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Branded business outperforms 

Torrent Pharma’s (Torrent) Q3FY23 performance beats our estimates on all parameters. Revenue grew 18.3% YoY to Rs24.9bn (I-Sec: Rs23.3bn) led by 17.4% growth in India and 35.5% growth in Brazil. US sales were down 5.4% QoQ to US$35mn vs estimated US$38mn. EBITDA margin expanded 360bps YoY (-60bps QoQ) to 29.1% (I-Sec: 28.5%). Adjusted PAT grew 13.7% YoY to Rs2.8bn (I-Sec: Rs2.8bn). We remain positive on Torrent considering its strong domestic franchise supported by a dominant chronic segment. In Brazil business also the company has robust speciality focused branded portfolio in CNS, cardio and diabetic segments. Resolution of Dahej (Gujarat) and Indrad (Gujarat) plants remains key for growth in the US. Maintain BUY with a target price of Rs1,853/share.

Business review:

India business grew 17.4% YoY led by growth across therapies, new launches and incremental sales from Curatio portfolio. Excluding sales from Curatio, base business grew 12% YoY. US revenue was down 5.4% QoQ to US$35mn. While base business in the US continues to suffer from high single digit price erosion, new launches could support growth. Brazil revenue witnessed healthy growth and was up 35.5% YoY, led by strong growth in Torrent’s key brands, CNS franchise and generic segment. It expects growth to sustain on the back of new launches and MR addition. Germany revenue was up 1.7% YoY and 9.5% QoQ, supported by new tenders and growth of OTC segment. Torrent launched four products in Germany in Q3FY23. EBITDA margin expanded 360bps (-60bps QoQ) YoY to 29.1% on account of favourable product mix. Resolution of plants, further cost synergies on the Curatio portfolio and continued cost optimisation initiatives can provide further impetus to margins, in our view.

Concall highlights:

1) Brazil: i) Market share for Desvenlafaxine and Rivoraxaban stands at 8% and 9%, respectively, ii) overall market is expected to grow 8-12% for the next five years (11% for next 2 years), iii) 10+ products are expected to be filed in FY23;

2) US: i) Company expects to file 5-6 products in FY23, 3) guided flattishdeclining sales for FY24, 4) capex guidance – expect

Outlook: We estimate revenue/EBITDA/PAT CAGR of 11%/14.1%/21.3% over FY22-FY25E with margin likely to improve 250bps. RoCE may improve to 15.6% in FY24E from 12.2% in FY22. Debt-equity ratio is expected to decline to ~0.5 by FY24E.

Valuations and risks:

We broadly maintain our estimates with delay in new launches in US offset by higher growth in Brazil. We are positive on the stock mainly due to its strong branded chronic franchise in both India and Brazil. Plant clearance in the US remains key for recovery of US business. Maintain BUY with a target price of Rs1,853/share based on 19xSep’24E EV/EBITDA. Key downside risks: Slowdown in domestic growth and forex volatility.

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