Torrent Pharmaceuticals Ltd.| Q3FY15 Result/Concall Update | Though a muted quarter; outlook remains promising | Maintain HOLD rating with PT of Rs1,086 ::IndiaNivesh

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We attended conference call hosted by Torrent Pharma (TRP IN) management to understand the Q3FY15 performance in detail as well as future growth drivers over next 2-3 years. The underperformance in some markets and higher interest outgo led to inferior performance for the quarter. We cut our EPS estimates for FY15E and FY16E by 13% and 4% to Rs46.7 and Rs53.9, respectively, to factor muted performance for the quarter and adverse currency impact. We introduce FY17E earnings of Rs10.2bn and roll forward our valuation to 18x (unchanged) FY17E EPS of Rs60.3 to arrive at price target of Rs1,086 (from Rs1,010 earlier). At CMP of Rs1,132, the stock is trading at 21x FY16E EPS of Rs53.9 and 18.8x FY17E EPS of Rs60.3. We maintain HOLD rating based on valuation.

Concall highlights  Domestic formulation sales at Rs4.2bn had Elder portfolio sales of Rs1bn. The elder portfolio sales decreased sequentially from Rs860mn to Rs799mn. This has been due to higher push in Q2FY15. TRP has been making efforts towards improving recognition of Elder brands and has guided for sales of Rs4bn over four quarters post acquisition. TRP has also merged two business division of TRP and Elder reducing the workforce by 150. TRP has target of reducing it further by 150 by the end of 4QFY15. Excluding Elder portfolio, TRP Df sales grew by 15% y-y, driven by focus on brand building and improved field force productivity. TRP has introduced only 12 new products in past two years. However, TRP has guided for more number of new products launches going forward.  US sales at US$27mn grew at moderate rate of 14% y-y. This is mainly due to high base of past year. During Q3FY15, TRP filed 1 ANDA taking the cumulative filing to 72 ANDAs. TRP received approval for 3 ANDA, taking the cumulative approval to 53. Thus 19 ANDAs are pending for approval and 44 products are under development. TRP has guided for 9-11 products to be launched in FY16. TRP has also guided for more number of filing in FY16. Specifiically for gAbilify, Pediatric exclusivity is about to expire on 22 April 2015. However, litigation continues with the innovator. TRP continue to focus on complex generics giving us enough comfort in terms of future growth from US market.  Brazil sales grew by 6% y-y to Rs1.56bn. However, constant currency growth was much higher at 19% y-y. Such high growth for the quarter was driven by increased market share in products where prices where reduced as well as higher institutional business. TRP has about 13 products for branded segment and 8 products for generic segment which would enable higher growth going forward.  Though Europe sales contracted by 9% y-y to Rs2.3bn, the y-y growth was flat in constant currency terms. This has been due to increased competition in existing products and delay in new product launches. TRP has guided for better growth going forward backed by new products and higher tender business.  ROW sales grew at moderate rate of 12% y-y to Rs1.1bn due to discontinuation of business in non-performing countries and adverse currency movement in Russia. TRP has been making registration for new products in Middle East and South East Asia which would drive growth over medium term

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