Subdued Q3 performance leads to stock correction in Torrent Pharma

While analysts expect India growth to rebound, regulatory overhang may continue

After hitting its 52-week high, the Torrent Pharma stock fell more than 5 per cent on Tuesday, following a weak December quarter performance.

The Street was disappointed by its sales in the domestic market, which accounts for 44 per cent of its overall revenue. The India business grew at a soft pace of 5 per cent on a high base of last year.  

Adjusting for one-offs due to the integration of stockists at Torrent and Unichem (acquired entity), the India business growth is at 8.5 per cent year-on-year (YoY). The domestic business had exhibited 23 per cent annual growth, led by turnaround of acquisitions as well as organic growth between 2013-14 and 2018-19.

The other worry is the regulatory issues, which led to a 22 per cent YoY decline in US sales. The geography accounts for a fifth of consolidated sales. The European sales, too, reported a decline of 18 per cent. Latin America and the rest of the world business put in a better show, with 12-14 per cent YoY growth.

Gross margins, however, were better on improved product mix and lower research and development costs. Also, lower interest costs, higher other income meant the adjusted profit still grew 16 per cent.

As the integration of acquired Unichem portfolio and field force is completed, better field force productivity, growth in focus brands, and traction in product launches are likely to drive domestic growth.

The management and analysts expect domestic growth to be in double digits. Analysts at Anand Rathi expect growth in Torrent’s domestic business to bounce back in 2020-21.

Analysts at Motilal Oswal Financial Services, too, are bullish on Torrent’s prospects. They expect 29 per cent annual growth in net profit, led by India business and reduced leverage.

While most analysts maintain a ‘buy’ rating, after a 20 per cent gain in the stock since its September lows and given the regulatory overhang, near-term uptick is unlikely. Long-term investors could accumulate the stock on dips.