Sell Torrent Pharma; target of Rs 2038: Emkay Global Financial

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Emkay Global Financial's report on Torrent Pharma

TRP’s EBITDA came 4% ahead of our estimates, led by strong India sales (+11.4%yoy), which was propped by pre-emptive buying of chronic drugs in March end. Margins stood at 28.2%, 200bps higher than estimates. Unlike peers, TRP guided for a relatively moderate outlook across geographies, owing to lack of new approvals in the US, supply issues in Germany (to sort by H1 end) and weak FY21 economic outlook in Brazil. While India growth should outpace the industry in the near term as demand for chronic drugs recovers from Q2 onwards, our concerns remain on the dwindling volumes in key products even before Covid-19 struck. TRP’s premium valuation multiples are highly sensitive to India growth, and we see a scope for disappointment here.

Outlook

No major change in earnings. We retain Sell, with a revised TP of Rs2,038 (earlier Rs1,932), valuing the stock at 25x (unchanged) Jun’FY22EPS (adjusting for Rs8/share amortization costs. We have extended the amortization period for Unichem/Elder from 15 years to 30 years). TRP remains an UW in EAP.

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