Broker's call: Torrent Pharma (Hold)

| Updated on October 10, 2019 Published on October 11, 2019

Reliance Securities

Torrent Pharma (Hold)

CMP: ₹1,690.1

Target: ₹1,740

Torrent Pharmaceuticals Ltd is engaged in the manufacture and sale of branded, as well as unbranded generic pharmaceutical products. The company operates in the therapeutic areas of cardiovascular (CV), central nervous system (CNS), gastrointestinal, diabetology, anti-infective, anti-diabetics and pain management segments. The company offers products in various categories, including tablets, capsule and parenteral. Its geographical segments include India and outside India. The company's subsidiaries include Heumann Pharma GmbH & Co, Torrent Pharma GmbH, Heunet Pharma GmbH, Norispharm GmbH, Torrent Pharma (Thailand) Co Ltd., Torrent Pharma SRL, Aptil Pharma Ltd and Laboratories Torrent Malaysia Sdn Bhd.

The USFDA has issued a warning letter (WL) to Torrent Pharmaceuticals’ Indrad (Gujarat) API (active pharmaceutical ingredient) and formulations facility. This WL is based on the Corrective & Preventive Action (CAPA) submitted by Torrent Pharma to the observations raised by USFDA.

The inspection was conducted in April 2019 following which the USFDA issued four observations relating to deficiency, that is, Out of Specification (OOS) test results. Subsequently, the USFDA accorded Indrad facility as OAI (Official Action Indicated) status in August 2019.

Indrad is an important facility for Torrent Pharmaceuticals, as it contributes about 80 per cent to its US sales. Currently, total of 34 products are pending for approvals. We expect new product approvals will be impacted in future until the plant gets regulatory clearance. We have not factored in any new launches in our valuation model. We change our recommendation on the stock to HOLD from BUY with unrevised target price of ₹1,740, valuing it at 14x of FY21E EV/EBITDA.

Published on October 11, 2019
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