2 November 2015
2QFY16 Results Update | Sector:
Healthcare
BSE SENSEX
26,657
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
Avg Val(INR M)
Free float (%)
S&P CNX
8,066
TRP IN
169.2
236/3.7
1720 /861
6/29/80
198
28.8
CMP: INR1,542
TP: INR1,850 (+20%)
Torrent Pharma
Buy
Abilify drives 2Q; outlook remains strong
Financials & Valuation (INR Billion)
Y/E MAR
Sales
EBITDA
Net Profit
EPS (INR)
EPS Gr. (%)
BV/Sh. INR
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015 2016E 2017E
46.5
10.2
5.7
33.4
4.9
25.7
27.7
46.2
10.5
70.2
26.6
11.0
64.8
93.9
35.7
51.0
23.8
7.1
69.6
18.1
13.3
78.4
21.1
32.5
31.6
19.7
5.8
147.2 216.0 267.2
Estimate change
TP change
Rating change
Torrent’s PAT at INR5.7b (up 189% YoY) was 27% ahead of estimates, mainly on
superior margins (42% v/s 34.4% est.). Sales also grew 39% YoY (7% miss) to
INR16.9b, led by Abilify sales in the US.
Strong US sales offset weak performance in other segments:
The US business
grew four-fold to INR7.1b, led by Abilify sales. However, other segments reported
poor numbers during this quarter. India biz remained flat YoY to INR 4.4b, mainly
on account of stoppage of promotional activities (Bonus sales etc.). Currency
movement continued to impact other markets as LatAm declined 18%YoY and
RoW declined 16%YoY. EU business was impacted by lower traction in UK and
Romania region, declined 2%YoY in 2Q. Impact of high-margin US launches like
gAbilify, gNexium, gDetrol and recent price hikes in domestic products are
expected to result in strong revenue traction over FY15-18E (20% CAGR).
Base business profitability improved:
EBITDA margin at 42% (up 2000bp YoY) was
ahead of our estimates due to abnormally high Abilify sales in 2Q. Adjusted for
Abilify sales (est.USD:75m in 2Q) in the US, underline base business performance
was improved by rationalization efforts across geographies and key segments –
Higher profitability in India and Brazil. We expect EBITDA margins to expand
460bp over FY15-18E, led by (a) high-impact US launches, (b) higher synergies
from Elder brand acquisition, (c) ramp-up in LatAm and EU markets and (d)
improved MR productivity in India. As a result, EBITDA is likely to grow at a 28%
CAGR over FY15-18E.
Improving business mix, profitability and balance sheet to drive re rating:
We
remain positive on TRP’s re-rating potential due to (a) strong EPS momentum of
43% CAGR over FY15-18E, (b) potential ramp-up in the US business (low base) (c)
460bp EBITDA margin improvement, (c) healthy return ratios (from 27.7% ROCE in
FY15 to 33.8% in FY18E), and (d) substantial reduction in debt due to INR48b free
cash flows over FY16-18E. Reiterate
Buy
with a target price of INR 1,850 (21x
Sep’17E EPS—in line with the sector).
Amey Chalke
(Amey.Chalke@MotilalOswal.com);+91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.