Maintain ADD on Torrent Pharma - Stable performance, Resilient outlook - HDFC Securities

Ms. Bansi Desai, Institutional Research Analyst, HDFC Securities.

Torrent Pharma (Q4FY20): Stable performance, Resilient outlook. Maintain ADD
(TP Rs 2,605 , CMP Rs 2,582 , MCap Rs 437 bn)

Torrent's Q4 Adj. PAT came ahead of expectations driven by higher margins and lower tax. Torrent's EBITDA margin (27.3% in FY20, +100bps YoY) are best among peers and are further set to expand led by improving MR productivity and price led growth in India business. We expect FCF generation of ~Rs 47bn over next two years to lower net debt/EBITDA to ~0.3x by FY22e from ~1.8x in FY20. We increase our EPS estimates by 4-7% for FY21/22e on account of resilient margins aided by cost control efforts. We revise our TP to Rs2,605 based on 16x EV/EBIDTA based on FY22 estimates.

In line revenues, margins beat: Revenues at Rs19.5bn were led by strong growth in India (+11% YoY, +15% YoY adjusted for Covid) and RoW markets (+15% YoY). EBIDTA margin (28.2%, +234bps YoY, +174bps QoQ) was aided by productivity improvement, Unichem synergies and focus on cost control. Reported PAT was boosted by one time tax benefit of Rs530mn.

India business to outperform peerset: India growth in Q4 was driven by market share expansion and strong momentum in new launches (Ticagrelor, Vildagliptin and Remogliflozin).We expect India business (chronic focused) to grow ahead of Industry driven by price led growth & ramp up in new launches.

Other markets: US business maintained its quarterly run rate of USD50mn despite lack of new launches in FY20. We expect growth to remain tepid in FY21, however, resolution of plant can lead to higher approvals (48 pending ANDA) and improve growth visibility. Brazil market grew at 11% YoY (cc terms) in Q4 led by market share gains and new launches. We believe Torrent's strong presence in chronic segment (CNS, Cardiac, Diabetes) will lead to continued outperformance in this market.

Key call takeaways: a) Dahej - completed CAPA, invited FDA for desktop audit, Indrad - plan to complete CAPA by Q2FY21, Levittown - production will commence from Q3FY21; b) Debt repayment - Rs10bn in FY21, Capex - Rs2-2.5bn in FY21/22; c) India growth - price led growth should continue; volume for acute biz will be impacted; d) Working capital increased by Rs3-3.5bn on Mar 20 (lockdown led), has normalized now.

Maintain Add, risks: We increase our EPS estimates by 4-7% for FY21/22 and revise our TP to Rs2,605 (from Rs2,405 earlier) based on 16x FY22 EV/EBIDTA. Key risks: Slower growth in Indian formulation market; higher price erosion in US generic market; delay in resolution of OAI at Dahej and WL at Indrad facilities.

Shares of TORRENT PHARMACEUTICALS LTD. was last trading in BSE at Rs.2403.55 as compared to the previous close of Rs. 2581.25. The total number of shares traded during the day was 63430 in over 7515 trades.

The stock hit an intraday high of Rs. 2618 and intraday low of 2375. The net turnover during the day was Rs. 156627310.

Source : Equity Bulls

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