MOSL: TORRENT PHARMACEUTICALS (Neutral)-Superior product mix and low base drive earnings
TORRENT PHARMACEUTICALS: Superior product mix and low base drive earnings
(TRP IN, Mkt Cap USD3.6b, CMP INR1469, TP INR1480, 1% Upside, Neutral)
- Revenue growth driven by India/US businesses: Revenue increased 8% YoY to INR20.2b (our estimate: INR20.4b). US revenue increased 11% YoY to USD54m (+13% YoY to INR3.8b), supported by new launches and restart of Losartan sales. India revenue grew moderately by 9% YoY to INR9.1b. However, Germany (+4% YoY to INR2.6b) and Brazil (-3% YoY to INR1.7b) businesses exhibited a muted performance.
- Benefits from product rationalization in India/supply opportunity in US: Gross margin improved 210bp YoY (+100bp QoQ) to 72%, as the company discontinued low-margin products in India and capitalized on opportunities in the US due to supply shortage. However, higher employee cost (+40bp YoY to 19.3% largely due to annual increments) and other expenses (+60bp YoY to 27.4%) restricted EBITDA margin expansion to 130bp YoY (26.8% v/s our estimate of 25.2%). PAT grew 33% YoY to INR2.2b (our estimate: INR1.9b), led by improved margins and a lower tax rate.
- Key concall highlights: (a) TRP indicated US sales would come in flat YoY at ~USD220m in FY20 if Indrad also receives OAI (official action indicated) classification. (b) The company has gradually resumed losartan sales to the US market. (c) It repaid INR3.3b of debt this quarter, lowering gross debt to INR56b. (d) Incurred capex of INR1.8-2b till date on oral oncology facility. (e) R&D spend was at INR1.4b, 6.7% of sales.
- Valuation and view: We have marginally tweaked our estimates to factor in 1QFY20 results. We continue valuing TRP at 20x (unchanged) 12M forward earnings to arrive at a price target of INR1,480 (prior: INR1,450). We await clarity on classification of the recent USFDA inspection at Indrad facility. Maintain Neutral on limited upside from current levels.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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