Q2FY24 Review: Torrent Pharma: Stable quarter with continued focus on BGx

25 Oct 2023 , 11:06 AM

Torrent reported a stable performance in Q2, with its Branded Generics (BGx) business in India and Brazil growing 12-13% YoY, on the back of continued outperformance in chronic therapies and sales rep expansion undertaken over the past few quarters. Led by a consistent 300-400bps outperformance in the India market and 500-800bps outperformance in the Brazil market, analysts of IIFL Capital Services expect Torrent to deliver 15% Ebitda Cagr over FY23-26. While company did not comment on any acquisition opportunities, mgmt stated that Torrent will be comfortable with Net Debt/Ebitda of ~3x (vs ~2x which they assumed in their calculations of Torrent’s potential Cipla acquisition). Analysts of IIFL Capital Services maintain their estimates and BUY rating (TP Rs2,300). Torrent’s past execution track record in acquisitions makes us optimistic that Torrent can drive 200-250bps of cost savings at which a potential Cipla deal will be cash-EPS neutral in first year, but will significantly strengthen Torrent’s positioning both in the domestic and the US market. 

Mgmt expects to sustain 300-400bps outperformance in the India market: 

Although Torrent’s India business grew 18% YoY in Q2, base India business growth ex-Curatio was 12% vs estimated market growth of 7-8%. Base business growth for Torrent was driven by price/volume/new launches contribution of 7/1.5/3.5% resp. Curatio portfolio grew 17% in Q2, with Curatio’s Ebitda margins now being 14% points higher vs pre-acquisition margins. With sustained execution in chronic therapies, improvement in rep productivity and scale-up in CHL/TGx business, analysts of IIFL Capital Services expect Torrent’s organic India business to clock 12% revenue Cagr over FY23-26ii. 

Recent expansion of CNS rep team will help to drive growth in Brazil: 

Torrent’s Brazil business, adjusted for sales spillover from Q1 to Q2, grew 13% cc YoY vs BGx market growth of 8%. Torrent added 26 new reps to its CNS division in Aug’23 taking the total no. of CNS reps to 206, while its Cardio-diabetes division has 113 reps in total. With this field force expansion and 4 additional product launches expected by the end of FY24, mgmt expects to continue outperforming Brazil pharma market growth by 500-800bps. 

With Rs14bn of FCF generation in H1FY24, Torrent repaid Rs9bn of debt with its Net Debt-to-Ebitda now standing at 1.16x and analysts of IIFL Capital Services expect it to further decline to 0.2x by end-FY25. While US business declined 16% cc YoY in Q2, mgmt is optimistic that recent commercialization of the oral oncology facility and Dahej facility EIR should help drive growth in FY25.