Torrent Pharmaceuticals Ltd.-Quarterly Results Update

Strong growth continues across key markets

Torrent Pharma reported a revenue growth of 10.4% YoY / up 4.0% QoQ to Rs. 25,910 mn and was above market expectations of Rs. 25,420 mn. Domestic revenue grew 14.5% YoY, aided by strong performance of new launches in chronic therapies and the Curatio portfolio which continued to deliver high double-digit growth along with PCPM improvements. Brazil registered a 3.0% growth, driven by strong underlying market growth, new launches, and growth in the generic segment. German sales grew 21.0%, and growth momentum continued with new tender wins coupled with better conversion of existing tenders. However, the US business declined marginally by 2.0%, impacted by price erosion on the base portfolio and lack of new launches pending inspection of facilities. As per AIOCD secondary data, the company grew above IPM, with company growth of 9% YoY vs. IPM growth of 4% YoY. Torrent is now the sixth largest company in the IPM and is amongst the top 5 in the therapeutics segments of Cardiovascular, Gastro, CNS, VMN, and Cosmo-Dermatology. EBITDA increased 11.1% YoY / up 8.8% QoQ to Rs. 7,910 mn, while EBITDA margin stood at 30.5% (above 19bps YoY / up 134bps QoQ) in Q1FY24, aided by expansion in gross margins by 303bps YoY to 74.9%. Profit after Tax stood at Rs. 3,780 mn (up 6.8% YoY / up 31.7%

Key Concall Highlights

Branded Generic Market: :

In Q1FY24, Torrent Pharma continued to witness robust growth in branded generic markets, led by market share gain, new product launches, and foray into new therapies. The branded generic market, which now contributes ~73% of sales has grown more than 11% annually.

Indian Business Outlook:

Domestic revenue grew due to strong performance of new launches in chronic therapies. As per AIOCD secondary data for Q1FY24, Torrent’s growth was 9% vs the IPM growth of 4%, aided by strong performance of top brands in chronic therapies, new launch momentum, and Curatio portfolio which continued to deliver high double-digit growth along with PCPM improvements. We, thus, expect India’s business to outperform the IPM in coming quarters, backed by new launches, Curatio’s growth slightly better than management’s initial expectations, and gradual scale-up of the Consumer Healthcare platform.

Field Force:

During the quarter, Torrent Pharma’s field force strength stood at 5,500 MRs. The company expects the Indian business to continue outperforming market growth in the coming quarters.

The focus during the year will remain on improving field force productivity in the expanded areas.

Brazilian Business Outlook:

Brazil witnessed strong market growth, new launches, and growth of the generic segment. The company plans to launch six new branded products in Brazil in FY24 and has doubled its market share in four out of seven products that were launched in the last two years. Further, the company has added 77 CNS MRs over the past two months and plans to add 26 more in Q2FY24.

German Business Outlook:

Since the last two quarters, Germany has witnessed a stable sequential recovery, driven by new tender wins and better conversion of existing tenders. The company expects benefits from additional tender wins in Q1FY24 to accrue in Q4FY24. The company has launched more than two new products during the quarter and expects a similar run rate to continue in the next quarter as well.

US Business Outlook:

Growth was impacted by the price erosion and lack of new launches pending inspection of facilities. In the US, Torrent has also received approval for the first oncology product from a new oncology facility in Q4FY23. The company now started supplies of its first product from the oral oncology facility at Bileshwarpura in July 2023. Further, the company’s focus areas for the US market are to strengthen the product pipeline and build a niche portfolio with a focus on profitability.

Valuation and Outlook:

Torrent Pharma Ltd. recorded strong revenue growth during the quarter, aided by growth in the domestic business (~55% of sales) due to robust performance of new launches in chronic therapies, and the Curatio portfolio which continued to deliver high double-digit growth. The company expects domestic growth to outperform the IPM in the coming quarters and plans to launch 4-5 new products per quarter. The Brazil business (~7% of sales) saw healthy gains due to new launches and growth of the generic segment. Further, Germany’s business (~10% of sales) witnessed steady sequential recovery, led by new tender wins and better conversion of existing tenders. The US business (~11% of sales) growth was marginally impacted by price erosion on the base portfolio. Overall, we expect Torrent Pharma to continue its growth momentum, driven by the strong growth in branded generic markets in India, market share gains across key focus therapies, and new product launches which would gain traction in the coming years. Moreover, the growth outlook for the US and German business is getting better due to better scope of resolving regulatory issues