Edelweiss recommended hold rating on Torrent Pharmaceuticals with a target price of Rs 1333 in its research report dated July 11, 2018.
Edelweiss' research report on Torrent Pharmaceuticals
Key financials deteriorated in FY18, led by a leveraged acquisition and weak operating performance. i) RoCE declined to 15%, from 21% in FY17, and from last five years’ average of 35%; ii) debt increased by ~INR35bn; and 3) free-cash-flow turned negative to INR1.7bn, despite almost flat top-line, due to INR3.6bn increase in working capital and INR7.9bn of capex, which increased by 62%. During FY18, Torrent Pharmaceuticals (TRP) further consolidated its presence in the domestic market with the Unichem acquisition, where ~60% of portfolio overlaps (30% as per mgmt), albeit at expensive valuations of 4.1x trailing revenues. This acquisition is RoCE and earnings dilutive as it will generate single-digit return over the next two years.
Our analysis suggests a ~10% revenue CAGR for the Unichem portfolio over next three years, with EBITDA margin improving from 18% to 30%. A detailed analysis of Unichem portfolio is on Page 15.
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