Domestic growth trajectory in key areas to remain strong for Torrent Pharma

More gains for the stock will depend on the recovery in the US market

With a growth of 19 per cent YoY in November, generic pharma major Torrent Pharmaceuticals (Torrent) continues to outperform peers. The growth was aided by higher sales of vitamins, pain medications and gastrointestinal drugs, helping it beat the average growth in the Indian pharma market (IPM) of 6.6 per cent. The domestic market accounts for half of Torrent’s consolidated sales.

While Shelcal (calcium, vitamins) and extensions remains its single largest brand with annual sales of Rs 400 crore, pain medication (Chymoral Forte) and Nexpro RD used in treating acid reflux are the other top selling brands which posted robust growth of 20-30 per cent in the trailing twelve months. Even on a two-year annual growth basis, the company’s growth at over 10 per cent is much higher than the IPM growth of 3 per cent.

The company’s domestic formulations growth which grew 13 per cent in the September quarter and 15.4 per cent in the first half of FY22 is expected to outperform the overall market going ahead. In a post Q2 results note, analysts led by Tushar Manudhane of Motilal Oswal Research say that the company is expected to outgrow the IPM as chronic therapies are slowly stepping back on the growth track with reduced Covid cases.

Among other triggers would be the company’s trade generics business which was launched in the last quarter. After a strong start, the company wants to utilise the e-pharmacies channel to drive trade generics sales. The strong domestic sales growth is rubbing off on the stock which has gained 13 per cent since November 22 with half of those gains coming in the last three trading sessions.

However, for the stock to sustain the gains, the street will await an improvement in sales trajectory of the US market, its second largest geography. The company has been posting a y-o-y decline in US sales for the last five consecutive quarters with sales in the September quarter having dropped over 31 per cent from its recent peak in Q3FY20.

In addition to pricing pressures on the base portfolio, the lack of new launches have led to the muted show in the US market. While outstanding issues related to good manufacturing practices at its sites are being addressed, new launches will depend on the pace of inspections and approval by the US drug regulator.

Though the company is on a strong wicket as far as India is concerned, investors should await US recovery as well as improvement in margins before considering the stock which has underperformed its peer index over the last year.