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In-line Q3; outlook steady

In-line Q3FY24; branded businesses perform well

Torrent Pharma (TRP) reported in-line Q3FY24, with revenue and EBITDA within 1% of our estimates. PAT came in 12% below due to higher depreciation & tax and lower other income. Lower US revenue was offset by better performance in branded businesses. EBITDA margin improved further by 80bps QoQ to an all-time high of 31.8%. The management has guided to for sustained improvement.

Domestic business – Growth strong

TRP continues to grow ahead of the industry in the domestic market, owing to high exposure to the fast-growing segments. Overall growth at 12.4% YoY was in line with our estimate. We expect low-teen growth in the domestic business to continue.

US business – Revival guided for in FY25

US revenue at USD 33mn was down 7% YoY. And FY24 may likely see a decline in revenues from this business. The management has guided for a growth pick-up in FY25, with 6-7 launches planned. Recent clearance of the Dahej facility, pick-up at the Indrad facility and the overall upcycle in the US market should help.

Brazil and Germany to grow as well

Revenue from Europe rose 4% YoY and from LATAM 16.5% YoY in constant-currency. The management has guided for continued growth in the Germany business in the next 4-5 quarters. Expect the LatAm business to sustainably grow in low double-digits in constant currency

Valuation: We retain Accumulate and raise TP to INR 2,798

We retain FY24E core earnings estimate but raise FY25E-26E estimates 4-5% on stronger growth in domestic and LatAm markets. TRP currently trades at 46.6x FY25E core earnings. We retain Accumulate and raise our TP to INR 2,798 from INR 2,225, on 43x (earlier 36x) FY26E core P/E plus cash per share. Higher EPS growth from waning interest cost, higher cash conversion and ease in overhang from Cipla acquisition justify higher valuation. Subnormal growth in the domestic business and value-dilutive, large acquisitions are key risks

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SEBI Registration number is INH000000933