PL Stock Report: Torrent Pharmaceuticals (TRP IN) - Q2FY24 Result Update – Strong show across its key branded generic markets - BUY

Torrent Pharmaceuticals (TRP IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs1,877 | TP: Rs2,250

Q2FY24 Result Update – Strong show across its key branded generic markets

Quick Pointers:

§ Growth trajectory to continue form Curatio portfolio with scale up in margins.

§ India, Brazil and Row markets expected to sustain their growth trend.

Torrent Pharma’s (TRP) Q2FY24 EBITDA/PAT were largely in line. Our FY24 and FY25E EBITDA broadly remains unchanged. TRP has Rs 70bn (75% of total sales) worth of highly profitable branded formulation sales spread across India, Brazil and RoW markets. Curatio acquisition has been scaling up well with 1400 bps margin improvement since acquisition. Historically TRP has successfully managed to integrate Unichem and Elder acquisition which gives us comfort. We expect 16% EBITDA CAGR and 28% PAT CAGR over FY23-26E. Maintain ‘BUY’ rating with TP unchanged at Rs 2,250/share, 20x EV/EBITDA to FY25E.

§ Healthy revenue growth geographies except US: Revenues grew by 16% YoY to Rs 26.6bn, mainly driven by double-digit growth in India (+18%), Brazil (+36%) and Germany (+21%) markets. RoW markets grew by 17% YoY. US sales were down 16% QoQ to $30mn. Contract manufacturing was up 30% YoY.

§ Strong operating performance: TRP reported EBITDA of Rs8.25bn (up 21.5% YoY vs our estimates of Rs8.1bn). GMs continue to remain at elevated levels; up 40bps QoQ to 74.9% aided by better product mix. However other expenses came in higher at Rs6.7bn; up 16% YoY and 3% QoQ. Staff cost was flat QoQ. Resultant EBITDA margins stood at 31%; up 50 bps QoQ. Other income stood Rs260mn. Resultant reported PAT stood at Rs3.86bn; in line with our estimates.

§ Key concall takeaways: Domestic branded: India biz excluding the Curatio portfolio delivered growth of 12%. Curatio portfolio continued to deliver healthy performance of 17% growth led by the flagship brand Tedibar. Margins in Curatio were 14% higher than that it was at pre-acquisition level and 6% higher sequentially. TRP base business growth was led by price hike of 7%, 3.5% from new launches while volume growth was 1.5%. Trade Generic: Strong growth to tune of 20% given low base. Currently have 75-80 SKUs and guided for high teens growth on sustainable basis. Germany market: In CC, growth was 8% YoY. Mgmt cited that sales force expansion and new tenders should aid sales going forward. Brazil: Adj for spill over sales from Q1, growth was 23% YoY aided by new launches and sales force addition. It added 26 reps in CNS segment during Aug’23 taking total count to 206. US Growth was impacted by single digit price erosion, loss of volumes on account of lost contracts. Receipt of EIR status for its Dahej facility to aid growth from new product approval. Successfully capitalized the Oral Oncology facility in July’23 and commercialized 1 product in the US. Introduced a niche derma CGT product from Pithampur plant.

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