22 January 2014
3QFY14 Results Update | Sector:
Healthcare
Torrent Pharmaceuticals
BSE SENSEX
21,338
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
S&P CNX
6,339
TRP IN
169.2
80.4/1.3
535/324
4/12/32
CMP: INR508
TP: INR580
Buy
Financials & Valuation (INR Million)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Gr (%)
BV/Sh(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2014E 2015E 2016E
38,516 47,167 55,436
7,864
5,364
31.7
14
108
32.9
30.5
16.0
4.7
9,865 11,931
5,371
31.7
0
129
26.8
22.9
16.0
3.9
6,528
38.6
22
154
27.3
20.6
13.2
3.3
Revenue for 3QFY14 grew 27% YoY to INR10.1b (v/s est. INR9.72b). EBITDA grew
33% YoY to INR2.1b (v/s est. of INR1.83b), with EBITDA margin at 21.2% (est.
18.8%). Adjusted PAT grew 41% to INR1.6b (above est. of INR1.26b).
Sales growth was driven by stronger-than-expected growth in key export markets
of the US (up 61% YoY v/s est. 33%), Latam (up 26% YoY v/s est. 9%) and Europe
(up 59% YoY v/s est. 46%). Growth in domestic formulations (15% YoY) was in
line, while RoW markets grew below expectation (up 9% YoY v/s est. 27%).
EBITDA margin expanded 100bp YoY to 21.2% (v/s est. 18.8%). This was on
account of: (1) higher-than-expected contribution from gCymbalta in the US, (2)
surprising recovery in sales growth in Brazil and (3) rationalization of marketing
expenses.
Concall highlights: (1) India: Sustains growth momentum led by improving MR
productivity, (2) Brazil: recent launches drive growth; increasing focus on generic-
generics, (3) US: high growth to sustain driven by 8-10 launches in FY15 and (4)
Europe: high growth to sustain due to contribution from long term tenders.
Based on 3QFY14 performance, we have increased the EPS estimate for
FY14E/15E/16E by 8%/3%/5% mainly to reflect (1) higher growth in the US, Brazil and
Europe along with (2) improving field force productivity and sales mix driving margin
expansion. Performance over the last few quarters suggests that the base business is
becoming increasingly stable. However, FY15 will be the first year of consolidation of
Elder Pharma’s acquisition which is expected to be a drag on profitability due to
higher interest cost. While FY15 is likely to be a muted year, we expect Elder’s
acquisition to start reflecting positively in FY16 and this along with stability in base
business is likely to lead to a strong 20% growth in earnings in FY16E. Maintain
Buy
with a revised target price of INR580 (15x FY16E EPS).
Alok Dalal(Alok.Dalal@MotilalOswal.com);+91
22 3982 5584
Hardick Bora(Hardick.Bora@MotilalOswal.com);+91
22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.

Torrent Pharmaceuticals
Revenue growth driven by surprise in US, Brazil and Europe
Revenue grew 27% YoY to INR10.1b (v/s est. INR9.72b), led by 42% YoY growth in
export formulations.
Growth was stronger than expected growth in US (up 61% YoY v/s est 33%), LatAm
(up 26% YoY v/s est 9%) and Europe (up 59% YoY v/s est 46%). Domestic
formulations grew in line, while RoW markets grew below expectation (up 9% YoY
v/s est 27%).
Geographical sales mix (INR m)
Particulars
Domestic Formulations
International
Latam
USA
Europe (Incl-Germany)
RoW, Russia & CIS
Contract Mfg
Others
Total
3QFY14
2,970
6,390
1,480
1,480
2,480
950
540
250
10,150
3QFY13
2,586
4,490
1,170
920
1,560
780
750
160
7,986
% YoY
14.9
42.3
26.5
60.9
59.0
21.8
-28.0
56.3
27.1
2QFY14
2,970
5,720
1,250
1,150
2,350
970
1,000
230
9,920
% QoQ
0.0
11.7
18.4
28.7
5.5
-2.1
-46.0
8.7
2.3
Source: Company, MOSL
EBITDA outperformance due to better sales mix, Brazil recovery
EBITDA grew 33% YoY to INR2.15b (above est. of INR1.83b), while EBITDA margins
expanded 100bp YoY to 20.2% (est. 18.8%). Adjusted PAT grew 41% to INR1.58b
(above est. INR1.26b).
EBITDA margin expansion was led by (1) higher-than-expected contribution in
gCymbalta in US, (2) recovery in high-margin Brazil formulations and (3)
rationalization of marketing costs. Margins expansion was restricted by (1) forex loss
of INR200m and (2) higher contribution from low-margin Heumann sales.
EBITDA and margin trend
Source: MOSL, Company
22 January 2014
2

