Torrent Pharmaceuticals' Q2FY19 results (Outperformer) - Steady quarter; domestic continues to grow
Q2FY19 result highlights
- Rev at Rs18.9bn (+33%/1% yoy/qoq) broadly inline vs est Rs19bn. India stood lower at Rs8.16bn (-2% qoq) vs est of Rs8.3bn aided by Unichem consolidation. Ex Unichem sales was flat yoy (+33% yoy in Q1)
- US reported higher sales at Rs3.9bn (+18% qoq; est Rs3.5bn) aided by the BioPharma acquisition. Brazil came in lower at Rs1.47bn (est Rs1.8b) while RoW stood higher at Rs1.67bn (24% qoq) vs est of Rs1.35bn.
- EBITDA stood lower at Rs4.7bn (-1% qoq) vs est Rs5.1bn. Margins of 25% (25.5% in Q1) vs est 26.6%. Adj for one time impact of Rs250mn for product recall in US adj EBITDA stood at Rs5bn broadly inline. GMs at 71.1% vs 70.2% in Q1; est of 72%; SG&A cost stood inline at Rs8.7bn.
- Other income stood lower at Rs100mn vs est of Rs250mn. Tax rate stood lower at 13% (30% in Q1) vs est of 27%. Reported PAT stood lower at Rs1.8bn vs est of Rs1.9bn
Key positives: Higher US revenues and lower empl 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 H1FY19, 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%/31% 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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