Buy Torrent Pharma; target of Rs 923: Motilal Oswal

Motilal Oswal is bullish on Torrent Pharma and has recommended buy rating on the stock with a target of Rs 923 in its February 1, 2013 research report.
 
“Torrent Pharmaceuticals' (TRP) 3QFY13 performance was below expectations, impacted mainly by lower than expected performance in Brazil. Overall revenue grew 14.5% YoY to INR7.98b (v/s our estimate of INR8.35b), led by 46% YoY growth in US generics (partly boosted by favorable currency) and 33% growth in RoW, Russia and CIS. Domestic formulations grew 13% YoY. The company reported 3% de-growth in Brazil due to slowdown in the industry on account of the Brazilian government's drug program. Combined revenue from Europe (including Germany) grew 8% YoY. EBITDA grew 32.7% YoY to INR1.61b (v/s our estimate of INR1.65b). EBITDA margin expanded 280bp YoY to 20.2% (v/s our estimate of 19.8%). PAT grew 35% YoY to INR1.12b (v/s our estimate of INR1.15b), aided by higher other income.”
 
“Based on 3QFY13 performance, we have reduced our FY13/ 14/15 EBITDA estimates by 1.5-2% mainly to factor in the likely growth challenges in Brazil. Our FY13/14/15 EPS estimates are lower by 2%/3%/3%. The EPS cut is higher than EBITDA cut due to fixed depreciation and interest costs. Over the last six years, TRP has delivered 33% EPS CAGR, even as capital employed CAGR was just 17%. It has consistently improved its profitability, with RoCE increasing from 14.5% in FY05 to 28.5% in FY12. Based on our revised estimates, we expect 20% EPS CAGR over FY12-15, led by 15.5% topline CAGR and 70bp expansion in EBITDA margin. Its high return ratios are likely to sustain, despite large capex and growing cash on the books.”
 
“We believe current valuations do not reflect the improvement in business profitability, the turnaround of international operations, and TRP's strong positioning in domestic formulations, particularly in chronic therapeutic segments. The stock trades at 12.4x FY14E and 10.6x FY15E EPS. Reiterate Buy with a target price of INR923 (15x FY15E EPS),” says Motilal Oswal research report.

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