ADD on Torrent Pharma - Resilient performance - HDFC Securities

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

Torrent's Q1 EBITDA margin expanded to 32.1% (+540bps YoY) largely driven by favorable product mix and cost savings. India (+2% YoY) and Brazil (+1% YoY, cc terms) businesses demonstrated strength on account of chronic focused portfolios. Both these markets are expected to outperform the industry. The outlook for US remains subdued until key plants are resolved. The company repaid debt of Rs4.4bn in Q1 and is on track to reduce it by Rs10bn in FY21. We like Torrent's India franchise and its superior return profile. Higher contribution from India justifies the premium multiple over peers. We increase our EPS estimates by 6%/3% for FY21/22e to factor lower costs. We revise TP to Rs2,620 based on 16x EV/EBIDTA.

Margin beat: Revenues grew by 1% to Rs20.4bn as strong growth in RoW (+30% YoY, broad based, aided by higher stocking of inventories) was offset by Brazil (down 20% YoY, +1% YoY in cc terms), Germany (down 11% YoY, +19% QoQ, upgrading quality system) and US (down 8% QoQ, lack of new launches). EBITDA margin (31.8%, +540bps YoY, +395bps QoQ) was driven by gross margin improvement (higher chronic share) and cost savings. Other expenses include Rs150mn of forex loss.

India and Brazil will outperform the industry: While India growth in Q1 was impacted by Covid, new launches - Ticagrelor, Vildagliptin and Remogliflozin gained market share on a QoQ basis. Torrent expects price led growth to continue and new launches to drive growth (plans 10 new launches). In Brazil, strong presence in cardiac, CNS and diabetes segment is expected to drive outperformance. The covered market stands at ~23% and therefore has significant room for growth.

US remain lackluster: US business declined to USD47mn from its quarterly run rate of USD50-52mn. Torrent plans to launch 1-2 products through external collaboration. We factor revenues to decline in FY21 on back of no meaningful launches. Resolution of key plants remains critical for approvals.

Key call takeaways: a) Dahej and Indrad- submitted closure report, invited FDA for desktop audit; b) US - No plans to enter in sartans in near future, to file 10-14 ANDAs in FY21; c) Germany - guides for double digit growth for next three years; d) India - cost structure to largely remain unchanged.

Shares of TORRENT PHARMACEUTICALS LTD. was last trading in BSE at Rs.2828.9 as compared to the previous close of Rs. 2731. The total number of shares traded during the day was 66779 in over 6299 trades.

The stock hit an intraday high of Rs. 2845 and intraday low of 2719.4. The net turnover during the day was Rs. 185596933.

Source : Equity Bulls

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