Torrent Pharmaceuticals Quarterly Result Update

Sector Outlook: Positive

• Torrent Pharma’s revenue grew by 16.1% YoY and 2.7% QoQ, reaching Rs. 26,600 million, surpassing market expectations.
• Domestic revenue increased by 18.0% YoY, driven by growth in chronic therapies, revived gastro demand, consumer division traction, and new product launches.
• Brazil saw a 36.2% growth due to top brands’ performance, new launches, and generic segment growth.
• German sales grew by 20.9%, boosted by recent tender wins and improved conversion of existing tenders.
• However, the US business declined by 15.1% due to the loss of low-margin business and a lack of new launches.
• EBITDA increased by 21.5% YoY, with a margin of 31.0% in Q2FY24, aided by a gross margin expansion to 75.2%.
• Profit after Tax reached Rs. 3,860 million, up 23.7% YoY.
• Torrent Pharma holds 20 brands in the top 500 of the IPM, with 15 brands exceeding Rs. 100 crore in sales as per MAT September 2023 report.
• The company expects its Indian business to continue outperforming the market, despite a slowdown in industry growth due to structural changes.
• The company anticipates market normalisation in the coming quarters.

Key Concall Highlights

Branded Generic Market:

In Q2FY24, Torrent Pharma experienced strong growth in the market for branded generic medicines. This growth was driven by launching new products and entering new therapy areas. Torrent is now the leading player in the sitagliptin market and continues to gain market share. Branded generics now make up about 73% of the company’s sales and have been growing at more than 18% annually.

Indian Business Outlook:

Domestic revenue increased due to the successful launch of new products in chronic therapies. Torrent’s growth in India outpaced the industry, with a 12% increase in Q1FY24 compared to the industry’s 4% growth. This growth was partly due to price increases and partly due to higher sales volumes and new product launches. Torrent expects its Indian business to continue outperforming the industry in the coming quarters, focusing on key therapies, new product launches, and improving field force productivity.

M&A Strategy and Priorities:

Torrent is open to acquisitions but remains committed to its Indian business. The company is willing to increase its debt temporarily after an acquisition, as long as it reduces leverage to a more sustainable level within two years.

Brazilian Business Outlook:

Brazil saw strong market growth in 2QFY24, driven by new product launches and growth in the generic segment. Torrent plans to introduce four new branded products in Brazil in FY24, focusing on CNS and cardio diabetes therapy. They have also expanded their presence in the CNS segment, which should help them outperform the market in Brazil.

German Business Outlook:

Germany has shown stable recovery in recent quarters, driven by winning new tenders and better utilisation of existing tenders. Torrent expects benefits from recent tender wins to positively impact sales from Q4FY24 onwards. They have launched new products and plan to continue this trend in H2FY24. Cost optimization and the development of their OTC (over-the-counter) business are also priorities.

US Business Outlook:

Torrent’s growth in the US was affected by slight price declines and temporary supply issues. They received approval for their first oncology product from a new facility, which should contribute to future growth. Torrent anticipates US sales to range from US$ 30-35 million per quarter, with potential for further growth through approvals from their Dahej facility.

Valuation and Outlook

Torrent Pharma Ltd. achieved significant revenue growth in the quarter, primarily driven by its domestic business, which constitutes around 55% of its sales. This growth was powered by double-digit expansion in chronic therapy products, a resurgence in demand for gastro-related medications, successful integration of Curatio, a thriving consumer division, and the launch of new products. The company is confident that its domestic business will continue to outpace the market in the upcoming quarters. Additionally, the Brazilian segment, accounting for about 9% of sales, saw strong growth due to new product launches, while the German business, representing approximately 10% of sales, benefited from winning new tenders and better conversion of existing ones, with a positive sales impact expected in Q4FY24. Torrent Pharma’s future strategies include cost optimization, new product launches, and OTC business development. The US business faced challenges due to low-margin operations and temporary supply issues but is poised for improvement following the Dahej facility’s receipt of the EIR, which will facilitate approvals for filed ANDAs and expand prospects in the US market. Overall, Torrent Pharma aims to maintain a strong presence in profitable branded businesses in domestic and international markets, including Brazil and Germany, and further solidify its position with the completion of the Curatio acquisition, while the outlook for the US business is brightening as regulatory issues are addressed.

Key Takeaways:

• Torrent Pharma majority of capital allocation focused on India business, estimated at about 70-80%.
• Torrent Pharma experienced strong growth in the market for branded generic medicines.
• Torrent is open to acquisitions but remains committed to its Indian business.