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Steady growth with stable margin

Result Synopsis

Torrent Pharma reported an improved quarter with margin improvement QoQ and double digit growth driven by India, US (QoQ) and other markets except Germany. Company guided to double digit growth expectation in current year as India and Brazil continue to fire while US would be dependent on FDA inspection and subsequent plant clearance. Germany too would come back likely in H2 with launch of 4 products in 2Q (of which 3 would be Day 1 launches). With focus on cost reduction and impact of new tender win from 3Q, Germany would be soft in current fiscal. On the other hand, India would see heathy growth for remainder of year even as freight costs may still recede from the base. US growth hinges on FDA inspection and while company would accelerate filings, costs related to US capacities would be an overhang till revenues improve. Given the 1Q performance, we do not need to undertake any major change to geographic growth/margin assumptions, resulting in 3-5% change to FY23/24 estimates largely based on change in USD/INR presumed rate to 78 (vs 75 earlier). Continue to view Torrent as a solid domestic growth & margin franchise and retain BUY based on unchanged 35x FY24 EPS; our revised TP stands at Rs1,725 (earlier Rs1,635, adjusted for bonus).

Result Highlights

 * Revenue grew by ~10% YoY to Rs23,470mn, higher than our estimates of 6% growth.

 * India growth was at 14% YoY. Strong outperformance of top brands together with new launches continued to drive market share gains across focus therapies. During the quarter, company added 300 MRs bringing the total field force strength to 4,200.

* Brazil revenues were up 20% YoY. Constant currency revenue at R$ 117 million was up by 8%. Adjusted for the discontinued tender business in the previous year, the growth is 10%. Growth was aided by strong growth in generic segment, performance of top brands and new launches.

* US business grew 6% QoQ complemented by launch of Dapsone in previous quarter.

* Germany was down 18% YoY impacted by increase in competition and loss of tenders in previous quarters.

* EBITDA Margins for the quarter were at 30.3% for the quarter, lower by 139bps YoY but improved sequentially by ~400bps QoQ. This was above our estimates of 29%. Gross margin softened YoY though improved QoQ aiding margin

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