Street bets on Torrent Pharma's domestic business

Synergy benefits from acquisition of Unichem's products may raise earnings

The Torrent Pharma stock has risen 20 per cent since its March lows and is currently trading near its 52-week high. Street sentiment remains strong on its domestic growth, as was seen in the March quarter performance. With the pharma market growth crossing 10 per cent in May, sentiment for domestic-focused firms such as Torrent has improved further.
 
The company, which had purchased Unichem’s domestic portfolio about a year back, is likely to continue accruing benefits as it turns around this business. Having a strong-track record in turning around acquisitions, the synergy benefits is expected to start reflecting in FY19 with full gains likely from FY20. Torrent’s domestic formulations business had grown 19 per cent during FY18. Even after adjusting for the goods and services tax (GST) impact and excluding Unichem’s products, the growth was a decent 12 per cent, according to analysts.
 
Torrent’s specialty focus, that is, on cardiology, neurology, gastro and gynaecology, has been strengthened with product launches leading an expansion in the market share. All these may boost the company’s domestic business growth further. Analysts at Anand Rathi expect its domestic formulations revenue to rise 26 per cent annually over FY18-20 (post Unichem consolidation).
 

Domestic sales, contributing 40 per cent to revenue, is growing well. Buoyancy in some export markets is helping. For instance, Germany (accounting for 15 per cent of revenue) has grown 12 per cent in FY18, while the remaining world markets (10 per cent of revenue) grew by nine per cent. US, which accounts for a fifth of its revenue, is witnessing pricing pressure as the case with most Indian generic companies. However, analysts believe the firm could clock about 12-13 per cent compounded growth over FY18-20, considering 8-9 launches of oral solid products.
 
Most analysts are bullish on Torrent. CLSA last week had recommended investors to buy Torrent for its domestic market focus, as foreign brokerages expect strong positioning in the cardiac and neurosciences space.
 
Synergies from Unichem will drive growth to 40 per cent in India in FY19 with margins profile improving and Unichem turning around.
 
Since the company’s stock is currently trading near its yearly highs, investors may use corrections to buy it for long-term gains.