Retain ‘add’ on Torrent Pharma with TP at Rs 2,940

Torrent Pharma’s (Torrent) Q4FY21 performance was better than estimates on Ebitda and PAT led by better gross margin and higher other income. Revenue declined 0.5% y-o-y to Rs 19.4 billion with international markets declining 7.7% offset by 9.8% growth in domestic market.

US sales declined 5.9% q-o-q to $37 million vs estimated $40 million. Better revenue mix led to gross/ Ebitda margin improvement of 150/180 bps y-o-y. Adjusted PAT grew 24.1% to Rs 3.2 billion, driven by better margin and higher other income.

We are positive on the long-term outlook considering growth improvement in India business with chronic segment dominance, potential resolution of OAI/WL status at two facilities in FY22E, EPS CAGR of 17.0% over FY21-FY23E and strengthening balance sheet with improving FCF generation. Retain ‘add’ with a revised target price of Rs 2,940/share.

India growth strong, US underperforms: India business grew 9.8% vis-a-vis 5.0% growth in the industry. Company should continue to outpace industry in terms of growth considering its significant exposure to the chronic segment and established product portfolio.

US revenues declined 5.9% q-o-q to $37 million due to price erosion and absence of new launches given USFDA issues. We expect US sales to improve hereon led by new launches from third party manufacturing and restart of Levittown facility.

Brazil revenues declined 3.6% y-o-y due to currency depreciation despite constant currency growth of 19.0%. Germany revenues grew strong 23.6% y-o-y (14.0% in constant currency). ROW and CRAMS businesses were weak in Q4FY21 and reported decline in revenue.