Reduce Torrent Pharmaceuticals Ltd For Target Rs. 1,500- Yes Securities
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In line quarter; D/G to Reduce as TRP digests Curatio acquisition
Result Synopsis
Torrent Pharma clocked an in line quarter with revenues driven by healthy momentum in India and Brazil while Germany declined due to ongoing tender impact. US business did better than expected with ~2% QoQ decline on a base (which had one-off settlement income in 1Q). Margins were in line and supported by price hikes in India and some moderation in input costs.
We build in Curatio revenue, EBIDTA and Rs18bn of debt in the balance sheet. We also add annual amortization for the intangible acquisition of Rs1.3bn. India growth guidance is for low double digit while Germany should do better in H2 as tender wins flow in. Price erosion has emerged as a concern in some of the products in Brazil business while US business might come under focus as Torrent expects to hear from FDA within 3 months. Although Curatio’s amortization and interest cost start in H2 FY23 and FY24, reckon Torrent does have ability to repay debt in the next fiscal. With amortization inching up next year, it does lead to 13% cut in FY24 EPS and a downgrade to Reduce (from BUY) based on unchanged 35x FY24 EPS and revised TP Rs1,500 (earlier Rs1,725). While we are cognizant cash flow would not be much impacted except for higher interest cost in FY23/24 (before coming down), valuing on cash flow would then amount to giving a pass on the P&L impact of acquisitions for a M&A active company like Torrent. Hence, our reluctance to increase PE multiple to account for increase in non-cash charge leading to a consequent change to rating and TP.
Result Highlights
* Torrent Pharma reported a largely in line quarter with revenues and EBIDTA up 7% & 3% YoY respectively
* India business saw 13% growth YoY on back of price hikes in NLEM and non NLEM segments
* US a tad better than expected with -2% QoQ despite one-off settlement income in Q1; other geographies in line
* Margin at 29.6% just ahead of 29% estimate while gross margin stable QoQ at 72%
* Higher interest cost lead to QoQ PAT decline and flat YoY
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