Torrent Pharma Gains Most Among Peers After Goldman Sachs Initiates Coverage
Tablets of a cold medicine. (Photographer: Kiyoshi Ota/Bloomberg)

Torrent Pharma Gains Most Among Peers After Goldman Sachs Initiates Coverage

Torrent Pharmaceuticals Ltd. became the top performer on the Nifty Pharma Index after Goldman Sachs initiated coverage on the drugmaker with a bullish rating.

The global financial services provider, according to a note, bet on favourable exposure to branded generic markets and sustainable pricing power on key brands as it rated Torrent Pharma ‘buy’ with a price target of Rs 3,400 apiece—implying a 28.5% upside from Monday’s closing.

“Torrent has consistently built well-recognised brands in therapy areas, while executing on synergy targets of acquired portfolios,” Shyam Srinivasan of Goldman Sachs, said in the note. The research firm also expects a three-year forward margin expansion of close to 380 basis points, courtesy operating leverage from relaunch of oral liquids in the U.S., legacy Germany portfolio, tender business exit in Brazil and pricing power in India.

“There is upside optionality from the U.S. market relaunch of sartan products and pending approvals from Indrad, Dahej, Levitown plants contingent on the U.S. FDA resolution,” the note said.

Torrent Pharma’s top five brands comprise nearly 35% of its India sales. “This indicates that it retains pricing power in less crowded brands, making a steady 5-6% year-on-year price hikes in the India portfolio sustainable,” the note said.

Goldman Sachs has justified the stock trading at 30 times its estimated FY22 price-to-earnings due to its superior cash flow profile and high-margin chronic drug portfolio. The current valuations are 20% higher than the Nifty Pharma Index’s.

Still, price caps, pace of sartan relaunch, domestic market growth trajectory and the U.S. FDA compliance remain as overhang for the stock, according to Goldman Sachs.

Shares of Torrent Pharma gained as much as 3.8% to Rs 2,747 apiece in early trade on Tuesday. The stock posted 51.5% gains in 2020—its best since 2014. Of the 35 analysts tracking the company, 17 recommend a ‘buy’ and nine each suggest a ‘hold’ and a ‘sell’.

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