Low US exposure makes Torrent Pharma a safe bet among drug firms

While large Indian generic pharmaceutical peers are struggling with pricing pressure in the US market, Torrent Pharma’s lower exposure to the geography and strong domestic growth has helped it to make steady gains on the bourses. It is up about 40 per cent in a year.

Analysts at Nomura said “despite Torrent’s outperformance, we remain constructive on the stock as we think the steady earnings rise will continue, driven by above-average domestic growth and operating profit margin expansion”.

The company continues gaining in the domestic arena through growth in well-established brands and turnaround of acquisitions. Cost controls are aiding earnings growth. The domestic formulations should be a key driver of margin expansion, analysts said. They said Torrent has successfully gained volume share and demonstrated its ability to take price increases.

The company, during the December quarter, had seen its India business (more than 40 per cent of overall) grow by 42.5 per cent year-on-year. While its key brands marked a growth of 27-41 per cent year-on-year, the company continued to rationalise its field force and concentrate on productivity. 

Analysts expect Torrent’s domestic business to clock 26.5 per cent annual growth over FY18-FY20 led by Unichem. 

The company had acquired Unichem portfolio in November 2017 and, though there were some concerns, the company quickly realised the synergy benefits and was able to scale up the business. With India business contributing 50-60 per cent of FY20 operating profits and expectations of strong earnings growth, the company is well placed to trade at premium valuations, analysts said.

Brokerages such as IIFL have picked Torrent as the top buy given the growth prospects especially in the Indian market while its peers have to face multiple headwinds. The company’s growth in other geographies, too, is expected to be robust. Analysts at Reliance Securities expect annual  growth in the US, Germany and rest of the world markets to be in the 10-20 per cent range in the FY18-FY20 period. Given the earnings visibility, investors can consider the stock on dips.