Torrent Pharmaceuticals : Muted quarter but outlook unchanged… :: ICICI Securities

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Muted quarter but outlook unchanged… • Revenues grew 15% YoY to | 1168 crore, below I-direct estimate of | 1217 crore on account of lower-than expected export sales • EBITDA margins declined 63 bps to 20.6% against I-direct estimate of 24% and the delta was on account of forex losses in Europe and Brazil. EBITDA in absolute terms grew 11.6% to | 240 crore against Idirect estimate of | 292.1 crore • Net profit witnessed a YoY increase of 5.7% to | 167 crore, below Idirect estimate of | 188.4 crore mainly on account of a lower-thanexpected operational performance Chronic focus, diversified portfolio, nimble-footed approach Torrent has remained ahead of the curve when it comes strategic decision making. In domestic formulations, it concentrated on high yielding chronic therapies like cardiovascular and neuropathy when most Indian players were growing in anti-infectives (acute). It was one of the early entrants in the Brazilian markets. It acquired a marketing company in Germany in 2005. It also struck a CRAMS deal with Novo-Nordisk in the Indian market for Insulin. Just when it was witnessing a slowdown in domestic formulations, it acquired Elder’s lucrative formulations business. US launches such as gCymbalta and gMicardis have strengthened the US business and overall financial health. Strong margins and high return ratios are some of the major differentiators for Torrent. Exports business remains in sweet spot The exports business (~55% of the total turnover) is witnessing strong traction especially from the US. Brazil has started showing signs of a recovery with a recalibrated approach. Other export markets such as Europe and RoW are growing at a steady pace. In the US, the company owns a healthy product pipeline (72 filed ANDAs, 53 approvals and 39 launches). We expect US sales to grow at a CAGR of 12.8% in FY14-17E to | 1113 crore on a higher base. Similarly, RoW and European sales are likely to grow at a CAGR of 10% and 7.1% to | 505.3 crore and | 1141.8 crore, respectively, during FY14-17E. Indian formulations growth steady Despite having higher proportion of chronic therapies, the company remained an underachiever in the branded formulations space, growing at a CAGR of 13% in FY09-14. The acquisition of Elder Pharma’s branded portfolio is likely to add new therapies such as neutraceuticals and gynaecology and fill up the portfolio gaps. Elder’s portfolio is also margin accretive. We expect Indian branded formulations to grow at a CAGR of 28% in FY14-17E to | 2455.1 crore. US, Brazil, India key catalysts for future; maintain HOLD The US, Brazil and domestic formulations remain the troika for future growth based on new product launches and improvement in market share. The US remains in good shape despite the exclusivity sunset of gCymbalta as the pipeline remains promising. The management also remains optimistic on Elder’s portfolio, which is likely to improve the margins scenario considerably. Brazilian growth is crawling back to normal with a recalibrated approach. Other segments such as RoW and Europe, however, remain draggers in an otherwise high growth engine. We have increased multiple to 18x from 16x on the back of improved visibility. Accordingly, our new target price stands at | 1165 based on 18x FY17E EPS of | 64.7.

LINK
 http://content.icicidirect.com/mailimages/IDirect_TorrentPharma_Q3FY15.pdf