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The Torrent Pharmaceuticals scrip is up 14 per cent in a week on the back of better-than-expected performance in the March quarter as well as management comments on growth, going ahead. What also aided the stock price and sentiment were the announcement of a bonus share issue (1:1) and a dividend of Rs 23 a share, which gives a yield of three per cent.
While growth in the EU and the US markets helped improve its overall revenues by 29 per cent year-on-year (y-o-y), Brazil and Indian markets were disappointments. Earnings before interest, taxes, depreciation and amortisation (Ebitda) and Ebitda margins were up on better product mix, currency and one-offs, such as milestone gains.
The Street will be keeping an eye on the performance of its Brazilian operations, as well as the impact of the new pricing policy. The Torrent management has indicated that the company is likely to post better performance in this geography, going ahead. On drug pricing, the management has indicated that the impact of the policy for the company will not be significant.
Edelweiss analysts believe the company is a candidate for re-rating. “Torrent’s performance in Q4FY13 has eased the concern over execution and we see multiple re-rating from current levels as domestic and Brazil pick up,” they say. At the current price of Rs 818, the stock is trading at 14-15 times its FY14 estimates.
EU, US shine
Torrent’s March quarter show was boosted by its performance in the US and the EU geographies. While the EU, its biggest export geography, contributed about a quarter to consolidated revenues, growing at 59 per cent, revenues from the US (11 per cent of revenues) were up 46 per cent compared to the year-ago period.
Performance in the US geography is one of the key triggers for Torrent due to high-margin opportunities. While till date the company has received nod for 39 Abbreviated New Drug Applications (ANDAs) and has launched 27 of these, about 24 ANDAs are pending approval/in the pipeline. A couple of drugs pending approval are first-to-files and could lead to exclusivity gains. Exports are expected to record a y-o-y growth of 15 per cent in FY14.
Brazil disappoints
Brazil, another key region, disappointed in the quarter with a mere seven per cent y-o-y growth. The Street will keep an eye on this market, which the management expects to grow on the basis of the existing portfolio as well as new launches. Analysts believe the performance of the Brazilian market is crucial for the stock’s re-rating. Says Nirmal Bang’s Praful Bohra, “Slower growth in Brazil, one of its most profitable markets, may delay the stock’s re-rating despite its cheap valuations (30-40 per cent discount to peers).”
Better domestic growth expected
Pegged back by lower growth in the acute segment, the Indian market, the largest geography for Torrent, recorded a growth of just nine per cent y-o-y. The management blames the low growth to overall slowdown in the industry. While the acute segment grew 10 per cent, the chronic segment grew 15 per cent in the quarter. The company is looking at improving its growth through expansion into more locations and increasing its presence in new therapeutical areas as well as launch of new products to fill gaps in its current portfolio. More launches are expected in the company’s focus areas of skin, pain management, cancer and gynaecology.
Going ahead, analysts estimate the domestic segment to grow at 15 per cent. Emkay’s Krishnanath Munde says domestic formulations growth will be driven by new products, rebound in acute portfolio and improvement in field force productivity. On the issue of product pricing, the management has indicated that the new drug pricing policy is unlikely to have a significant impact on the company.
