Torrent Pharmaceuticals' Q2FY20 results (Outperformer) - Marginal miss; Strong cash flow generation
Q2FY20 result highlights
- Revs (Ex-OOI) at Rs19.7bn (+6%yoy) were below est of Rs20.3bn. OOI came at Rs370m (est of Rs400m). India revs came at Rs9bn vs est of Rs9.2bn– 10% reported basis; Mgt cited growth was ~13% adj or product divestment (2% impact) and truncation of sales recognition period (1%).
- US revs came at $54m ($54m in Q1) inline with est. Brazil and Germany came largely inline with est. RoW grew 18% yoy to Rs2bn vs est Rs1.8bn
- EBITDA stood at Rs5.4bn below est of Rs5.7bn. EBITDA margins at 27% were below est of 27.6%. EBITDAM miss was despite higher gross margin. GM was at 73.2% vs est of 72.5% and 72.4% in Q4.
- PBT came at Rs3bn vs est of Rs3.1bn. Tax rate was at 18% vs est of 25% due to reassessment of deferred tax liabilities with change in corporate tax rate. Aided by low tax, PAT was at Rs2.4bn vs est Rs2.3bn.
- Strong cash flow generation – H1 OCF of Rs H1 OCF was Rs7.2bn with Rs1.5bn capex; FCF ~Rs5.7bn; Repaid Rs4.4bn debt and guided to further significant debt reduction in H2FY20 and FY21E.
- US – A) Torrent achieved flat revenues in US qoq despite no new launches leveraging market share gains and occasional shortages opportunities B) Delay in new ANDA approvals from both Indrad / Dahej facilities post WL/OAI received from their recent FDA inspections. This will impact revenue from new product launches over next few quarters C) Despite these challenges remain positive on US sales being flat yoy for FY20
Impact on financials: Maintain 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 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. 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 12-15m. Maintain Outperformer with price target of Rs1798 (23x FY21E EPS).
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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