Dolat Capital: Torrent Pharma Reports Best-Ever Quarter Led By Huge Cost Savings

Dolat Capital Report

Torrent Pharmaceuticals Ltd. reported its best ever quarter operationally led by huge cost savings as lockdown in India led to slowdown of marketing and promotional activities.

With 85% of medical representatives back on the field we expect this to normalize in next two quarters.

While Sales growth was in-line, gross margin at 73.4% (240 basis points YoY) was a function of growth in branded markets. Further aided by lower fixed costs, Ebitda margin came in at 32% (our estimate 26%).

Though management refrained from giving guidance, the commentary was upbeat on outperforming market growth in India.

Two of its key businesses, Germany and U.S., impacted due to standard operating procedures and compliance issues are expected to be resolved by H2 FY21/FY22E.

Nonetheless, we believe the focus should remain primarily on the domestic market, which is likely to account for 65% of its FY22E Ebitda, with U.S. contribution expected to come down to 8% of FY22 Ebitda.

While Torrent has delivered impressive growth in India led by synergistic acquisitions, we believe growth levers from India business has been captured largely and margins have peaked for Torrent Pharma as current valuation leaves limited room for an upside.

Focus will now shift to growth and balance sheet de-leveraging (guided for debt reduction of Rs 10 billion in FY21).

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