Torrent Pharmaceuticals' Q3FY20 results (Outperformer) - Broadly in line;Cost efficiencies makes up for miss in revenue
Q3FY20 result highlights
- Revs (Ex-OOI) at Rs19.2bn (-4%yoy) were below est of Rs20.6bn. OOI came at Rs420m (est of Rs400m). India revs came at Rs8.7bn vs est of Rs9.2bn– 4.3% reported basis; Mgt cited growth was ~8.5% adj for increased revs in base qtr owing to Unichem integration.
- US revs came at $53.5m ($54m in Q2) inline with est. Brazil came above est but Germany came below est due to backlog in product releases (supply disruption). RoW grew 18% yoy to Rs2bn inline with est
- EBITDA stood at Rs5.4bn vs est of Rs5.5bn. EBITDA margins at 27.5% were above est of 26.8%. EBITDAM beat was due to lower R&D, staff costs as well as SGA. GM was at 72.4% vs est of 73% and 73.2% in Q2.
- PBT came at Rs3.2bn vs est of Rs3bn. Tax rate was at 21% vs est of 23% Reported PAT was at Rs2.5bn vs est of Rs2.3bn.
- US plant status – Dahej to be offered for re-inspection around Mid-CY20. Indrad / US facility remediation measures to be completed by FY21e and thereafter to be offered for re-inspection. Guides to single digit new launches and flat to marginally lower US sales in FY21e
Impact on financials: Reduce FY21E earnings estimates by 9% to account muted outlook for FY21 US sales / lower domestic sales base. FY20 earnings upgraded by 5% to account for higher other income. Introduce FY22 earnings estimates.
Valuations & view
Despite regulatory headwinds in US generics and market growth issues in India, Torrent has posted a reasonably steady performance in H1FY20. Continued strong cash flow generation is another positive. Management remains optimistic on delivering double digit growth in India from FY21 onwards along with continued momentum in other non-US markets like Brazil, Germany and RoW. This combined with continued cost control should keep up the profitability momentum despite flattish US sales in FY20-21. We expect a strong earnings recovery from FY22 onwards as we incorporate normalization of the US business (and resultant operating leverage) with the resolution of FDA issues over next 15-18m. Consequently, return ratios should trend >20% by FY22E. Maintain Outperformer with price target of Rs2099 (22x FY22E EPS). Pick-up in India sales momentum will be key near term monitorable.
Torrent Pharmaceuticals is a pharmaceutical company based in India. Co. is engaged in the manufacture, sale and export of pharmaceuticals in the form of tablets, capsules, liquid, injections, vials, ointments, and bulk drugs. Co. is predominately active in the therapeutic areas of cardiovascular (CV) and central nervous system (CNS) and maintains a significant presence in gastro-intestinal, diabetology, anti-infective and pain management segments. Co.'s primary products include Insulin, Domperidone HCI, and Alprazolam. In addition, Co. is also engaged in the manufacture of medical equipment such as computerized tread mills and medical electronic equipment.
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