3 August 2011
1QFY12 Results Update | Sector: Pharmaceuticals
Torrent Pharma
BSE SENSEX
S&P CNX
17,941
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,405
TRP IN
84.6
687/497
5/12/12
54.6
1.2
CMP: INR645
TP: INR761
Buy
Torrent Pharmaceuticals' (TRP) 1QFY12 performance was above our estimates.
Key highlights
TRP's 1QFY12 performance was above estimates led by CRAMS and the international business. Its revenue grew
19.2% YoY to INR6.45b (against our estimate of 16.1% YoY growth to INR6.28b), EBITDA grew 34.2% YoY to
INR1.5b (against our estimate of INR1.21b) and adjusted PAT grew 17.6% YoY to INR873m (against our estimate of
INR829m).
Overall revenue grew 19.2% YoY to INR6.45b led by the CRAMS business and international operations, coupled with
a favorable currency. Excluding the extra licensing income booked by TRP, top-line grew 16.1% YoY to INR6.3b (in
line with our estimates).
EBITDA grew 34.2% YoY to INR 1.5b (against our estimate of INR1.21b) mainly because of higher-than-expected
other operating income. EBITDA margins expanded 260bp YoY to 23.3% (against our estimate of 19.2%).
Adjusted PAT grew 17.6% YoY to INR873m (against our estimate of INR829m) led by better operational performance,
which was impacted by higher depreciation and interest expenses.
Over the past five years, TRP posted earnings CAGR of 34% but capital employed CAGR was 17%. TRP has consistently
improved its profitability, with RoCE rising from 14.5% in FY05 to 24.1% in FY11. TRP is likely to post 22% earnings
CAGR over FY11-13, in line with strong operating performance. It is likely to sustain high return ratios despite large
capex and growing cash on the books. We believe current valuations do not reflect the improvement in profitability, the
turnaround of international operations, and TRP's strong positioning in the domestic formulations business. We believe
TRP should trade at a premium to most mid-cap pharmaceutical companies, and that its valuation gap vis-à-vis frontline
pharma companies should reduce, going forward. We believe the superior financial performance will drive a re-rating. We
maintain
Buy
with a target price of INR761 (16x FY13E EPS).
Amit Shah
(Amit.Shah@MotilalOswal.com) + 91 22 3982 5423 /
Nimish Desai
(NimishDesai@MotilalOswal.com); Tel: +91 22 3982 5406

Torrent Pharma
CRAMS, international business lead top-line business
TRP's 1QFY12 performance was above estimates led by CRAMS and its global business.
Revenue grew 19.2% YoY to INR6.45b (against our estimate of 16.1% YoY growth to
INR6.28b). EBITDA grew 34.2% YoY to INR1.5b (against our estimate of INR1.21b)
and adjusted PAT grew 17.6% YoY to INR873m (against our estimate of INR829m).
Overall revenue grew 19% YoY to INR6.45b led mainly by (1) a strong 44% YoY growth
in the contract manufacturing business to INR613m (against our estimate of INR486m),
(2) 20% growth in the global business, and (3) higher other operating income, which
doubled YoY to INR315m (against our estimate of INR180m) due to one-time licensing
income of INR170m. Excluding the extra licensing income that TRP booked, the top-line
grew 16% YoY to INR6.3b (in line with our estimate).
The domestic formulation business grew a muted 10% YoY to INR2.46b due to lower
sales growth in acute therapies (mainly impacted by competitive pressure). The global
business grew 20% YoY to INR3.17b led by (1) 21% YoY growth in Brazil, (2) 20% YoY
growth in Germany due to favorable currency, and (3) 56% YoY growth in the US on a
low base. However, growth in the global portfolio was tempered by Europe (ex-Germany),
Russia and the CIS and RoW markets, which collectively grew 2% YoY.
Geographical sales mix (INR m)
1QFY12
Domestic Formulations
International
Latam
Germany
USA
Europe (ex-Germany)
Russia & CIS
RoW
Contract Mfg
Others
Total
2,460
1,082
825
422
332
108
292
610
3
6,134
1QFY11
2,235
885
692
270
312
160
246
422
23
5,245
% YoY
10.1
22.3
19.2
56.3
6.4
-32.5
18.7
44.5
-87.0
16.9
4QFY11
1,839
788
812
143
280
165
364
532
% QoQ
33.8
37.3
1.6
195.1
18.6
-34.5
-19.8
14.7
(15)
-119.6
4,908
25.0
Source: Company/MOSL
Other operating income leads EBITDA above estimates
EBITDA grew 34% YoY to INR1.5b (against our estimate of INR1.2b) mainly because
of higher-than-expected other operating income. EBITDA margins expanded 260bp YoY
to 23.3% (against our estimate of 19.2%). Excluding licensing income of INR170m, core
EBITDA grew 19% YoY to INR1.33b (against our estimate of INR1.21b). Core EBITDA
margin was 21.3%. Core EBITDA was partly boosted by lower-than-expected R&D
expenses (5.4% of sales against our estimate of 6%).
3 August 2011
2

