PL Stock Report: Torrent Pharmaceuticals (TRP IN) - Q1FY24 Result Update - Margins to sustain - BUY

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

Rating: BUY | CMP: Rs2,055 | TP: Rs2,250

Q1FY24 Result Update - Margins to sustain

Quick Pointers:

♦ High double digit growth from Curatio portfolio with scale up in margins

♦ Growth momentum to continue in India, Brazil and Row markets

Torrent Pharma’s (TRP) Q1FY24 EBITDA was largely in line, however PAT was above our estimate led by lower tax and higher other income. Our FY24 and FY25E EPS stands increased by ~5% as we factor in higher GMs and lower tax. TRP has Rs 70bn (75% of total sales) worth of highly profitable branded formulation sales spread across India, Brazil and RoW markets. Curatio acquisition has been scaling up well with 700 bps margin improvement since acquisition. Historically TRP has successfully managed to integrate Unichem and Elder acquisition which gives us comfort. We expect 18% EBITDA CAGR and 31% PAT CAGR over FY23-25E. Maintain ‘BUY’ rating with revised TP of Rs 2,250/share, 20x EV/EBITDA to FY25E.

♦ Strong revenue growth across RoW and Germany: Revenues grew by 10.4% YoY to Rs 26bn, mainly driven by double-digit growth in RoW (+17%) and Germany (+21%) markets. Domestic formulation business grew by 15% YoY while Brazil growth was mere 3% below our estimate. US sales were flat QoQ to $34mn. Contract manufacturing was down 15% YoY.

♦ In-line EBIDTA; lower tax boosted profitability: TRP reported EBITDA of Rs7.9bn; up 11% YoY; in line with our estimate. GMs sharply improved by 320bps QoQ to 74.5% aided by better product mix and softening of API prices. However other expenses came in higher at Rs6.5bn; up 17% YoY and 5% QoQ. Staff cost also came in higher. Resultant EBITDA Margins stood at 30.5%; up 130 bps QoQ. Other income came in higher as it had Rs200mn one offs. Further tax came in lower. Resultant reported PAT stood at Rs3.8bn; up 7% YoY vs our estimate of Rs3.4bn.

♦ Key concall takeaways: Domestic branded: Torrent sales adjusted for NLEM impact was 16%, with Curatio portfolio contributing 5% to growth led by Tedibar. During Q1FY24, acute therapy sales remained sluggish, but the chronic therapy portfolio grew by double digits. TRP base business growth was led by price hike of 8%, 4% from new launches while volume growth was negative 3%. Curatio growth was 18% aided by key brands like Tedipar. Margins in Curatio was 7% higher that it was at pre acquisition level and should aid further in coming quarters. TRP have launched consumer healthcare platform in India with 200-250 field force. On pilot basis started with Shelcal brand and recently also initiated with Unienzyme brand. Germany market: In CC growth was 11% YoY, steady sequential recovery led by new won tenders with better conversion of existing tenders. Brazil: The growth was impacted by delay in dispatch to one large client and should recover in coming quarters. US Growth was impacted by price erosion on base portfolio and lack of new launches pending inspection of facilities. Guided for gRevlimid launch after FY25.

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