IGI Logo

India/US drive 2QFY25 performance while Brazil drags

Scales new high at gross margin levels

* Torrent Pharma (TRP) delivered a miss on earnings due to the reduced offtake of insulin and currency headwinds related to the Brazilian business. TRP continues to outperform in the branded markets of India (DF) and Brazil. The US generics business is yet to pick up scale despite regulatory compliance in place.

* We reduce our earnings estimate by 5%/3% for FY25/FY26 to factor in: a) the gradual revival in the US generics business and b) the adverse impact of forex with respect to the Brazilian market. We value TRP at 38x 12M forward earnings to arrive at a TP of INR3,430.

* Compared to 9.5%/15%/21% YoY growth in Revenue/EBITDA/PAT for 1HFY25, we expect TRP to deliver 12%/15%/32% growth in Revenue/EBITDA/PAT in 2HFY25, driven by improved operating leverage and reduced interest cost.

* While we are optimistic about TRP’s ‘brand’ business model in India/Brazil driving profitable growth, we maintain a Neutral stance given the rich valuation (43x/34.5x FY26/FY27 PE)

Product mix supported by cost control drives profitability YoY/QoQ

* Sales grew 8.6% YoY to INR28.9b (vs our est: INR30b). India formulations revenue grew 13% YoY to INR16b (56% of sales). Germany sales grew 8.3% YoY to INR2.9b (10% of sales). The LATAM business grew 4.4% YoY to INR2.6b (9% of sales). The US generics business grew 8.1% YoY to INR2.7b (9% of sales). ROW+CDMO sales declined 2.7% YoY at INR4.4b (15% of sales).

* Gross margin expanded 130bp YoY to 76.5% due to the better product mix.

* EBITDA margin expanded at a higher rate of 150bp to 32.5% YoY due to the lower employee cost (down 10bp as % of sales).

* Accordingly, EBITDA grew 18.8% YoY to INR7.4b (vs our Est: INR7.7).

* Adj. PAT grew 17.4% YoY to INR4.5b (our est: INR5.1b).

* In 1HFY25 Revenue/EBITDA/PAT grew 9.5%/15.3%/20.9% YoY to INR57.5b/INR18.6b/INR9.2b.

Highlights from the management commentary

* TRP expects the current levels of gross margin (~76.5%) to sustain going forward.

* TRP has guided for 50-100bp annual EBITDA margin expansion over the next three years, led by price hikes and operating leverage.

* The company expects to repay ~INR5-6b in H2. Further, it expects to be a net cash company by the end of FY26.

* The company expects the R&D spend as a % of sales to remain ~5-5.5% for the year.

* During the quarter, TRP added ~300 new reps, bringing the total reps to 6,000 vs 5,700 in 2QFY24.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412