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* Torrent Pharma (TRP)’s 1QFY24 financial performance was in line with our estimates. The company is making steady progress in its branded generics segment in India (DF) and LATAM. The growth outlook for the US and Germany is getting better on the back of better scope of resolving regulatory issues/new tender wins.

* We raise our EPS estimates for FY24/FY25 by 4% each, factoring in a) reduced intensity of price erosion in US generics, b) product launches and market share gains in LATAM, and c) improving growth prospects in Germany. We value TRP at 28x 12M forward earnings to arrive at a TP of INR1,960.

* TRP remains on track to outperform in DF through price hikes, increasing reach and enhancing brand value through building a consumer healthcare franchise. A faster pace of launches in Brazil should help TRP sustain growth momentum. However, we maintain the Neutral stance as we believe the reach valuation factors in earnings upside over the next 2-3 years.

Product mix benefit was offset by higher opex YoY/QoQ

* Sales grew 12% YoY to INR26b (est. INR25.6b). DF revenue rose 15% YoY to INR14.3b (55% of sales). US generics business grew 12% YoY to INR2.9b (11% of sales). Germany sales increased by 21% YoY to INR2.6b (10% of sales). LATAM business grew 3% YoY to INR1.9b (7% of sales). ROW sales rose 12% YoY to INR2.9b (11% of sales).

* Gross margin expanded 350bp YoY to 74.9% due to a better product mix.

* EBITDA margin expanded at a lower rate of 130bp YoY due to higher opex (employee cost/other expenses up 110bp/110bp YoY as % of sales).

* EBITDA increased by 17% YoY to INR7.9b.

* Adj. PAT grew 15% YoY to INR3.8b, due to a lower tax rate at 29% (vs. 36% in 1QFY23), offset by higher depreciation/interest cost.

Highlights from the management commentary

* TRP witnessed price stability in the US generics segment compared to price erosion over the past quarters.

* With a good response to its pilot program for Shelcal 500 in the consumer healthcare segment, TRP is geared up to start a national campaign for it.

* In the DF segment, TRP reported 7% growth in prices and 4.5% growth in new launches YoY, while volume declined by 3% YoY for the quarter.

* The seasonality in gastro-intestinal therapy affected YoY growth in the DF segment to some extent for the quarter.

* TRP has been able to improve profitability of Curatio by 700bp since the acquisition. It has a strategy in place to further improve the profitability.

* TRP launched one product in Brazil and intends to launch five more in the remaining FY24.

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