MOSL: TORRENT PHARMACEUTICALS (Buy)-Muted performance in key markets impacts results

​Torrent Pharmaceuticals: Muted performance in key markets impacts results

(TRP IN, Mkt Cap USD3.2b, CMP INR1224, TP INR1450, 19% Upside, Buy)

• TRP reported sales of INR13.8b (-8% YoY; ~8% below est.), with EBITDA of INR2.95b (est. of ~INR3.4b) and PAT of INR2.1b (-42% YoY; est. of INR2.3b). The miss in numbers is attributed to weak sales in India and the US due to pricing pressure and limited launches. For FY17 sales, EBITDA and PAT stood at INR58.6b (-12.3%YoY), INR13.8b (-49%YoY) and INR9.3b (-48%YoY) respectively.
  
• US, India deliver muted performance: US business declined 45% YoY (-10% QoQ) to INR2.8b due to continued pricing pressure in base business and limited launches YTD. We expect this business to remain under pressure in FY18 due to further price erosion in base business, partially offset by 8-10 new launches in FY18E (~25 pending ANDAs; six approved ANDAs that were not launched in FY17). TRP is also focusing on in-licensing of products in the US. India business grew at ~6% YoY, with chronic and sub-chronic segment secondary sales outpacing industry growth. The company expects India business to grow in double-digits, led by strategic initiatives undertaken since 2QFY16.
  
• Earnings call takeaways: 1) 16 ANDAs filed in FY17; re-looking R&D strategy - will focus on complex products requiring clinical trials. 2) Mid-teens pricing pressure expected in FY18 in the US. 3) Normalized depreciation rate of ~INR800-810m/quarter v/s INR970m in 4Q. 4) Capex of INR4b expected in FY18/FY19 toward Sikkim expansion and Onco block & Dahej Phase-2. 5) Renagel launch deferred for more than one year. 6) Tax rate to stay at ~20% in FY18. 7) Germany sales to grow at >15% YoY. 8) Govt. allowed price increase in Brazil; to be ~3% in FY18 v/s ~12.5% in FY17.