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Strong performance across key parameters

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

* Consolidated revenue grew 10.3% YoY to Rs. 2,859cr in Q1FY25, driven by strong growth in India and Germany markets.

* EBITDA increased 14.3% YoY to Rs. 904cr, and the margin expanded 110bps to 31.6%, led by the company’s cost optimisation efforts.

* TPL reported a strong set of numbers with outperformance in its domestic business, led by price hikes and product launches. With its international operations also gaining traction, the launch of products in the pipeline is expected to boost revenue. Margin is expected to remain healthy owing to cost efficiency measures. Hence, we upgrade BUY rating on the stock with a revised target price of Rs. 3,590 based on 47x FY26E adjusted EPS.

Sustained revenue growth on robust domestic business

TPL’s consolidated revenue grew 10.3% YoY to Rs. 2,859cr in Q1FY25, driven by robust growth in India and Germany operations. Domestic revenue increased 15% YoY to Rs. 1,635cr, outpacing the Indian pharmaceutical market’s (IPM’s) 8% growth on the back of the company’s outperformance in focus therapies. Revenue from Germany grew 10% YoY to Rs. 284cr owing to the execution of tenders won over the last five quarters. In addition, the company won new tenders in Q1FY25, which would start contributing to revenue from the next quarter. That said, TPL’s Brazil business grew just 3% YoY to Rs. 196cr as severe floods in one of the provinces impacted primary sales, offsetting strong growth in secondary sales. Moreover, the US business dipped 12% YoY owing to the high base of last year, although sequentially, it remained stable on the back of new contracts.

Margin expands on higher revenue and controlled costs

Gross margin widened 80bps YoY to 75.7% in Q1FY25, aided by a better product mix. EBITDA grew 14.3% YoY to Rs. 904cr, with EBITDA margin expanding 110bps YoY to 31.6% as cost of materials consumed narrowed 240bps YoY to 14.4% of total revenue. Consequently, adjusted PAT grew 20.9% YoY to Rs. 457cr on lower interest expense.

Key concall highlights

* The company is expected to launch 5 products in Brazil within FY25 and intends to bring out 3 to 6 products every year.

* TPL’s domestic chronic business grew 14% versus IPM’s 8% expansion, driven by a revival in the cardiac division and continued traction in anti-diabetic drug launches.

* The company announced that it has entered a non-exclusive patent licensing agreement with Japanese firm Takeda to commercialise anti-ulcer drug Vonoprazan in India, which will be marketed under its own trademark ‘Kabvie.

Valuation

TPL’s topline is expected to report steady growth driven by improving market share in chronic therapies in its India business and a growing product portfolio. In addition, the upcoming product launches in Brazil and the US operations should significantly boost revenue. Its German business, too, should continue to add to the topline on the back of new tender wins. Moreover, margin is expected to remain healthy, given consistent cost-efficiency measures and falling raw material prices. Hence, we upgrade BUY rating on the stock with a revised target price of Rs. 3,590 based on 47x FY26E adjusted EPS.

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