Torrent Pharma Q2 Results Review: Analysts See Steady Growth In India Business

The drugmaker's net profit rose 24% year-on-year to Rs 386 crore in the quarter ended September, according to its exchange filing

Brightly coloured pharmaceutical medication, including antibiotics, paracetamol, Ibuprofen and cold relief tablets in the U.K.

Most brokerages have retained their ratings on Torrent Pharmaceuticals Ltd. following its second-quarter results, noting strong performance in the branded generics market in India and Brazil, which was partly offset by a weak show in the U.S.

However, some brokerages see the current valuation leaves limited upside for the stocks.

The drugmaker's net profit rose 24% year-on-year to Rs 386 crore in the quarter ended September, according to its exchange filing. It was in line with the Rs 383 crore consensus estimate of analysts tracked by Bloomberg.

Torrent Pharmaceuticals Q2FY24 Highlights (Year-on-Year)

  • Revenue up 16.1% at Rs 2,660 crore. (Bloomberg estimate: Rs 2627 crore)

  • Ebitda up 21.5% at Rs 825 crore. (Bloomberg estimate: Rs 810 crore)

  • Margin at 31.01% versus 29.63%. (Bloomberg estimate: 31%)

Shares of Torrent Pharmaceuticals were trading at Rs 1872.30 apiece, almost at par (-0.02%) at 9:25 a.m. This compares to a 0.10% advance in the benchmark Sensex.

Of the 33 analysts tracking the stock, 25 maintain a 'buy' rating, five suggested 'hold', while three recommended 'sell', according to Bloomberg data. The return potential implies an upside of 14.3% over the next 12 months.

Here’s what brokerages have to say about Torrent Pharmaceuticals' Q2 FY24 performance:

Jefferies

  • Maintains 'hold' with a revised price target of Rs 2,040 from Rs 1,950 apiece earlier, implying an upside of 8%.

  • Q2 FY24 revenue and Ebitda were in line with their estimates.

  • PAT 6% above estimates due to higher other income and partly offset by higher than expected depreciation.

  • A gross margin of 75% was led by a strong geographical mix and the discontinuation of low-margin products in the US.

  • Steady growth in India. Revenue grew 18% year-on-year, of which Curatio's contribution was 6%.

  • India-based business growth of 12% was driven by 7% price, 1–1.5% volume, and 3.5–4% contribution from new launches.

  • Brazil recovered partly, helped by sales spillover from Q1.

  • US sales were weak in Q2 due to the discontinuation of products and short-term supply issues.

  • Also, no changes were seen in price erosion trends in the US in 2Q.

  • Branded markets are the key focus, and capital allocation will remain disciplined.

  • As per Torrent Pharma, leverage won't exceed three times the net debt/Ebitda.

  • The company does not expect any significant impact of trade generics, Jan Aushadhi or private label medicine substitution on the branded generics market in India.

  • Tweak FY24–26 EPS estimates marginally.

  • Maintain 'hold' as current valuations leave limited upside.

Nomura

  • Retains 'buy' with a reduced price target of Rs 2,156 from Rs 2,199 apiece earlier, implying an upside of 15%.

  • Q2FY24 sales recorded 16% growth year-on-year and were 1% ahead of the brokerage's estimates.

  • Ebidta/Pat were 1%/3% lower than estimates for higher costs, depreciation and tax rates.

  • US revenues declined $6 million quarter-on-quarter due to product rationalisation, contract losses, and supply constraints.

  • The company expects US revenues to improve from the low base of Q2FY24 driven by new product launches.

  • The company expects Germany revenues to rise from 4QFY24 on recent tender wins.

  • The company has commercialised its oncology product in the US and the costs from the facility had some negative impact on earnings during the quarter

  • Reduces earning estimates for FY24–26 by 4-5%, driven by lower US revenues, higher overheads, and some adverse currency movements

  • Estimates ~70% of sales, a larger proportion of profits to be derived from the branded generics markets of India and Brazil.

  • Thinks that the company’s willingness to pursue acquisitions and track record of successfully integrating them supports the valuation multiple.

HSBC Securities

  • Maintains 'buy' with a revised price target of Rs 2,200 versus Rs 2,250 apiece, implying an upside of 17%.

  • Results are largely in line with expectations.

  • The core India segment, which is 54% of Q2 revenue, sustained above-market growth.

  • India sales grew 12% year-on-year versus industry growth of 4%, excluding Curatio.

  • Brazil sales grew 23% year-on-year in constant currency (13% year-on-year in constant currency excluding Q1 sales spill-over).

  • US sales fell 18% year-on-year in constant currency on the loss of certain contracts and a lack of new launches.

  • Germany and the rest of the world sales were largely in line.

  • The focus of capital allocation remains on the India market, where it can inch up leverage up to 3x for strategic M&A assets.

  • This was provided it has visibility on cash flows that can help it lower leverage to 1.5-2x within two to three years of acquisition.

  • The broker notes that for a potential Cipla deal to acquire the founder family stake of 33.47% and a subsequent open offer for a 26% stake, around $7.9 billion in funding would be required through various means.

  • Assuming leverage of 3-3.5x, Torrent Pharma can manage debt funding of ~$3.5 billion.

  • Positive on its structurally strong business profile, where more than 70% of revenue comes from branded generics markets.

  • Healthy Ebidta margin trends should continue with improving margins for the Curatio portfolio, headroom for price hikes in branded generics markets, and operating leverage.

Motilal Oswal

  • Maintains 'neutral' with a target price of Rs 2,050 apiece, implying an upside of 9%.

  • Delivered in-line 2QFY24 financial performance.

  • Continued to outperform in domestic formulation as well as in the Brazil market.

  • This was partially offset by the subdued show in US generics.

  • The company remains on track for superior execution in the branded generics market (domestic formulation and Brazil).

  • It is further scaling up additional levers of growth (trade generics and consumer healthcare) in India.

  • With new launches and an increased field force, it is well positioned to sustain growth momentum in Brazil.

  • While US generics base business continues to witness price erosion, new approvals would drive growth prospects.

  • Management indicated potential for further margin improvement in the Curatio portfolio.

  • Reduce the FY24 earnings estimate by 4% to factor in higher interest costs and moderation in US generics business.

  • Maintain earnings estimates for FY25.

  • Maintain a 'neutral' rating due to the limited upside potential of the current levels.

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WRITTEN BY
Monal Sanghvi
Monal Sanghvi is a Senior Correspondent at NDTV Profit. She is a Chartered ... more
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