Buy Torrent Pharmaceuticals; target of Rs 3135: ICICI Direct

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ICICI Direct's research report on Torrent Pharmaceuticals

Q2 revenues remained flattish, growing a mere 0.6% YoY to Rs 2017 crore (I-direct estimate: Rs 2086 crore) mainly due to 13.9% YoY decline in US formulations to Rs 327 crore. Domestic sales grew 7.1% YoY to Rs 963 crore. Brazil de-grew 17.3% YoY to Rs 129 crore. Germany business grew 4.4% YoY to Rs 261 crore. EBITDA margins expanded 450 bps YoY to 31.5% (I-direct estimate: 30.0%) mainly due to lower other expenses amid likely lower travel and promotional spends due to Covid-19. Subsequently, EBITDA grew 17.4% YoY to Rs 635 crore (I-direct estimate: Rs 626 crore). PAT grew 27.0% YoY to Rs 310 crore (I-direct estimate: Rs 291 crore) in line with operational performance. Delta vis-à-vis EBITDA was mainly due to lower interest cost partially offset by lower other income.

Outlook

The company’s portfolio is finely balanced between India, Brazil, Germany and the US with India being the leader. With consistent FCF generation, moderation in core capex, we expect the leverage situation to improve substantially. With these key characteristics we believe the premium valuation is justified. We maintain BUY with a revised target price of Rs 3135 (30x of FY23E EPS of Rs 104.5).

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