Maintain 'Buy' on Torrent Pharma – TP hiked to Rs.783 - Geojit BNP Paribas

Buy rating on Torrent Pharma is maintained with a revised target price of Rs.783, as against the earlier target of Rs.763. Target revision is due to the rollover of the valuation by one year. Continue to value the scrip at 12 P/E of one year forward earnings.

Torrent's fortunes rest on India, Brazil and the US markets, which contribute 70% of sales and they will drive the majority of incremental growth.

Company's exports would get a boost because of limited competition in Brazil and the US markets. (This is due to high entry barriers in Brazil market and limited competition in the US market)

Productivity improvement will drive growth of the company in the Indian market as well to the industry levels.

The company concentrated in investments in the last few years for capacity additions, product filings for Brazil/ US markets and also for multinational partners, entry in to new therapies in India. It seems that the investment phase is nearing an end and operating leverages are expected to start kicking in. This implies that the operating performance may exceed top-line growth.

Effective tax rate of the company is set rise by 2 percentage points due to the tax proposal in the Union Budget. Therefore, EPS estimates for FY13 & FY14 cut by 2.2% each.

The company has put in place the right infrastructure for key markets and the next few years may be those of execution.

It is expected that the company could grow better than the industry average for the next two years. Considering all the positives, the stock is undervalued at the current price.

Source : Equity Bulls

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