Torrent Pharma Rating ‘Buy’; Firm has advantage on RM pressures

The generics markets within the US and Germany stay difficult, with no visibility on the clearance of producing vegetation by the USFDA. Nevertheless, we count on a modest revival within the gross sales from the present low base.

There are rising market considerations on the impression of the rise in uncooked materials costs and restricted pricing energy, notably within the generics phase, on pharma corporations’ earnings. On this regard, we imagine Torrent Pharma (TRP) is best positioned vs. friends as ~ 60% of the corporate’s revenues come from branded generics, the place the corporate can undertake worth will increase. Uncooked supplies as a proportion of gross sales are presently low at beneath 30% and the dependence on China is ~25%, in line with administration.

We count on gross sales progress within the branded generics companies in India and Brazil to maintain in low double-digit supported by worth will increase. In India, TRP faces much less volatility because the dependence on COVID-19 and seasonal merchandise is low vs. friends. The truth is, the development in affected person footfalls might drive the demand for persistent segments that account for ~60% of gross sales. TRP has demonstrated robust execution in India, attaining important enchancment in discipline power productiveness and far decrease attrition than the business. We count on TRP to increase its discipline power and enter into new segments sooner or later to maintain progress forward of the market.

Factoring within the impression of decrease gross sales within the US and the impression of upper prices, we scale back our earnings estimates for FY22F/23F/24F by ~10-11%. We worth TRP at 17.5x (unchanged) one-year ahead Ebitda to reach at our decrease TP of Rs 3,202. The goal a number of is according to the present buying and selling a number of of 17.3x one-year ahead EV/Ebitda, on consensus estimates. We imagine the valuation a number of is backed by robust money flows, greater dependence on branded companies and capital allocation self-discipline. TRP is presently buying and selling at FCF yields of three.4%/4.1%/ 4.7% on FY22F/23F/24F estimates. Our new TP presents an upside of 16% from present ranges. Improve to Purchase.

Key dangers: slower than estimated progress in India, opposed regulatory growth, and opposed foreign money actions.