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In recent months, the Torrent Pharma stock has been an outperformer due to upgrades following its performance in the quarter ended March and moves to expand its domestic business, including the acquisition of Elder Pharma's branded formulation business in December 2013.
Emkay Global has upgraded the company's FY15 earnings estimates 38 per cent to Rs 43.3. Analysts at Anand Rathi believe the strong growth momentum will be led by 8-10 generic launches in the US in FY15, faster growth in domestic business after the Elder consolidation and traction in the EU and other global markets. Given the growth prospects, the research firm believes the stock is attractively priced at 17 times its FY15 earnings estimates.
Domestic formulations added to the overall show, growing 17.4 per cent in the March quarter. The company has been able to outperform the sector in FY14, though the year was a weak one for the sector due to pricing and trader commission issues. Given the product pipeline, the company is expected to grow at a faster pace than peers in FY15.
In the EU, the company was able to grow 19 per cent, while its peers saw single-digit growth. In Europe, some pharma companies cut exposure to low-margin products. Analysts expect the sector's profitability from this region to be under pressure, given the efforts to reduce health care costs and higher competition.
Ebitda (earnings before interest, taxes, depreciation and amortisation) margins rose 330 basis points during the quarter to 28.6 per cent due to niche launches and lower employee costs.
About three quarters of the 29 analysts tracking the stock have a 'buy' rating, with a consensus target price of Rs 706, a return of barely five per cent from current levels. Given the 42 per cent rise in prices through the past six months, investors will do well to buy the stock, while keeping an eye on the company's performance in the US and its ability to scale up the domestic business, or await a correction.
