Q4FY23 Review: Torrent Pharma: Resilient performance on top line & margins

31 May 2023 , 11:54 AM

Torrent’s execution in the Branded Generic (BGx) markets remains robust, with its organic India/Brazil business growing 15/17% cc YoY in Q4 and Ebitda margins expanding 50bps QoQ to 29.6%. Lowdouble-digit growth is expected to sustain in Torrent’s India portfolio driven by 2-3% volume growth, 7% price hikes and increasing contribution from new launches, while Brazil business will also benefit from 6 planned product launches in FY24. Analysts of IIFL securities believe there are further levers for Torrent’s continued margin expansion trajectory given the price-hike-led growth in BGx markets, further improvement in India productivity on margin scale-up in Curatio, and cost optimisation efforts to improve margin profile of the US business.

India business expected to outperform IPM growth by 200bps p.a.: 

Torrent’s India business (ex-Curatio) grew 15% YoY in Q4 and 13% in FY23, while the acquired Curatio portfolio grew 19% YoY in Q4. With Curatio’s Ebitda margins already improving 400-500bps (vs pre-acquisition margins of 26-27%), Torrent’s overall India PCPM will continue to improve from depressed levels of Rs7.8lakhs per month in H2FY23 (vs Rs9.8lakhs in FY22), particularly since the organic India portfolio is also expected to sustain 12-13% revenue Cagr over FY23-26.

Working on cost optimisation to improve margin profile of US biz: 

Although analysts of IIFL Capital Services expect Torrent’s US sales to decline 5% cc in FY24, FY25 could see a potential recovery as product approvals are expected to restart from Dahej plant (2 ‘483 observations recently) over next 6-7 months and Torrent will also be launching 3-4 products p.a. from partner CMO facilities (incl. Revlimid in FY25). Additionally, 2-3 Oncology launches p.a. are being targeted from the new Oncology plant. However, Indrad plant will require re-inspection before WL can be lifted.

Margin guidance of 60-100bps expansion p.a. appears conservative, given the price-led growth in India/Brazil, improving PCPM for the expanded rep team in India, and potential recovery in the US business from FY25. Analysts of IIFL Capital Services assume Torrent’s Ebitda margins to expand 170bps over FY23-24 to 31%, but there remains an upside risk to their estimates.