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Its Brazil and India business boost growth; maintaining a Buy

With good growth in its brand-name business (India, Brazil, RoW) but counter-balanced by weak sales in Germany, Torrent’s Q3 revenues grew 18% y/y to Rs24.9bn. Adj. for one-time over-absorption of expenses, the gross margin was steady at 71-72%. Even as the EBITDA margin was a sturdy 29%, higher interest and depreciation costs dragged profits to Rs2.8bn. On the good traction in its brand-name generics through launches, market-share gains and greater MR productivity, we expect 11%, 15% and 21% CAGRs over FY22-25 in respectively revenue, EBITDA and PAT. We retain a Buy rating on the stock, at an unchanged TP of Rs.1,915 (18x FY25e EV/EBITDA).

Growth driven by brand-name generics. Brand-name generics grew 21% y/y, driven by launches and the good performances in top brands. Several launches in Brazil and its home markets drove healthy growth. Q3 captures 2- -2.5 months’ sales from the recently acquired Curatio, which helped Torrent report 17% growth in its India sales. We expect its brand-name generics (70% of sales) to grow a healthy 14% over FY22-25.

Fresh tenders, or FDA clearance would help to more-than-anticipated growth. A few launches in Germany would drive single-digit revenue growth, while fresh tenders could further boost growth. Even as the US base business is faced with severe (double-digit) price erosion, clearance of the Dahej site would help hasten 16 pending approvals from there. Torrent is working toward a resolution of the Indrad site (again classified as OAI on a follow-up inspection).

Major debt repayment plans. Torrent is due to repay Rs12-14bn debt by FY24;, hence, net debt is expected to be maintained at Rs30bn. With plans to repay significant debt by FY25, it expects net debt of ~Rs10bn-11bn.

Valuation. Strong growth in domestic chronic therapies and launches in India, Brazil and the RoW would drive 21% earnings growth in FY22-25. We retain a Buy, with an unchanged target price of Rs1,915. Risks: Pricing risk in its domestic portfolio, currency fluctuations, regulatory issues at plants.

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