Torrent Pharmaceuticals' Q1FY19 results (Outperformer) - Strong operating performance; domestic biz shines
Q1FY19 result highlights
- Rev at Rs18.7bn (+36%/8% yoy/qoq) came higher vs est Rs18.1bn. India came ahead at Rs8.3bn (+79%; LTL 55%) vs est of Rs7.8bn growth aided by Unichem consolidation. Ex Unichem, sales grew +33%yoy
- US reported higher sales at Rs3.3bn (+9% qoq; est Rs3.2bn) aided by the BioPharma acquisition. Brazil came in lower at Rs1.69bn (est Rs2.08b).
- EBITDA was higher at Rs4.8bn (+31% qoq) vs est of Rs4.4bn. EBITDA margins of 25.5% vs est of 24.3% aided by lower other expenses at Rs4.9bn (Est Rs5.45bn) despite lower GMs (70.2% vs est of 72.5%).
- Other income stood lower at Rs270mn vs est of Rs500mn. Tax rate stood higher at 30% vs est of 27%. Reported PAT was in-line at Rs1.63bn
- Guidance: Maintains Unichem acquisition to be completely integrated by FY19-end. Most of the integration synergies already achieved much ahead of our estimates
Key positives: Higher India revenues and sharply lower SG&A cost
Key negatives: Lower Brazil sales, lower GMs
Impact on financials: We have maintained our FY19E/20E earnings est
Valuations & view
TPL is one of the most competitive mid-sized pharma company in India, with Rs56bn branded formulation sales (FY20E) across India, Brazil and EMs and a growing US generics business. The company’s focus on profitability adds to its competitiveness. Torrent’s Rs36bn bet on Unichem, followed by buyout of Bio-Pharma Inc. (a niche US generic business) - amid challenging times for the Indian pharma industry - signals optimism on its long term outlook for the business. Torrent expects profitability from its Unichem portfolio (20-22% at the time of acquisition) to expand sharply and align with Torrent’s profitability (>40%) over next 2-3 years. As reflected in the quarter, Torrent’s ability to keep overheads under check will deliver significant operating leverage and enhance the synergy gains from its recent acquisitions. Domestic business profitability combined with broad-based improvement in exports should drive 34%/32% EBITDA/PAT CAGR with strong free cash generation over FY18-20E, in our view. Maintain Outperformer with a price target price of Rs1820 (14x FY20E EV/ EBITDA).
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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