IGI Logo

Buy Torrent Pharma Ltd For Target Rs.3,400

Temporary margin hiccup: BUY stay

* Healthy revenue visibility in 3 out of 4 key markets driven by revival in India, continued strength in Brazil and reboot in Germany

* Benefit of optimization of low selling brands and field force in domestic market to be seen in Q4

* 29% margin guidance in FY22 is a dampener and leads to cut in our margin assumption by a similar quantum

* Believe margin hiccup is temporary due to costs revival which would reverse from FY23. Cut FY22/23 estimate by 12%/7% and accordingly lower TP to Rs3,400. BUY stays on a solid domestic franchise, growth in export markets ex‐US and leaner balance sheet (net debt/EBIDTA back to pre‐Unichem level in FY23)

Q3 FY21 call highlights

* Margin‐ FY22 margin can be looked at 29%; negative operating leverage of 100bps likely next fiscal

* India ‐ New launch contribution at 3% in domestic market and to be maintained. 4‐5 new launches in Q4

* Price increase of 5‐6% not an issue in the near term

* Vol decline still a concern for IPM and Torrent

* Sales restructuring with MR strength now at 3,600 from 4k earlier; to be reflected in Q4 MR productivity. focus on better selling brands  

* Other expenses ‐ lower freight costs in Q3 offset promotional spend increase

* Brazil ‐ vol increase in large brands and new launches. To launch 3‐5 products every year in branded generics and looking at sales force expansion in few years. Generics (9% of sales) growth to be faster as market itself growing 15%

* Germany ‐ quality issue now resolved and market share of 7% now almost same as peak seen in Sep 19

* US ‐ await FDA guidance after Indrad and Dahej closure report submitted.  

* Sales of liquid products from next year with gradual ramp up. Second year sales at US$10‐15mn run rate as achieved prior to shut down of Levittown facility

* US sales ‐ maintaining sales will be the focus as erosion takes toll.

* Losartan not growing as fast as Telmisartan. Would be relaunching 3‐4 sartans which have inhouse API approved. At peak sartans contributed US$30mn and difficult to reach that figure given 20 players in market

* YTD debt reduction at Rs8.5bn. reiterate Rs10bn in lower debt; net debt/ebidta should be down to level prior to Unichem acquisition. Debt repayment main use of cash generated

* Export incentive ‐ major part of earlier scheme should be back after March

* Tax rate of 21‐22% in FY21 and 23% in FY22.

Q3 FY21 takeaway ‐ Inline quarter with qoq margin moderation

* In line quarter with sales up about 2% yoy as US revenues declined 24% yoy as no new approvals, sartan discontinuation in base quarter and price erosion

* India sales up 7% yoy on momentum in chronic and recovery in sub chronic brands

* Brazil cc sales up 16% yoy but INR sales down 8%. Germany cc sales up 10%

* Margin declined qoq as expected to 30% though yoy still up as other expenses still down. PAT up 18% yoy aided by lower tax rate.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer