Torrent Pharmaceuticals
BSE SENSEX
32,515
S&P CNX
10,077
31 July 2017
1QFY18 Results Update | Sector: Healthcare
CMP: INR1,317
TP: INR1,350(+3%)
Neutral
Motilal Oswal values your support in
the Asiamoney Brokers Poll 2017 for
India Research, Sales and Trading
team. We
request your ballot.
Weak revenue; margins remain stable
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg. Val, INRm
Free float (%)
TRP IN
169
222.8 / 3.5
1768 / 1144
3/-16/-25
389
28.8
Financials & Valuations (INR b)
2017 2018E 2019E
Y/E Mar
Net Sales
58.6
63.7
74.5
EBITDA
13.8
14.8
18.3
PAT
9.3
9.0
11.4
EPS (INR)
55.2
53.4
67.3
Gr. (%)
-7.7
-3.2
26.0
BV/Sh (INR)
257.1 291.2 334.2
RoE (%)
23.8
19.5
21.5
RoCE (%)
18.6
15.7
17.0
P/E (x)
23.9
24.7
19.6
P/BV (x)
5.1
4.5
3.9
Estimate change
TP change
Rating change
TRP reported sales of INR13.5b (-11% YoY; >10% below est.). The miss is
attributed to a decline in domestic revenue due to GST roll-out. Despite this,
gross margin stood at 70.3% (up >500bps QoQ), a positive surprise, as India is
the most profitable business. EBITDA margin came in at 22% (+60bp QoQ). R&D
as % of sales stood at 7.5% in 1Q v/s 9.8% in 4QFY17 and 6.0% in 1QFY17.
India biz impacted by GST; pricing pressure continues in US:
India business
declined ~9% YoY due to channel destocking ahead of GST rollout. Secondary
sales remained strong (at mid-teens). The company expects India business to
grow in double-digits, led by strategic initiatives undertaken since 2QFY16.
US
business
remained largely flat QoQ at INR2.7b due to continued pricing
pressure in base business, offset by recent launches, including gCelecoxib. We
expect this business to remain under pressure in FY18 due to further price
erosion in base business, partially offset by 5-6 new launches in FY18E (~25
pending ANDAs). TRP is also focusing on in-licensing of products in the US.
Earnings call takeaways:
1) Plans to file 15-16 ANDAs in FY18. 2) Pricing pressure
in US in 1QFY18. 3) Tax rate guidance of 21-22% in FY18. 4) Dahej- formulations
facility inspected in Jun-17, and received five 483 observations. 5) Renvela
launch deferred for more than a year. 6) Tax rate to stay at ~20% in FY18. 7)
According to AIOCD, secondary sales of Novartis brand acquired were ~INR31cr
(annualized at June-end). 8) Local currency growth in Germany was ~12% YoY
(~8% YoY in reported terms). 9) Capex guidance of INR4b in FY18 and FY19.
Upside potential capped; downgrading to Neutral:
Although TRP remains one
of the better plays on India’s growth story (because of chronic heavy portfolio
and one of the best margins), challenges in the US business will keep growth
and margins under check in the near term. We downgrade the stock to
Neutral
due to limited upside at current valuations. Our TP is INR1,350@20x FY19E PER
(v/s INR1,450 @ 20x FY19E EPS). We cut FY18E/19E EPS by ~6% as we build in
the impact of higher pricing pressure in the US and lower EBITDA margin.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Kumar Saurabh-Research analyst
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Ankeet Pandya-Research analyst
(Ankeet.Pandya@MotilalOswal.com );

Torrent Pharmaceuticals
Exhibit 1: US revenues declined ~37%YoY in constant currency terms
US sales (USD m)
20
19
31
101
66
30
32
41
140 110
84
78
65
48
46
42
41
Source: Company, MOSL
Exhibit 2: Domestic revenues declined 9% YoY due to GST impact
India sales (INR b)
54.7
49
41
39.1
12
10
15
17
13
-0.2
YoY growth (%)
6.2
12.9
3.9
12.5 12.8
4.5
-9.0
5
3
3
3
3
4
4
4
4
5
4
4
4
5
5
5
5
Source: Company, MOSL
Exhibit 3: Brazil revenues grew ~8% YoY
Brazil (INR b)
YoY growth (%)
82
8
26
-4
1
1
12
28
10
21
-7
1
-18
1
-24
1
-16
1
2
2
2
2
20
35
8
-2
1
5
1
1
2
2
1
2
Source: Company, MOSL
Exhibit 4: EBITDA margins improved ~60bp QoQ
EBITDA (INR b)
EBITDA margin (%)
Exhibit 5: PAT declined ~36%YoY
PAT (INR m)
YoY growth (%)
3.5 2.7 2.4 1.6 9.1 7.2 6.1 4.8 4.4 3.3 3.2 3.0 3.0
2.6 2.0 1.7 1.3 4.5 5.1 3.5 3.6 2.9 2.1 2.3 2.1 1.9
Source: Company, MOSL
Source: Company, MOSL
31 July 2017
2

Torrent Pharmaceuticals
Key concall takeaways
According to Indian Pharma Market (IPM), inventory levels at end-June 2017
were 17 days v/s 40 days in May 2017.
Torrent Pharma filed one ANDA during the quarter, and expects higher number
of filings during 2HFY18.
During the fiscal year, the company launched five products and another 5-6
products during the year, of which one product has market size of ~USD400m.
Company plans to launch more limited-competition products in FY19.
Capex in FY18E and FY19E to be ~INR4b for its Sikkim Onco facility capacity
expansion and Dahej Phase II.
Top 10 products account for ~75% of sales and top 5 for 50-55% of sales.
Exhibit 1:
Operating Metrics
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18
Revenue Mix (%)
USA
India
Europe
Brazil
RoW
CRAMs
Revenue Growth (%)
USA
India
Europe
Brazil
RoW
CRAMs
Cost of sales
Raw material
Staff cost
Other expenses
Tax Rate
Margins (%)
Gross Margins
EBITDA Margins
EBIT Margins
PAT margins
73.5
28.6
26.7
19.9
72.4
31.0
29.1
23.0
68.3
22.4
17.8
16.3
67.8
20.5
15.9
14.3
68.2
14.0
8.8
11.3
78.3
46.7
43.7
23.1
77.3
43.3
39.7
30.7
75.4
39.8
35.9
22.6
72.1
32.3
28.0
23.8
71.0
29.0
24.5
19.4
71.5
23.5
18.6
14.7
67.2
22.4
17.2
16.2
64.5
21.4
14.3
14.9
70.3
22.0
16.1
13.9
32.6
20.9
20.5
10.4
8.4
7.2
50.4
334.8
17.4
19.0
(3.8)
25.6
(14.9)
72.5
26.5
17.2
28.7
23.0
24.1
31.7
22.3
13.4
6.0
2.5
20.9
137.6
13.1
27.0
12.0
(21.2)
(58.2)
70.4
27.6
16.8
26.0
26.6
13.7
36.3
15.6
13.1
7.8
13.4
28.7
45.2
48.8
(19.1)
28.0
(2.1)
63.0
78.5
31.7
18.6
28.2
15.7
14.6
36.0
19.4
13.4
9.1
5.7
16.8
15.5
41.4
(8.5)
5.4
11.6
15.0
80.3
32.2
17.2
30.9
16.9
19.5
34.3
19.0
12.2
8.6
6.4
(6.1)
(43.8)
54.7
(12.7)
10.2
(3.9)
(10.0)
87.5
31.8
20.7
34.9
16.1
45.6
25.2
12.4
7.1
3.9
5.7
75.8
230.7
39.1
(2.8)
(7.4)
13.4
296.4
54.0
21.7
10.9
21.3
47.7
42.1
26.1
11.0
7.7
4.7
8.3
38.5
326.3
(0.2)
(2.1)
(18.1)
(15.8)
(13.5)
58.9
22.7
12.5
23.7
25.3
36.2
29.0
12.7
7.7
4.9
9.5
30.9
226.0
6.2
(14.1)
(24.4)
(28.3)
135.1
61.1
24.6
13.6
23.0
3.6
34.3
29.8
12.7
7.9
5.1
10.1
30.0
128.4
12.9
(13.2)
(15.6)
(22.2)
111.1
68.9
27.9
15.6
25.4
11.9
27.3
32.1
11.8
10.5
7.2
11.1
(19.2)
(51.1)
3.9
(22.7)
21.0
51.3
25.2
73.5
29.0
16.7
27.8
15.6
22.2
34.2
14.4
10.8
7.1
11.4
(14.2)
(54.8)
12.5
12.4
19.8
28.8
0.7
78.2
28.5
18.4
31.2
18.2
21.1
34.3
13.9
10.8
8.2
11.7
(4.7)
(44.4)
12.8
4.6
34.7
57.9
0.7
79.8
32.8
16.5
30.4
6.5
19.6
32.6
16.4
15.1
8.2
8.2
3.1
(45.3)
4.5
23.7
81.5
51.9
(22.4)
82.5
35.5
18.0
29.0
15.6
19.8
33.8
14.7
13.2
9.0
9.6
(13.1)
(37.3)
(9.0)
8.0
8.4
7.0
(5.0)
79.9
29.7
19.5
30.6
29.3
Source: MOSL, Company
31 July 2017
3

Torrent Pharmaceuticals
Story in charts
Exhibit 1: Formulation biz to grow at 12% CAGR FY17-19E
Formulations (INR b)
CRAMS (INR b)
6
3
2
19
3
24
3
28
38
44
61
53
57
66
2
5
5
6
Exhibit 2: EBITDA to exhibit robust growth
EBITDA (INR b)
EBITDA growth (%)
166.6
34.6
-5.1
4
5
32.8
37.3
7.2
-49.4
7.8
23.0
7
10
10
27
14
15
18
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Chronic segment to drive domestic revenues
Revenues (INR b)
38.5
15.5
13.5
13.4
13.0
15.0
YoY Growth (%)
Exhibit 4: US – New launches to spur growth FY19E onwards
US revenues (USD m)
81
31
95
44
8
-51
-13
19
YoY Growth (%)
200
8.5
12.7
8.3
8
9
10
12
16
18
20
22
26
25
45
65
127
137
412
201
175
208
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Brazil - Robust recovery ahead
Brazil (INR b)
32%
20%
5%
6%
13%
YoY Growth (%)
38%
22%
12%
Exhibit 6: Europe business to grow at 12% CAGR FY17-19E
Europe (INR b)
43.1
21.1
20.7
19.9
-0.6
4.9
-16.3
7.0
7.8
9.5
4
5
7
9
9
8
8
9
10
Growth (%)
10.0
14.7
-17%
3.6
4.8
5.0
5.3
6.1
5.1
Source: Company, MOSL
Source: Company, MOSL
31 July 2017
4

Torrent Pharmaceuticals
Valuation and view
Though Torrent remains one of the better plays on India growth story (because of
chronic heavy portfolio and one of the best margins); challenges in US business will
keep growth and margins under check in the near term. We downgrade the stock to
Neutral (v/s Buy earlier) because of limited upside at current valuations. Our TP is
INR1,350@20x FY19E PER (v/s INR1,450 @ 20x FY19E EPS). We cut FY18E/19E EPS
by ~6% as we build in the impact of higher pricing pressure in the US and lower
EBITDA margin.
Key catalysts to drive stock’s performance over the medium term are:
Improvement in EBITDA margin, mainly on stronger contribution from Elder
brands
Limited competition launches in US.
Risks to our investment thesis
Regulatory delays could affect timely launch of key US launches.
Increased span of drug price control could hurt domestic business.
Volatile currency and macroeconomic outlook for key emerging markets namely
Brazil could hamper growth prospects.
Exhibit 7: TRP trades at
3%
premium to Sensex PE
100
28.5
50
19.2
3.9
0
-50
-100
-16.2
2.9
Exhibit 6: TRP trades at 19x (1 yr fwd)
37
30
23
16
9
2
14.7
13.9
PE (x)
Median(x)
Peak(x)
Min(x)
Avg(x)
Torrent Pharma PE Relative to Sensex PE (%)
LPA (%)
Source: Company, MOSL
Source: Company, MOSL
31 July 2017
5

