Torrent Pharmaceuticals' Q1FY20 results (Outperformer) - Good quarter; USsurprises positively
Q1FY20 result highlights
- Revs (Ex-OOI) at Rs19.8bn (+8%yoy) were ahead of est Rs19.4bn. OOI came at Rs460m (est of Rs340m). India revs came in-line at Rs9.07bn– 9% reported basis; Mgt suggested that growth was ~13% adjusted for product divestment and truncation of sales recognition period.
- US revs came at $54m ($52m in Q4) vs est $42m – key positive surprise given the challenges in the business. Brazil, Germany and ROW came largely inline with est.
- EBITDA stood at Rs5.4bn above est of Rs5.2bn. EBITDA margins at 26.8% were above est of 26.2%. EBITDAM surprise was primarily due to higher gross margin. GM was at 72.4% vs est of 71.5% and 71.3% in Q4.
- PBT came at Rs2.8bn vs est of Rs2.5bn. Tax rate was at 23% vs est of 25%. Aided by low tax, PAT was at Rs2.2bn vs est Rs1.9bn.
- US – A) Torrent has resumed selling gLosartan / gLosartan-H in US from Q1FY20 onwards, albeit cautiously. It achieved flat revenues qoq, partially due to launches from tail-end of last year as well as leveraging a higher inventory for products experiencing supply disruptions and impurities. B) Uncertainty continues on the status of new ANDA approvals from both Indrad / Dahej facilities post their recent FDA inspections. This may impact revenue from new product launches. C) Despite these challenges remain positive on US sales being flat yoy.
Impact on financials: We increase our FY20 EPS by 4% to build in higher US sales.
Valuations & view
Post a challenging Q4 and subsequent concerns on key markets, Torrent has bounced back strongly in the current quarter with strong show in the core markets of India and US. Looking forward, management continues to be optimistic on the growth outlook for all market segments including Brazil, Germany and RoW. This combined with continued cost control should keep up the profitability momentum despite likelihood of flat to marginally lower US sales in FY20 due to regulatory issues. We expect a sharp earnings recovery in FY21 as we incorporate normalization of the US business (and resultant operating leverage) with the resolution of FDA issues over next 6-12m. Maintain Outperformer with price target of Rs1720. Recommend adding into the weakness.
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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