Torrent Pharma Shares Jump Most In A Year As Analysts See Better Margin, Domestic Growth In FY23

Shares of Torrent Pharmaceuticals Ltd. jumped the most in at least a year as analysts expect better margin in the first quarter led by price hikes, Germany business to recover from the second half of the ongoing fiscal, and double-digit domestic growth on new launches.

The drugmaker has guided for a 300-basis-point expansion in margin from its current levels after the disposal of its liquid facility business in the U.S., the impairment loss for which has resulted in net losses for the fourth quarter.

Torrent Pharma's Q4 FY22 margin stood at 26.3% against 30% a year ago. Its revenue was up 10% at Rs 2,131 crore, while it reported after-tax losses of Rs 118 crore. The impairment loss was at Rs 485 crore. Ebitda was down 4% year-on-year in the three months to March.

The board also recommended a final dividend of Rs 23 apiece, including Rs 15 toward special dividend. The company proposed a bonus share issue in the ratio of 1:1.

Shares of Torrent Pharma gained as much as 9.3% intraday on Thursday. Of the 32 analysts tracking the company, 23 maintain a 'buy', six suggest a 'hold', and three recommend a 'sell', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 10.7%.

Here’s what brokerages said about Torrent Pharma’s Q4 results.

• Maintains ‘neutral’ with a target price of Rs 2,850 apiece, implying an upside of 8%.

• Robust traction in domestic formulation and growth in Brazil were offset by muted show in the U.S. and Europe.

• Torrent Pharma continued to build levers such as expanding portfolio offering/field force to fortify its growth prospects over the next two-three years.

• Tweaks estimates factoring in savings due to discontinuation of the Pennsylvania facility, operational cost optimisation measures, incremental business on addition of medical representatives in domestic formulation, a healthy uptick in Brazil post-product launches, and ongoing price erosion in the U.S. base portfolio.

• Management guided for 100-150 basis points margin improvement for FY23 v/s FY22 level. It would be 300 bps margin expansion from the Q4 FY22 level.

• The company would be adding 200-300 medical representatives in the domestic formulation segment to cater to the upcoming launches in the cardiovascular category.

• Management expects the Germany business to gain momentum from H2 FY23 onwards on account of the new launches and tender business wins.

• Compared to mid-teens price erosion in the U.S. generics in the past, Torrent Pharma is witnessing signs of reduction in the price erosion intensity.

• While the company’s growth outlook is improving in the key markets of U.S./ Latin America/Germany, the present valuation provides limited upside from current levels.

• Upgrades to ‘hold’ with a target price to Rs 2,573 apiece, implying a downside of around 1%.

• Torrent Pharma's revenue/Ebitda were in line with the estimates.

• Weakness in Germany (20% below) was compensated by the U.S. (9% above) and Brazil (18% above).

• The U.S. finally grew after a straight decline over the previous 11 quarters.

• Margins are being held down by input cost inflation and higher freight costs.

• Torrent has discontinued its U.S. liquids business and shut down its U.S.-based Levitttown facility. This led to a one-time write-off in Q4, which led to a PAT loss in this quarter.

• The shutdown will reduce company's operational cost and it has undertaken cost optimisation programmes that should

  cause further reduction in overhead.

• Management sounded confident of a 300 bps margin improvement on account of these changes from Q1 FY23.

• Torrent's ongoing salesforce expansion will end with addition of 300 reps in Q1 FY23.

• Newly on-boarded salesforce will catch up with overall company, thereby raising overall productivity in future quarters.

• Other costs such as freight should also moderate in the future, which can give margin fillip.

• Upgrades to ‘buy’ from 'hold', hikes target price to Rs 3,226 from Rs 3,134 apiece earlier, implying an upside of 22%.

• Q4 FY22 performance was above estimates across all parameters.

• Positive on Torrent Pharma considering its strong domestic franchise supported by a dominant chronic segment.

• While base business in the U.S. is suffering from pricing pressure, new launches could support growth.

• Germany revenue declined 18.4% year-on-year due to loss of tender and price erosion. As per management, new tenders are expected to re-open in H2 FY23.

• The management expects to maintain medical representatives productivity at around Rs 10 lakh, currently down due to new addition.

• Domestic volume is expected to grow 3% higher than industry and take 7-8% price hike in FY23, said the management.

• Torrent Pharma does not expect to launch Revlimid (blood cancer) in first two waves.

• The board expects to repay the entire Unichem debt in next two years.

• Management expects at least 300 bps improvement in margin in Q1 FY23 onwards led by 150 bps saving post the discontinuation of liquid plant in the U.S., cost optimisation benefit, and price hike in branded portfolio.

• Resolution of plants and currency depreciation can provide further impetus to margins.

• Considering the correction in the stock price (around 14% in last six months), upgraded to 'buy'.

• Upgrades to ‘buy’ with a target price to Rs 3,189 apiece, implying an upside of 21%.

• The management guided to strong double-digit growth in India business on the back of new product launches and limited Covid-base effect.

• The company anticipates U.S. FDA inspection / approval over next few months to pave way for new launches.

• Despite headwinds in key export segments for about two years, Torrent Pharma has broadly sustained its profitability on the back of consistent India growth and strong cost management.

• Expects acceleration in exports to play a leading role in driving profitability with Rs 140 crore annual savings from the U.S. plant closure providing an additional profitability boost in the near term.

• On the exports front, the U.S. business has likely bottomed out and Brazil is showing signs of recovery.

• Expects pickup in Germany growth from H2 FY23 will add more momentum to exports growth.

• Management remains positive on domestic growth driven by price hikes and increasing contribution of new launches and volume pickup.

• Improving revenue momentum combined with continued cost optimisation should drive 18% / 19% Ebitda / PAT CAGR over FY22-24 with 23-26% return ratios.

• This is one of the best among peers in terms of growth outlook as well as profitability profile.