Torrent Pharmaceuticals
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2012
26,961
22.7
5,218
19.4
817
4,400
395
445
-863
3,588
730
20.3
23
2,835
3,287
21.7
2012
423
11,515
11,938
5,786
514
18,274
11,990
4,022
7,968
1,188
1,240
20,081
5,315
5,228
6,743
2,795
12,202
10,395
1,807
7,878
18,274
2013
32,120
19.1
6,930
21.6
830
6,100
340
430
-370
5,820
1,470
25.3
20
4,330
4,705
43.1
2013
423
13,796
14,219
7,030
257
21,510
12,785
4,587
8,198
2,853
605
25,872
9,239
6,878
6,270
3,485
16,017
12,297
3,720
9,855
21,510
2014
41,840
30.3
9,514
22.7
870
8,644
586
381
0
8,439
1,801
21.3
0
6,638
5,385
14.4
2014
846
18,178
19,024
11,418
-182
30,264
14,200
5,447
8,753
5,341
1,857
34,091
10,061
10,994
7,694
5,342
19,777
16,239
3,538
14,314
30,265
2015
46,530
11.2
10,202
21.9
1,907
8,295
1,752
2,856
0
9,398
1,888
20.1
0
7,510
5,650
4.9
2015
846
24,059
24,906
25,040
1,047
50,997
35,429
7,103
28,327
6,783
2,977
40,183
10,672
15,945
5,674
7,892
27,273
22,890
4,383
12,910
50,996
2016
66,760
43.5
27,201
40.7
2,460
24,741
1,859
2,156
-1,400
23,639
5,601
23.7
0
18,038
10,109
78.9
2016
846
34,095
34,941
18,534
-1,114
52,365
34,661
6,070
28,591
10,416
1
48,739
13,580
14,451
6,470
14,238
35,382
31,644
3,738
13,358
52,365
2017
58,570
-12.3
13,774
23.5
3,070
10,704
2,060
2,230
0
10,874
1,540
14.2
0
9,334
9,334
-7.7
2017
846
42,655
43,501
22,408
-2,085
63,830
44,172
7,288
36,884
5,195
1
56,071
15,592
13,442
8,937
18,100
34,321
30,384
3,937
21,750
63,830
2018E
63,699
8.8
14,842
23.3
3,503
11,338
(INR Million)
2019E
74,530
17.0
18,260
24.5
3,726
14,533
2,241
2,200
0
11,298
2,260
20.0
0
9,038
9,038
-3.2
2018E
846
48,430
49,276
22,408
-2,085
69,604
49,401
10,791
38,610
5,195
1
61,021
14,508
14,651
14,403
17,458
35,222
28,856
6,366
25,799
69,604
1,793
1,500
0
14,241
2,848
20.0
0
11,393
11,393
26.0
2019E
846
55,709
56,555
22,408
-2,085
76,883
52,401
14,518
37,883
5,195
1
74,618
16,863
17,142
21,409
19,204
40,814
33,538
7,275
33,804
76,883
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
31 July 2017
6

