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Result Highlights

* Q4 revenue came in at flat YoY vs. estimate of +1% YoY. India business grew by 9.8% YoY, Germany +23% YoY; US reported a decline of 30% YoY (impacted by price erosion on base business & base impact of Sartan portfolio discontinuation). Brazil sales also fell 3.6% YoY

* Domestic business PCPM at Rs0.85mn/MR/month  

* Gross margin expanded by 153bps YoY, which was further aided by lower other expenses which led to EBITDA margin expansion of 189bps YoY to 30%.

* PAT grew by 3.2% to Rs3.2bn vs. our estimate of ‐13% YoY, beat largely driven by higher other income

Our view:

Domestic business to rebound in FY22 after a tepid 6% growth in previous fiscal along with improved growth in Germany. Although we have cut US sales estimates for FY22/23 on a sharp 8% decline in Q4, start of sartans supplies and commercialization of liquid products from Levittown imply US revenues to mark a bottom in FY22 at US$155mn.

On the other hand, costs to rebound from low base of FY21 especially other expenses excluding R&D which would lead to a decline in margin. In many ways, expect FY22 to be a bottom year in key parameters like US sales, margin before rebound in FY23. Based on FY21 actual, we have cut our FY22/23 estimate by 10%/8%, driven by lower US sales and higher ETR assumptions.

Albeit, looking beyond the negative operating leverage created due to US (margin offset due to higher branded sales to an extent), Torrent owns a well‐oiled domestic chronic business with best in class margin and MR productivity. We refrain from cutting target PE on robust FCF generation and rebound in FY23 margin. BUY stays on 35x FY23 EPS with revised TP Rs3,120 (earlier Rs3,400).

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