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India/Germany businesses drive earnings

ANDA approvals to pick up pace over medium term

* Torrent Pharma (TRP) delivered largely in-line 1QFY25. TRP posted robust 14.7% YoY growth in domestic formulation (DF) segment. However, this was partly offset by floods in some provinces in Brazil and the lack of approvals in US generics segment. TRP delivered the highest gross margin in the past 20 quarters.

* We maintain our FY25 earnings estimate. We raise our FY26 earnings estimate by 3% to factor in a) the benefit of ANDA approvals, b) the addition of products in OTC segment in India, and c) the shift to the new tax regime. We value TRP at 36x 12M forward earnings to arrive at a TP of INR3,340.

* TRP remains a promising play in the pharma space, with 64% of its revenue derived from branded generics and sustainable outperformance to industry in DF/Brazil. ANDA approvals are expected to pick up, which would not only boost revenue growth but also improve profitability of the US generics segment. Accordingly, we estimate a 32% earnings CAGR over FY24-26. We maintain our Neutral stance as the valuation provides limited upside from the current levels.

Product mix/operating leverage drive margins YoY

* Sales grew 10% YoY to INR28.6b (est. INR29.8b). India formulations revenue grew 14.7% YoY to INR16.4b (57% of sales). ROW+CDMO sales grew 14.4% YoY at INR4.9b (17% of sales). Germany sales rose 10.1% YoY to INR2.8b (10% of sales). LATAM business increased by 3.2% YoY to INR2b (7% of sales). US generics business declined 11.6% YoY to INR2.6b (9% of sales).

* Gross margin expanded 80bp YoY to 75.7% due to a better product mix.

* EBITDA margin expanded at a higher rate of 180bp to 32.3% YoY due to lower other expense (down 100bp as % of sales).

* Accordingly, EBITDA grew 16.8% YoY to INR9.2b (est. INR9.4).

* Adjusted for a one-off expense of INR200m related to exploring an inorganic opportunity, PAT grew 24.6% YoY to INR4.7b (est. INR4.9b).

Highlights from the management commentary

* DF business growth (+14.7% YoY) is sustainable over the medium term.

* TRP expects 7-8 approvals in FY25, driving better business prospects in US generics segment.

* While Brazil performance was affected by floods in 1Q, TRP indicated a 12- 13% annualized growth rate in this business.

* TRP plans to add one more product in OTC segment by the end of the year.

* On the current MR base of 5,700, TRP would add 300-400 in FY25.

* For the year, R&D expenses would be ~5% of sales.

* The one-off expense of INR200m for the quarter was related to exploring an international opportunity

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