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Branded generics boost performance

Torrent Pharmaceuticals Ltd (TPL) is engaged in research, development, manufacturing and marketing of generic pharmaceutical formulations in India, the US, Germany, Brazil and other countries. The company offers products in various therapeutic areas

• In Q2FY24, revenue grew 16.1% YoY to Rs. 2,660cr, led by a doubledigit growth in key regions despite a decline in the US market.

• EBITDA stood at Rs. 825cr, up 21.5% YoY. EBITDA margin expanded 140 bps YoY to 31.0%. Profit after tax rose 23.7% YoY to Rs. 386cr.

• TPL has witnessed a strong momentum in the branded generics market. The branded segment, comprising 73% of its revenue base, grew 18% YoY in the quarter. New launches, improving market share and productivity, cost optimisation and completion of USFDA inspection of the Dahej facility serve as key growth drivers in the near term. Hence, we upgrade our rating on the stock to BUY with a revised target price of Rs. 2,189 based on 36x FY25E adjusted EPS.

Solid growth in key regions drive revenue growth

TPL recorded a revenue growth of 16.1% YoY to Rs. 2,660cr in Q2FY24. The Indian segment outperformed the market, growing 18.0% YoY (12% YoY, excluding curation). Double-digit growth in chronic therapies, traction in consumer portfolio, rebound in gastro demand and new launches supported the growth in India. Going forward, the management expects the segment to continue outperforming the market growth. Brazil reported a revenue growth of 36.2% YoY (23% YoY in CC terms) driven by strong momentum in the generics segment and new launches. Revenue from Germany rose 20.9% YoY (8% YoY in CC terms). Moreover, conversion of new tender wins during Q2FY24 is anticipated in Q4FY24. However, the US segment’s revenue declined 15.1% YoY (-18% YoY in CC terms) owing to supply challenges and loss of certain contracts.

Margin expands on product mix and efficiency

EBITDA grew 21.5% YoY to Rs. 825cr with EBITDA margin expanding 140 bps YoY to 31.0%. We believe improved product mix and operating efficiency supported the margin expansion. Profit after tax increased 23.7% YoY to Rs. 386cr.

Key concall highlights

• Inspection at the Dahej facility was completed by the USFDA (the US drug regulator) during the quarter. The management expects to receive new product approvals, which are expected to enhance the company’s growth in the US market.

• TPL’s anti-diabetic medicine, sitagliptin is expected to generate Rs. 100cr sales on moving annual turnover (MAT) basis in the coming quarter. This is the fastest Rs. 100cr launch for the company

Valuation

TPL has seen significant growth in the branded generics market. In Q2FY24, the branded generics segment(accounts for 73%) of total revenue increased 18% YoY. We believe the company’s strong presence in the branded generics segment, new product launches, increasing market share and productivity, cost optimisation, and approvals for new products made at the Dahej factory will boost its future performance. Therefore, based on 36x FY25E adjusted EPS, we have upgraded our rating on the stock to BUY and set a target price of Rs. 2,189.

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