Strong triggers ahead for Torrent Pharma

Upside from generic launches in the US and Indian operations expected to boost financials

Torrent Pharma touched a record high last week on earnings upgrades following good results and strong prospects. Torrent, which launched anti-psychotic drug Abilify (sales of $5 billion) in the US, grabbed a 10 per cent market share. Analysts expect the firm to improve its market share and prices to remain stable. If Torrent sustains the market share and there is a 40 per cent price erosion, analysts expect it to gross about $130 million in sales for FY16. Analysts at IndiaNivesh peg total sales at $300 million annually if entry of new players is delayed. Torrent’s annual sales for FY15 were at $738 million.

For Torrent’s sales in the US, Nomura analysts say on a low base, the company can surprise positively driven by generic versions of blockbuster drugs such as anti-acid Nexium and Abilify. The company is present in oral solids and it is looking at expanding drug delivery systems in a market that accounts for 19 per cent of sales.

In India, Torrent has been a major outperformer with April-May period sales growing 28 per cent year-on-year. Even on a trailing 12-month basis, its sales grew 21 per cent compared to 14 per cent for the industry. The outperformance over the past three years is due to its focus on the fast-growing chronic therapy segment. Two of the acquired brands from Elder Pharma (calcium supplement Shelcal and analgesic Chymoral Forte) are the largest selling products for Torrent.



Going ahead, analysts expect growth to come from volume and price increase from the product portfolio of Elder Pharma. Torrent paid Rs 2,000 crore for the acquisition, completed a year ago. The acquisition is yet to make money at the net level. Improvement in field force productivity should help enhance profitability of its Indian operations, which account for 35 per cent of top line.

Torrent, the largest Indian pharma player in Brazil, grew 14 per cent in FY15. While the Brazilian business is profitable, Nomura analysts say there is scope for improvement in profitability as Torrent’s margins at under 10 per cent are much lower than peers, who are at 20 per cent plus.

Given the opportunities especially in the US, analysts have upgraded their earnings estimates and expect profits to grow 20 per cent annually over the next three years. The stock, which is up 86 per cent in one year, is trading at 18 times its FY17 estimates. Given the consensus target price of Rs 1,360, there are marginal returns from these levels. Buy on corrections.