Buy Torrent Pharmaceuticals; target Rs 875: P Lilladher

Prabhudas Lilladher is bullish on Torrent Pharmaceuticals (TRP) and has recommended buy rating on the stock with a target price of Rs 875 in its January 30, 2013 research report.

"TRP's Q3FY13 result was above our estimates due to strong improvement in EBITDA margins. The top-line performance was in line with estimates as revenues from Brazil declined YoY, primarily impacted by unfavourable currency. However, with the revival in growth in domestic formulation business and strong growth in US and RoW markets, the company is expected to report strong performance, going forward. At the current price, the stock trades at 14.1x FY13E and 11.4x FY14E earnings.

TRP's revenue for the quarter reported muted growth of 14.5% YoY to Rs8bn, primarily impacted by lower growth in international formulation business. However, the domestic formulation business continues to revive with 14% YoY growth during the quarter. CRAMS business reported flat revenues YoY due to lower demand from its partner on account of loss in few tenders.

The company reported 33% YoY increase in EBITDA during the quarter to Rs1.6bn, while EBITDA margins expanded by 280bps YoY to 20.2% due to favourable product mix and operating leverage. PAT grew by 35% YoY to Rs1.12bn, in line with strong operational performance.

TRP's earnings are likely to grow at 28% CAGR over FY12- 14, in line with strong operating performance. Its high return ratios are likely to sustain. We believe that the current valuations do not reflect the improvement in business profitability, the turnaround of international operations and TRP's strong positioning in the domestic formulations business. The stock trades at 14.1x FY13E and 11.4x FY14E current earnings estimates. We retain our BUY recommendation, with target price of Rs 875," says Prabhudas Lilladher research report.

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