil and
Germany due to currency benefit in both the cases. Underlying volume growth was
lower than expected. While US is a small proportion of total sales, Torrent’s sales grew
58% YoY in the US. The company filed 3 ANDAs during the quarter.
Favourable currency benefits Ebitda margin
Torrent’s Ebitda margins for the quarter picked up well and were higher than our
expectations. The company guides for FY12 margins to be slightly better than in FY11
despite commissioning of new facility for domestic formulations at Sikkim that leads to
higher upfront costs. We build 100bps Ebitda margin expansion both in FY12 and FY13.
While a favourable currency benefited Torrent’s margin this quarter, a reversal of trend
could pose risk to earnings.
Cash flow boosted by decrease in working capital
Torrent’s working capital requirement reduced during FY10 and FY11. During FY11, this
was led by increase in creditors that reflects payments due to insurers in Germany.
Torrent’s balance sheet is nearly zero net debt (incl. investments in mutual funds). The
company has optimised tax out go by differential transfer pricing for subsidiaries.
Valuations reasonable, risk from rupee appreciation
With substantial investments in domestic and other branded markets, we expect
Torrent Pharma’s net profits to grow 21% and see strong cash flows in FY12-13. With
valuations at discount to larger pharmaceutical names and reasonably strong core
earnings growth, we expect the stock to deliver strong return from current levels. Key
risk to the earnings could come from rupee appreciation that would impact both
reported growth as well as margins.
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