Analysts have given mixed reactions to Torrent Pharmaceuticals, which reported a 16% year-on-year increase in second-quarter revenue to Rs 26,600 crore, more than half of which came from India.
Kotak and JM Financial have remained cautious on Torrent Pharma with unchanged ‘REDUCE’ and ‘HOLD’ ratings respectively. While JM Financial has not outlined estimate changes, Kotak has tempered earnings expectations building in lower US generics growth.
Kotak Institutional Equities has a fair value of Rs 1,950 per share and also lowered FY24-26 EPS estimates by 1-5% due to cutting its US sales forecasts and higher costs.
JM Financial continues with its ‘HOLD’ recommendation and has marginally raised the 12-month price target to Rs 1,835 from Rs 1,805 earlier.
In contrast, Nuvama and Antique have maintained their bullish stance on Torrent Pharma despite moderating their earnings estimates to factor in the US business headwinds. They expect the strong growth momentum in India and Rest of World markets to offset the US weakness.
Nuvama Research has maintained its price target of Rs 2,410, but reduced FY25/FY26 earnings per share estimates by around 5% each to account for slower than expected US recovery.
Overall, consensus earnings estimates have moved marginally lower to factor in the moderation in US generics performance. However, target prices and ratings have largely remained stable as analysts expect branded market traction to offset US pressures.
Q2 – India Business
In India, Torrent’s business grew 18% to Rs 14,440 crore in the second quarter, driven by the domestic formulations and consumer healthcare segments. Excluding the acquired Curatio Healthcare portfolio, organic growth was 12%.
Torrent’s domestic performance was impressive, aided by continued double-digit growth in chronic therapies, recovery in gastro portfolio and strong momentum in Curatio portfolio which grew 17%, said Nuvama.
It expects the company to deliver 13-14% domestic sales CAGR over FY23-26, driven by new launches, field force expansion and growth in acquired brands. Kotak Institutional Equities also expects 14% domestic sales CAGR over FY23-26. JM Financial has also built in 13% domestic sales CAGR over FY24-26, like Antique Stock Broking.
The brokerages are upbeat about the sustainability of Torrent’s growth momentum in the domestic market on the back of its strong chronic portfolio, integration of Curatio, traction in consumer healthcare and new launches. The healthy growth is seen continuing, aided by recovery in acute therapies as well according to analysts.
However, Torrent’s US business declined 15% year-on-year and 17% quarter-on-quarter to Rs 2,480 crore. In dollar terms, sales dropped 18% to $30 million.
Nuvama said US collapsed due to streamlining of portfolio and absence of major launches. It reduced the company’s FY25/26 EPS estimates by 5% each to account for slower than expected US recovery.
Kotak Institutional Equities also lowered its US sales estimates given withdrawal of products, mediocre pipeline and delay in resolution of Indrad site warning letter.
JM Financial said US performance disappointed due to loss of certain contracts and supply issues. It expects subdued run-rate of $30-35 million in near term.
Brokerages have moderated their expectations from the US market in the medium-term amid Torrent’s ongoing portfolio restructuring, lack of new launches and pricing pressures. The growth is expected to be slower than previously anticipated according to analysts.
In Rest of World markets, Torrent’s sales in Brazil jumped 36% aided by order backlog clearances from the first quarter. Adjusting for this base effect, constant currency growth was a healthy 23%. The company’s business in Germany also rebounded growing 21% year-on-year.
Nuvama Research said Brazil continues to deliver market-beating growth. It forecasts sales CAGR of 12-13% driven by new launches and pricing power.
Kotak Institutional Equities expects 11% sales CAGR in Brazil over FY23-26, driven by field force expansion and new launches. It forecasts 10% CAGR in Germany based on new tender wins.
The brokerages are positive on the growth prospects in Torrent’s branded markets of Brazil and Germany. The company is expected to outpace industry growth in these regions, aided by its strong brand equity and new product launches according to analysts.
Torrent’s branded generics portfolio including domestic and international brands now accounts for 73% of overall sales. The company is deepening its focus on branded generics given the relatively higher profitability.
Nuvama Research said Torrent’s portfolio gives it ‘right to win’ in OTC segment given established brands extension possibility. It is confident of operating leverage benefiting margins despite OTC promotion costs.
Kotak Institutional Equities noted that, while Torrent remains focused on returning to profitable growth in US generics business, branded markets remain the mainstay of growth.
Analysts expect operating leverage to offset promotional expenses in consumer healthcare, but the expectations from US generics business remain muted amid competitive intensity.
In summary, analysts welcomed Torrent’s steady branded market performance and see healthy growth prospects in India and Rest of World markets. However, near-term outlook for US business is lacklustre amid restructuring and pricing pressures. The company’s growing focus on branded generics and consumer healthcare is seen positively contributing to profitability by analysts.