EUR 120.00 For Business Accounts Only

MOSL: TORRENT PHARMA: Promising outlook for India and Brazil segments

• Torrent Pharma (TRP) delivered in-line 1QFY23 performance. Healthy growth in domestic formulation (DF)/Brazil was offset to some extent by weak show in Germany and the US generics. While TRP intends to file ANDAs for the US market, successful resolution of the USFDA issues remains the key for business improvement in the US.
• We have maintained our EPS estimates for FY23/FY24. We continue to value the stock at 26x 12M forward earnings to arrive at our TP of INR1,510. While TRP continues to deliver better-than-industry growth in branded generics market, the return ratios remain adversely impacted by lower off-take in the US market. Maintain Neutral.

Product mix and increased costs hurt margins on a YoY basis

• TRP’s 1QFY23 revenue grew 8% YoY to INR23b (our estimate: INR22b). Growth in India/Brazil/RoW was offset by decline in the US/Germany. DF sales grew 14% YoY to INR12.5b (54% of sales). Brazil sales were up 20% YoY to INR1.8b (8% of sales). ROW sales were flat YoY at INR2.1b (9% of sales). The US sales were steady YoY at INR2.6b (USD39m; 11% of sales). However, Germany sales declined 18% YoY to INR2.2b (9% of sales).
• Gross Margin (GM) contracted 100bp YoY to 71.4% on raw material inflation.
• Consequently, EBITDA margin contracted 250bp YoY to 29.2% (our estimate: 29.5%), owing to higher other expenses (+140bp YoY).
• EBITDA was flat YoY at INR6.7b (our estimate: INR6.5b).
• TRP received a one-time income of INR380m from an innovator in 1QFY23.
• PAT declined 4% YoY to INR3.2b (our estimate: INR2.3b).

Highlights from the management commentary

• TRP’s secondary sales in the DF segment grew 17% YoY v/s industry growth of 2% YoY in 1QFY23.
• The company intends to launch 7-8 products per quarter in the DF segment.
• TRP added 300 MRs in the DF segment totaling to 4,200 at end-1QFY23.
• The company exhibited 8% YoY growth in Brazil on constant currency basis.
• About 88% of Brazil business is branded generics in nature.
• TRP launched five products over the past six months in Brazil. It received two approvals in 1QFY23 and has 11 products pending for approval.
• Management intends to do double-digit filing in FY23E for Brazil market
• TRP also benefitted by the inflation-linked price hike of 10% YoY in the Brazil market.
• Cumulative ANDAs pending for approval stood at 60, with three tentative approvals received. One ANDA was filed during the quarter.