PL Stock Report - Torrent Pharmaceuticals (TRP IN) - Q4FY23 Result Update - In line operating performance - BUY

Torrent Pharmaceuticals (TRP IN) - Param Desai - Senior Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,714 | TP: Rs1,900

Q4FY23 Result Update - In line operating performance

Quick Pointers:

§ Growth momentum to continue in India, Brazil and Row markets.

§ Launched consumer healthcare platform in India.

Torrent Pharma’s (TRP) 4QFY23 EBITDA was largely in line, however PAT was below our estimate led by higher tax and one-time inventory write off. TRP has Rs 70bn (75% of total sales) worth of highly profitable branded formulation sales spread across India, Brazil and RoW markets. In the near term, Curatio acquisition will increase the company’s net debt and we see this acquisition as EPS dilutive. Also historically TRP has successfully managed to integrate Unichem and Elder acquisition which gives us comfort. We expect 17% EBITDA CAGR over FY23-25E. Maintain ‘BUY’ rating with revised TP of Rs 1,900/share (Rs 1,820 earlier), 17x EV/EBITDA to FY25E.

§ Robust performance of branded generics at key markets: Revenue grew strongly by 17% YoY at Rs 25bn vs our estimate of Rs24.2bn aided by higher India and Brazil sales. Domestic formulation grew strongly by 22% YoY led by base business, new launches and Curatio consolidation. Brazil and ROW market grew strongly by 27% YoY, above our estimate aided by market share gain and new launches. US sales were down 4% QoQ to $34mn.

§ In-line EBIDTA; Higher tax led to PAT miss: TRP reported EBIDTA of Rs7.2bn; largely in line with our estimate. GM came in at 71.3%; there was one-time impact of 0.4%, due to inventory write off related to COVID products. OPM came in at 29.2% (flat QoQ). Other expenses came in at Rs6.2bn, up 1% QoQ led by higher R&D expenses. Other income was lower due to reducing cash balance. Tax came in higher at 33%. Resultant reported PAT stood at Rs2.8bn; up 14% YoY vs our estimate of Rs3.3bn.

§ Key concall takeaways: (1) Domestic formulation market: TRP base business grew 15% led by price hike of 7%, 3% volume and 5% from new launches. TRP expects India business to continue current growth momentum backed by new launches and integration of Curatio. (2) TRP have launched consumer healthcare platform in India with 200-250 field force. On pilot basis started with Shelcal brand in 4 states and expects to expand it at Pan India by end of FY24 (2) Brazil market: CC growth was 17% aided by market growth, new launches and CNS franchise. Torrent plan to launch six products in FY24. Added 36 reps in CNS division, bringing total no of reps to 295 (3) Germany market: In CC growth was 11% YoY, steady sequential recovery led by new won tenders and incremental growth in OTC. TRP also increased the size of its OTC field force in Germany; launched 10 new products in FY23 and expects to maintain its launch momentum for FY24. (4) US market: growth was impacted on price erosion, lack of new launches and pending inspection of facilities. Expects fresh inspection for Indrad facility while launches from Dahej plant may commercialize from FY25 onwards (5) New oncology facility received first approval in Q4 and co. plan to file 2-3 onco products annually (6) Guided for Rs10-12bn of debt reduction in FY24

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