Stock Fundamentals

Torrent Pharma: Domestic market, a revenue booster

Dhuraivel Gunasekaran | Updated on November 03, 2019

Healthy growth was aided by higher sales, price hikes and new product launches

There are several positive trends that can work in favour of pharma companies in the September quarter. Waning price erosion in the US market, better performance in the domestic business — driven by seasonal acute therapy products — and low volatility in foreign exchange rates of many currencies against the rupee during the quarter should aid revenue growth of companies. However, increased regulatory scrutiny by the US drug regulator and slowdown in the tender-based global businesses can weigh on the performance of some companies during the quarter.

While most large pharma companies are yet to declare their September quarter results, Ahmedabad-based drug firm Torrent Pharma has put up a healthy show in the September quarter, led by higher other income and lower taxes. The company’s consolidated net profit for the quarter grew 36 per cent y-o-y to ₹244 crore. The company’s consolidated revenue rose 6 per cent to ₹2,005 crore.



Torrent’s domestic business that accounts for around 45 per cent of the overall sales grew 12 per cent y-o-y to ₹899 crore. The strong growth was aided by higher sales of its existing products, price hikes and new product launches. Thanks to the chronic (therapy) heavy portfolio, the company managed a healthy growth in revenues, despite the prevailing slowdown in the domestic market.

However, the company’s US market that generates around 19 per cent of the overall sales, is down 3 per cent y-o-y during the quarter due to regulatory issues in key facilities and lack of new approvals. Formulations business in Germany (contributes 12 per cent of the overall business) too registered muted growth (down by 1 per cent y-o-y) during the quarter. Brazil’s formulations business (comprises 9 per cent of the company’s sales) grew by 6 per cent y-o-y despite pressure in the tender business.

Robust business model

Torrent Pharma is a mid-sized generic player with presence in stable growth markets, focusing on high-growth chronic and sub-chronic therapies.

The company is ranked eight in the India market; 75 per cent of the company’s domestic portfolio comprises chronic and sub-chronic therapies.

It has strong presence in key therapies and ranks among the top five players in cardiac, central nervous system (CNS), vitamin minerals nutrients and gastro-intestinal therapeutic area.

The company enjoys strong pricing power compared with its peers, as around 90 per cent of the India portfolio is not covered under the list of National List of Essential Medicines (NLEM).

Torrent’s prudent acquisitions of Elder and Unichem Laboratories in the last few years place it among the top five drug makers in the country.

Muted growth in US

Torrent’s US revenue is expected to be flat over the medium term, as the key Indrad and Dahej plants received warning letter and official action initiated (OAI) classification, respectively, from the US drug regulator lately. Indrad is a key facility that contributes more than 50 per cent of Torrent’s US revenue. While existing supplies from the facility will not be impacted, approvals of pending filings from the plant will be delayed.

The facility accounts for a chunk of the company’s 42 pending ANDA filings. Dahej facility contributes around 15 per cent of its US revenue.

However, given the lower dependence on the US (around 19 per cent of the overall sales), the impact on the overall earnings of Torrent should be limited.

Premium valuation

At the current price of ₹1,800, the stock trades at a little over 26 times its estimated 2020-21 per share earnings.

This PE multiple is higher than the valuations of 19-21 times that other large-cap pharma players such as Cipla, Lupin and Torrent Pharma enjoy, given its larger domestic business and better earnings visibility supported by chronic portfolio.

The company’s net debt-to-EBITDA fell to 2.37 in FY19 from 3.11 in FY18. R&D spends have been around 8 per cent of overall revenue.

Operating margin was at 28.6 per cent (as of September 2019).

Published on November 03, 2019

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