Hold Torrent Pharmaceuticals; target of Rs 1972: Sharekhan

Sharekhan's research report on Torrent Pharmaceuticals

Torrent Pharma posted strong Q2FY24 results, as it outperformed on all fronts, led by stronger growth across the markets of branded generics like India and Brazil, generic markets like Germany, and discontinuation of the low-margin business in the U.S., resulting in sustaining all-time high EBITDA margin of 31%. Revenue growth was driven by a surge across markets, led by double-digit growth of 20% in the branded business (73% of sales) where India business grew by 18%, Brazil grew by 36%, and Germany grew by 21%, which was offset by a 15% decline in the U.S. business. The company continues to scout for M&A transaction in the branded market of India, where it is comfortable to let leverage go down to 3x, leaving room open for big-ticket acquisition, along with no increase in margins going forward. Hence, we maintain our HOLD rating on the stock.

Outlook

The stock is currently trading at ~34.7x/29.8x its FY24E and FY25E EPS, which is at a premium to its peers, given the risk of a huge leverage on the cards. We see a limited upside with a PT of Rs. 1,972 (ascribing a P/E of 31x on FY25E).