Torrent Pharma
EBITDA margins
EBITDA (INR M)
20.7
20.2
19.9
12.3
EBITDA Margins (%)
23.3
1Q
2Q
FY11
3Q
4Q
1Q
FY12
Source: Company/MOSL
Key takeaways from the concall
(1)
India formulations:
Growth was only 10%, which was lower than the average
industry growth. The management indicated that increased competition in acute
therapies (35% of domestic sales) impacted revenue growth in 1QFY12. However,
the management retained its guidance of 16-18% growth for the domestic portfolio
in FY12, which we believe is aggressive. We are forecasting 14% growth in FY12
(previously 17%).
(2)
Brazil:
Grew at 21.6% in rupee terms. The management guidance is for 13-14%
growth in local currency in FY12. We are forecasting 20% overall growth for TRP's
Latam operations in FY12.
(3)
Germany:
Grew 19%, led by favorable currency movement (local currency growth
was 8%). TRP was awarded about nine products in recently floated tenders.
(4)
US generics:
Grew 56% on a low base and was partly led by new launches (generic
Aricept and Effexor XR). The management guidance is for strong growth going
forward as it scales up its US operations to be led mainly by new launches. It has
~32 ANDAs pending approval with the US FDA. TRP does not have a very strong
patent challenge strategy and hence the launch of the products will be mainly linked
to relevant patent expiry.
(5)
Europe (ex-Germany):
Grew only 6.4%, but the management guidance is for strong
growth in the coming quarters as it plans to launch 8-9 products in FY12.
(6)
CRAMS:
Strong 44% growth on a low base. The management indicated the current
revenue run-rate for this business would be sustainable going forward.
(7) FY12 capex will be ~INR2b and the tax rate will be ~18%.
Maintaining estimates despite better-than-expected quarter
We are not raising our earnings estimates for FY12 and FY13, despite better than expected
performance in 1QFY12, because of lower estimates for domestic formulation revenue
due to poor performance over the past two quarters. We feel the management guidance
of 16-18% growth is aggressive. International business revenues were partly boosted by
favorable currencies as underlying growth was in line or below estimates. Overall profitability
fell due to lower-than-expected profits in the domestic formulation business, which is a
high margin business for TRP.
3 August 2011
3

Torrent Pharma
Valuation and view
Over the past five years TRP posted earnings CAGR of 34% and CAGR of capital
employed in the business was 17%. TRP consistently improved its profitability, with RoCE
increasing from 14.5% in FY05 to 24.1% in FY11. TRP is likely to post earnings of 22%
CAGR over FY11-13, in line with strong operating performance. It is likely to sustain high
return ratios despite large capex and growing cash on its books. We believe current
valuations do not reflect the improvement in business profitability, turnaround of international
operations and TRP's strong positioning in the domestic formulations segment. TRP should
trade at a premium to most mid-cap pharmaceutical companies, and its valuation gap vis-
à-vis frontline pharma companies should fall, going forward. The stock trades at 16.1x
FY12E and 13.5x FY13E earnings. We believe TRP's superior financial performance will
drive re-rating. Maintain
Buy
with a target price of INR761 (16x FY13E EPS), an upside
of 18%.
3 August 2011
4

Torrent Pharma
Torrent Pharma: an investment profile
Company description
Torrent Pharma is one of the second tier Pharma companies
that is actively targeting the regulated generics and semi-
regulate markets. The company has strong presence in
domestic market with focus and leadership in CVS and
CNS segments. The company has large presence in some
of the key global markets like Brazil and Germany while it
is expanding its footprint in key markets like US, Europe
and RoW.
Key investment arguments
Torrent derives its strength from being the leader in
some of the most lucrative and fastest growing chronic
therapy segments. Line CVS and CNS
In International business, it will grow profitable on the
back of presence in both generic and branded markets.
The company has consistently delivered improving
financial performance, with increase in RoCE& RoE
Torrent's net debt-equity ratio has come down from
0.7x in FY07 to zero in FY11.
Key investment risks
Regulatory risk related to product approvals,
manufacturing cost and various laws across business
segments
Foreign exchange risk as around 50% revenues of the
company come from the export markets.
Recent developments
Signed a contract manufacturing contract with a
European based company to manufacture its novel
products.
Valuation and view
Valuations at 16.1x FY12E and 13.5x FY13E EPS with
sustainable RoE of 30%+.
Maintain
Buy
with price target of INR761 (16x FY13E
EPS).
Sector view
Regulated markets would remain the key sales and profit
drivers in the medium term. Japan is expected to emerge
as the next growth driver, particularly for companies
with a direct marketing presence.
We are overweight on companies that are towards the
end of the investment phase, with benefits expected to
start coming in from the next fiscal.
Comparative valuations
Torrent
Pharma
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
16.1
13.5
4.2
3.4
2.1
1.8
10.6
8.8
Glenmark
20.5
16.7
3.3
2.7
2.9
2.5
10.8
11.5
Cadila
Healthcare
30.7
21.2
6.6
5.3
3.6
3.1
18.1
14.8
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY12
FY13
40.1
47.6
Consensus
Forecast
38.7
47.0
Variation
(%)
3.7
1.2
Target price and recommendation
Current
Price (INR)
645
Target
Price (INR)
761
Upside
(%)
18.0
Reco.
Buy
Stock performance (1 year)
Torrent Pharma
Sensex - Rebased
Shareholding pattern (%)
Jun-11
Promoter
Domestic Inst
Foreign
Others
3 August 2011
71.5
12.7
4.3
11.5
Mar-11
71.5
12.8
3.7
12.0
Jun-10
71.5
10.0
3.2
15.2
690
630
570
510
450
Aug-10
Nov-10
Feb-11
May-11
Aug-11
5

Torrent Pharma
Financials and Valuation
3 August 2011
6

Torrent Pharma
N O T E S
3 August 2011
7

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Torrent Pharma
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