Torrent Pharmaceuticals Ltd. share price target

While we remain constructive of TRP's domestic business owing to a strong presence in specialty chronic therapies, the slowdown in the US will limit revenue growth to low double digits (~12%) over FY19-21E. With the WL on Dahej, pending approvals in the US will get delayed, thus leaving margin expansion in check (+30bps to 26.2%). The mainstay domestic business will enable yearly FCF of Rs 13bn+ and net debt to drop by ~Rs 20bn over FY19-21E, aiding ~30% EPS CAGR over the period. With the update on Indrad expected soon, we remain cautious on the stock and would suggest entering post a favourable outcome. We maintain NEUTRAL on TRP following an in-line quarter. The domestic business enabled healthy growth in revenue and profitability. Yet, the slowdown in the US will continue for 2-3 quarters. We cut our estimates by ~5% owing to the WL for Dahej and await an update on Indrad. At 24x FY21E EPS, we arrive at a TP of Rs 1,615.

India growth steady; acquisitions to enhance coverage Domestic branded formulations including CRAMs constitute 48% of sales. The acquisition of Elder Pharma's branded portfolio has added new therapies like neutraceuticals, gynaecology and helped fill up portfolio gaps. The Unichem acquisition has added branded portfolio comprising some power brands besides achievement of long term synergy benefits. We...

In Q1FY20, Torrent Pharma's revenues have increased by 8% YoY to Rs 20220 mn (our estimates Rs 202380 mn).

Q1FY2020 result of Torrent Pharmaceuticals Limited (Torrent Pharma) showed strong operational performance. Sales for the quarter were in line with estimates at Rs. 2,022 crore, 8% growth y-o-y. Operating profit was 4% above our estimate at Rs. 541 crore, reporting an improvement of 127 BPS y-o-y to 26.8%. Reported profit for the quarter was 8% above our estimate at Rs. 216 crore, showing robust 32.5% growth y-o-y. During the quarter, U.S. business reported 13% y-o-y growth and no new approvals were received during the quarter....

23 July 2019 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. 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 INR1.9b), led by improved margins and a lower tax rate. (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.

Torrent Pharmaceuticals Limited's (Torrent Pharma's) Dahej plant was inspected by the USFDA between March 11-19, 2019. The company received Form 483 with five observations. USFDA classified this inspection to Official Action Indicated (OAI), indicating unsatisfactory response submitted by the company (for Form 483). OAI status does not impact the existing operations of the company. However, new product approvals could get delayed. If the issue is not resolved satisfactorily within the stipulated timeframe, it could result in escalation to a Warning...

Torrent Pharma (TRP IN) has demonstrated robust track record in domestic formulation by building its core competence around chronic and sub-chronic therapeutic area and witnessed healthy revenue growth of ~15% CAGR over FY14-19

We believe TRP is not in faults for discontinuing the sales of two sartan products in the US as the USFDA has changed its rules related to sartan impurities frequently over FY19. Despite cutting our FY20/21E EPS estimates by 14/13% and downgrading the stock to Neutral on account of US, we maintain our target multiple at 24x P/E, as we remain constructive on TRP's lucrative India business which we value at Rs ~1,200/sh (70% of CMP). We believe the growth in India and other businesses will enable TRP to shed ~Rs 16bn net debt over the next two years, aiding ~35% EPS CAGR. Any overreaction on the stock in the near term should be taken as an opportunity to enter. We downgrade TRP to NEUTRAL following a 13% earnings cut owing to several headwinds in the US biz, which will persist over the next 4-6 quarters, in our view. Our revised TP is Rs 1,745/sh (24x FY21E EPS).

India growth steady; acquisitions to enhance coverage Domestic branded formulations including CRAMs constitute 48% of sales. The acquisition of Elder Pharma's branded portfolio has added new therapies like neutraceuticals, gynaecology and helped fill up portfolio gaps. The Unichem acquisition has added branded portfolio comprising some power brands besides achievement of long term synergy benefits. We expect India sales to grow at ~9% CAGR in FY19-21E to | 3834 crore. US, Germany, Brazil key export destinations for company...