Accumulate Torrent Pharma; target of Rs 818: Dolat Capital

Dolat Capital is bullish on Torrent Pharma and has recommended accumulate rating on the stock with a target of Rs 818 in its February 1, 2013 research report.
 
“Torrent Pharma reported a moderate revenue growth of 14.8% YoY to Rs 7.97bn, led by higher contribution from domestic formulations and US. However, revenues from Brazil (14.7% of total sales) got adversely impacted due to a) government reimbursement program affecting Losartan sales and b) slowdown in market for chronic molecules. Export Formulations grew by 14% YoY to Rs4.49bn backed by healthy growth in US & RoW markets (up 43.8% and 30% YoY respectively). However, Brazil reported a decline of 2.5% YoY. On constant currency US, ROW & Brazil recorded growth of 35%, 22% and 4% respectively Domestic Formulations (1/3rd of total revenues) grew by 12.7% YoY to Rs 2.58bn. Its chronic portfolio witnessed growth of 15% YoY.”
 
“Operating margins (adjusting for forex items) stood lower by 130bps YoY at 18.8% during the quarter. While raw material costs saw a decline of 110bps YoY (31% of sales), other expenses increased by 230bps YoY. Other expense included forex gain of Rs 110mn (Rs 180mn Q3FY12). R&D expenses for Q3FY13 stood at 5% of sales. Tax rate stood higher at 21.6% against 19.3% in Q3FY12. Consequently, reported PAT grew 35% YoY to Rs 1.12bn. Adjusting for forex items, PAT stood flat at Rs 1.01bn. Growth in FY14E will largely be aided by market share gains and new product launches in regulated markets while restructuring initiatives and focus on higher MR productivity shall facilitate uptick in domestic business.”
 
“We are cautious on the outlook of Brazilian operations and we believe it may take a few more quarters to reflect signals of growth reviving in that market. Meanwhile, continued growth in domestic formulations and US business will drive profitability in the near term. At CMP the stock trades at 12.8x FY14E and 11.1x FY15E earnings estimates respectively. We recommend Accumulate and with a revised target price of Rs 818 (13x FY15E EPS),” says Dolat Capital research report.

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