Feb 09, 2013 04:40 PM IST | Source:

Hold Torrent Pharma; target Rs 739: Sushil Finance

Sushil Finance has recommended hold rating on Torrent Pharma (TPL) with a target price of Rs 739, in its February 08, 2013 research report.

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Sushil Finance has recommended hold rating on Torrent Pharma (TPL) with a target price of Rs 739, in its February 08, 2013 research report.

"Torrent Pharma (TPL) has reported decent set of numbers which are above our estimates for Q3FY13 registering a YoY revenue growth of 14.5% majorly supported by a 14.2% growth in international business and a 12.5% growth in the domestic market. However, EBIDTA grew by 32.6% on the back of a forex gain coupled with a licensing & litigation fee received during the quarter.

Total Income grew by 14.5% YoY from Rs. 6965.9 mn in Q3FY12 to Rs. 7975.1 mn in Q3FY13. The company’s domestic business which contributes ~32% to the sales of the company registered a growth of 12.5% whereas the export business registered a growth of 14.2%. CRAMS business growth was muted at 6% YoY due to lower insulin off-take by Novo-Nordisk. Domestic branded formulations has started recovering well after a sluggish FY12 registering a growth of 12.5% from Rs. 2294 mn in Q3FY12 to Rs. 2580 mn in Q3FY13 on the back of its acute segment registering a single digit growth and a 15% growth in chronic segment particularly CNS and CVS.

Export formulations increased to Rs. 4430 mn in Q3FY13 from Rs. 3880 mn in Q3FY12 mainly on the back of 44% growth (35% on constant currency basis) in the US market and 30% growth in the ROW + Russia/CIS region. Brazil de-grew 3% (4% growth on constant currency basis) on the back of shift in market from branded-generic market to generic-generic market led by govt. program of distribution of 6 free drugs in the country. Europe (including Heumann) grew by a modest 8%.

Operating profit reported a growth of 32.6% YoY from Rs. 1215.3 mn in Q3FY12 to Rs. 1612 mn in Q3FY13. EBITDA margins improved by 280 bps YoY to 20.2% on the back of a Rs. 220 mn licensing & litigation fee & a forex gain of Rs. 110 mn. Excluding forex gain (Rs. 110 mn), EBITDA margins stood at 18.8% while EBITDA growth was 23.6%. Reported Net Profit grew by 35.0% YoY from Rs. 832.3 mn to Rs. 1123.3 mn in Q3FY13 whereas margins were at 14.1% mainly on the back of 279.1% increase in other income.

Outlook & valuation: After witnessing prolonged sluggishness in the domestic formulation space, three consecutive quarters of growth provides much needed comfort. On the international formulations front, a significant slowdown in the Brazilian market for a second consecutive quarter is an overhang on the stock. We however remain optimistic on TPL’s international business to drive the next phase of growth with increased product launches expected in markets such as US, Brazil (management focus on brand promotion) and Europe coupled with sustained revival in the domestic space. Its margins are not expected to receive major jolts with its US business now adding to the bottomline (turned profitable in Q1FY13). In this regard, we have kept our estimates unchanged. Even though its partnership with Novo- Nordisk registered a de-growth, we believe its tie-up with AstraZeneca and two other MNCs for supply of generic products will contribute to the top line growth going forward. We thereby recommend a HOLD on the stock with a target price of Rs. 739 based on 14x FY14E EPS of Rs. 52.8," says Sushil Finance research report.

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