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Healthy growth in its branded business; maintaining a Buy

Backed by growth in its BGx business in India, Brazil and the RoW, Torrent’s Q1 revenue grew 10% y/y to Rs23.5bn. Its gross margin expanded 107bps q/q to 72% chiefly due to the higher BGx and gDapsone contribution. Lower other expenses (discontinued liquids business in the US) and R&D expenditure (5% of sales) resulted in a 401bp q/q EBITDA margin improvement to 30.3%. Ahead, continued growth and product launches in India, Brazil and the RoW, and cost efficiencies (discontinued liquids business in the US) would drive revenue, EBITDA and PAT CAGRs of 10%, 15% and 24% respectively over FY22-24. We maintain a Buy on the stock, with a TP of 1,724, valuing it at FY24e 19x EV/EBITDA.

Branded generics growth remains healthy. The consistent growth momentum domestically (14% y/y to Rs12.5bn), in Brazil (20% to Rs1.8bn) and the RoW (16% to Rs2.5bn) drove Q1 revenues. Better traction in chronic therapies and trade generics, launches (7-8 per quarter) and improved MR productivity (300 MR added in the gastro, cardiac and diabetes divisions) would boost its India business at a 13% CAGR over FY22-24. Similarly, price hikes and launches in Brazil (five in six months) and in the RoW would drive 13% and 9% CAGR over FY22-24 respectively.

Excl. one-offs, US sales at $35m. For the past few quarters, US sales have been a steady ~$39m. Adjusted for a one-time “settlement” income of $4m, however, they were $35m. Price erosion was partially offset by the contribution from gDapsone. Torrent targets 10-12 filings in FY23. We expect its US sales to grow a mere 3% over FY22-24. It awaits US FDA re-inspection of its Indrad and Dahej plants

Valuation. Strong growth in its domestic chronic therapies along with launches in India, Brazil and the RoW would drive 24% earnings growth for FY22-24. We retain a Buy, with a target price of 1,724. Risks: Pricing risk in its domestic portfolio, currency fluctuations, regulatory issues at plants.

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