Torrent Pharmaceuticals
Financials and Valuations
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
Ratios
2012
19.4
21.6
70.5
8.5
29.2
67.8
61.0
18.7
8.2
42.5
0.6
29.7
24.1
42.0
1.6
71
72
-0.1
2012
5,218
445
902
-696
-863
5,006
-1,736
3,270
220
0
-1,516
0
85
-395
-1,226
-1,535
1,955
4,788
6,743
2013
27.8
30.5
84.0
23.0
52.3
47.4
43.2
15.7
7.0
32.3
1.7
36.0
25.6
44.5
1.6
78
105
0.1
2013
6,930
430
-2,449
-1,728
-370
2,813
-2,460
353
636
0
-1,825
0
1,212
-340
-2,334
-1,462
-473
6,743
6,270
2014
31.8
44.4
112.4
10.0
29.8
41.4
29.7
11.7
5.4
23.8
0.8
32.4
27.5
50.1
1.6
96
88
0.2
2014
9,514
381
-3,034
-2,239
0
4,622
-3,904
718
-1,252
0
-5,156
423
4,388
-586
-2,266
1,959
1,425
6,270
7,694
2015
33.4
55.7
147.2
11.3
29.7
39.4
23.7
8.9
5.2
23.7
0.9
25.7
22.2
26.0
1.1
125
84
0.8
2015
10,202
2,856
-617
-660
0
11,781
-22,923
-11,142
-1,120
0
-24,043
599
13,623
-1,752
-2,228
10,241
-2,021
7,694
5,673
2016
59.7
121.1
206.5
35.0
39.5
22.0
10.9
6.4
3.5
8.6
2.7
33.8
40.4
54.1
1.3
79
74
0.3
2016
27,201
2,156
349
-7,763
-1,400
20,544
-6,357
14,187
2,976
0
-3,381
-874
-6,506
-1,859
-7,128
-16,366
797
5,674
6,471
2017
55.2
73.3
257.1
16.5
36.1
23.9
18.0
5.1
4.0
17.2
1.3
23.8
18.6
21.6
1.0
84
97
0.3
2017
13,774
2,230
-5,925
-2,510
0
7,568
-6,143
1,426
0
0
-6,143
2,597
3,875
-2,060
-3,370
1,041
2,467
6,470
8,937
2018E
53.4
74.1
291.2
16.0
36.1
24.7
17.8
4.5
3.6
15.6
1.2
19.5
15.7
18.2
1.0
84
83
0.2
2018E
14,842
2,200
1,417
-2,260
0
16,199
-5,229
10,970
0
0
-5,229
0
0
-2,241
-3,263
-5,504
5,466
8,937
14,403
2019E
67.3
89.3
334.2
20.2
36.1
19.6
14.7
3.9
3.0
12.3
1.5
21.5
17.0
23.2
1.0
84
83
0.0
2019E
18,260
1,500
-1,000
-2,848
0
15,912
-3,000
12,912
0
0
-3,000
0
0
-1,793
-4,114
-5,906
7,006
14,403
21,409
Cash Flow Statement
(INR Million)
31 July 2017
7

Torrent Pharmaceuticals
Corporate profile
Company description
Torrent Pharmaceuticals Ltd. manufactures bulk
drugs and pharmaceutical formulations. The
Company's formulations include cardio-vascular,
psychotropic and anti-biotic drugs while its bulk
drugs include atenolol, ciprofloxacin and
norfloxacin. Torrent Pharmaceuticals has wholly
owned subsidiaries in several regulated and less
regulated international markets.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-17
Promoter
DII
FII
Others
71.3
8.7
9.2
10.9
Mar-17
71.3
7.9
9.7
11.2
Jun-16
71.3
7.3
10.6
10.9
Source: Capitaline
Exhibit 3: Top holders
Holder Name
HDFC TRUSTEE CO LTD- HDFC MULTIPLE
YIELD FUND- PLAN 2005
BIRLA SUN LIFE TRUSTEE COMPANY PRIVATE
LIMITED AC BIRLA SUN LIFE BALANCED 95
FUND
LAVENDER INVESTMENTS LIMITED
FRANKLIN INDIA PENSION PLAN
UTI-MAHILA UNIT SCHEME
% Holding
1.8
1.4
1.3
1.3
1.1
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Samir Mehta
Sudhir Mehta
Mahesh Agrawal
Designation
Executive Chairman
Chairman Emeritus
Company Secretary
Exhibit 5: Directors
Name
Markand Bhatt
Ashish Nanda
Pradeep Bhargava
Shailesh Haribhakti
Name
Chaitanya Dutt
H Khaitan
Renu Challu
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Deloitte Haskins & Sells
Kirit Mehta & Co
Type
Statutory
Cost Auditor
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
FY19
FY20
MOSL
forecast
53.4
67.3
50.8
Consensus
forecast
59.8
73.2
-
Variation (%)
-10.7
-8.1
-
Source: Bloomberg
Source: Capitaline
31 July 2017
8

Torrent Pharmaceuticals
NOTES
31 July 2017
9

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Torrent Pharmaceuticals
Disclosure of Interest Statement
Analyst ownership of the stock
Torrent Pharmaceuticals
No
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
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31 July 2017
10