In line numbers; focus on margins, brands to sustain
Q4FY21 topline remained subdued with growth in India and Germany offset by decline in US sales. Revenues stayed flattish, down 0.5% YoY to | 1937 crore mainly due to 30.1% YoY decline in US formulations to | 269 crore. Domestic sales grew 9.8% YoY to | 922 crore. Brazil de-grew 3.6% YoY to | 189 crore. Germany business grew a robust 23.6% YoY to | 267 crore. EBITDA margins expanded 189 bps YoY to 30.0% mainly led by better gross margin performance. Subsequently, EBITDA grew 6.2% YoY to | 582 crore. PAT grew 3.2% YoY to | 324 crore. Delta vis-à-vis EBITDA was due to higher other income and lower interest cost being offset by negative tax (one-off) in base year.
India growth steady; acquisitions to enhance coverage
Domestic branded formulations including CRAMs comprise 53% of sales. Acquisition of Elder Pharma’s branded portfolio has added new therapies like nutraceuticals, 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. Q4 saw continued recovery in chronic, sub-chronic and acute segment. We expect India sales to grow at ~14% CAGR in FY21-23E to | 4869 crore.
Volatility in export growth
Despite being a late entrant in the US market, Torrent has built a healthy pipeline. Exclusivity (shared) launches like gCymbalta, gAbilify in the past, have proven Torrent’s capabilities. To expand its presence in non-oral segments like derma, injectable, oncology, it has acquired Zyg Pharma, BioPharm. The company also entered into a number of collaborations. However, due to cGMP related issues in Indrad, Dahej plants, we expect US business growth to be muted in near term owing to delay in launches. Going ahead, we expect continued ramp up in Germany business as upgradation of its quality management systems is now complete. We expect Germany to grow at ~10% CAGR in FY21-23E. Branded business in Brazil is likely to stay strong. Overall, despite near-term challenging macroeconomic factors, region-specific volatility on larger scale, growth prospects stay intact.
Valuation & Outlook
Q4 operational performance was in line with I-direct estimates whereas bottomline was better amid higher-than-expected other income and lower interest cost. Overhang pertaining to two US focused plants notwithstanding, Torrent continues to impress thanks to its robust margin profile that can be attributed to global portfolio that comprises ~60% branded generics. We expect a further improvement in this matrix, product rationalisation to further strengthen margins. The company’s portfolio is finely balanced between India, Brazil, Germany and the US with India being the leader. With consistent FCF generation, moderation in core capex, we expect the leverage situation to improve substantially. With these key characteristics we believe the premium valuation is justified. We maintain BUY with a TP of | 3290 (unchanged) based on 32x FY23E EPS of | 102.8.
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