Torrent Pharmaceuticals
Key takeaways from concall
India formulations
Growth was at 15% YoY (v/s est. of 11%) against a 5% growth in covered market.
Management indicated that the revival in the growth is outcome of corrective
actions taken by the management in the business over last 5-6 quarters.
As a part of the exercise to improve productivity, TRP has rationalized its field
force. Its strength has reduced from 3,800 to 3,600 so far in FY14. Despite this,
the domestic formulations business has grown 12% in 9MFY14 in a period when
market witnessed slowdown from the pricing policy implementation. The
management indicated that it has resolved the conflicts with the trade channels.
With the acquisition of Elder Pharma’s brands (expected to conclude in 2
months), the company will now be consolidating its entry into new geographies
as well as therapeutic segments like Gynecology, Orthopedics and Woman
Health. The management is confident of capitalizing on Elder’s established
marketing strength to better promote its own products.
Brazil
Recorded growth of 26% in INR terms (v/s est. of 9%) led by rising contribution
from recently launched (1) Nebivolol in the branded generic space and (2) 7 to 8
products in the generic-generic space. Growth in constant currency terms was a
strong 22%.
Apart from the new launches, growth has picked in the existing business with
increasing field force productivity. TRP employs 325 marketing representatives
in Brazil.
The company is now focusing on launching generic-generic products in Brazil.
The management indicated that it has a pipeline of 20-25 such products which it
plans to commercialize over the next 2-3 years. It currently has 6 employees in
this division compared to Medley’s strength of 100.
The management believes that this shift in strategy could marginally impact
gross margins. We have taken this into account while lowering our EBITDA
estimates.
We are estimating a conservative 10% growth in constant currency for TRP’s
Brazilian operations for FY14E, which will start normalizing to a 12% growth in
FY15E/16E.
Brazil business growth recovering
Elder acquisition to help achieve scale
Source: Company, MOSL
22 January 2014
Source: Company, MOSL
3

Torrent Pharmaceuticals
US Generics
US formulations grew 61% YoY in INR terms led by new product launches.
Growth in constant currency was 41%.
Importantly, this quarter saw the benefit of gCymbalta launch, which
contributed USD6m despite being in the market for 20 days in 3QFY14.
Management indicated that another 6 players eligible to launch have either not
entered the market or are facing capacity/supply constraints. While this has
provided TRP with the opportunity to gain market share, this performance is not
sustainable and will reverse once competition intensifies.
The company expects to launch 8-10 new products in FY15E. It currently has 22
ANDAs pending approval with the US FDA while 46 ANDAs have already been
approved (6 tentatively approved).
We note that TRP does not have a very strong patent challenge strategy and
hence the launch of these products will be mainly linked to relevant patent
expiry. However, we believe that the incremental launches will provide benefits
of operating leverage, as the company’s rate & quality of ANDA filings is more-
or-less constant.
Europe
Growth during 3QFY14 was driven by (1) high growth in Heumann on the back
of tender wins. Apart from the tenders, management indicated that underlying
demand has also led to the growth.
Given the longer term nature of these tenders, current revenue is expected
sustain over the medium term.
However, we are of the opinion that margins for these markets are below TRP’s
overall profitability and their increasing contribution will exert pressure on
EBITDA margins going forward.
Europe sales revenue growth expected to sustain
Commercialization of ANDA pipeline to drive US growth
Source: MOSL estimates as company does not give USD revenues
Source: Company, MOSL
Other takeaways
Tax rate for the whole year guided at 20-22%.
Long-term debt on books stands at INR2b.
There was a forex loss of INR200m during the quarter compared to a forex gain
of INR110m in 3QFY13.
22 January 2014
4

Torrent Pharmaceuticals
Upgrading estimates
Revised Forecast (INR m)
FY14E
Rev.
Net Sales
EBITDA
Net Profit
EPS (INR)
39,516
7,864
5,364
31.7
Old
38,422
7,223
4,956
29.3
Based on 3QFY14 performance, we have increased our sales estimate for
FY14E/15E by 3%/1% mainly to reflect higher growth in Brazil and US.
We have increased our FY14E/15E/16E EBITDA estimates by 9%/2%/3% mainly
to reflect improvement in margins due to (1) better than expected contribution
from gCymbalta in US, (2) recovery in Brazil and (3) lower staff cost due to
improving productivity in India as well as Brazil.
Our FY14E/15E/16E EPS estimate have consequently increased by 8%/3%/5%.
FY15E
Chg (%)
3
9
8
8
Rev.
48,167
9,865
5,371
31.7
Old
47,729
9,632
5,192
30.7
Chg (%)
1
2
3
3
Rev.
56,436
11,931
6,528
38.6
FY16E
Old
56,211
11,602
6,234
36.8
Chg (%)
0
3
5
5
Valuation and
view
Over last 6 years, Torrent has delivered 30% EPS CAGR, even as capital
employed CAGR was just 18%. It consistently improved profitability, with RoCE
increasing from 14.5% in FY05 to 35.7% in FY13.
Based on revised estimates, we expect 20% EBITDA CAGR over FY13-16E, led by
21% revenue CAGR.
However, EPS CAGR is expected to be 12% over the same period as higher
interest cost on borrowings for Elder deal and ensuing amortization costs will
dent PAT growth.
Despite this, its return ratios are likely to sustain well above 20% ratios, despite
large intangibles on the books.
Based on 3QFY14 performance, we have increased our EPS estimate for
FY14E/15E/16E by 8%/3%/5% mainly to reflect (1) higher growth in US, Brazil
and Europe along with (2) improving field force productivity and sales mix
driving margin expansion.
Performance over the last few quarters suggests that the base business is
becoming increasingly stable. However, FY15 will be the first year of
consolidation of Elder Pharma’s acquisition which is expected to be a drag on
profitability due to higher interest cost.
While FY15 is likely to be a muted year, we expect Elder’s acquisition to start
reflecting positively in FY16 and this along with stability in base business is likely
to lead to a strong 20% growth in earnings in FY16E. Maintain
Buy
with a revised
target price of INR580 (15x FY16E EPS).
22 January 2014
5

Torrent Pharmaceuticals
Torrent Pharmaceuticals: 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 (excl. Germany) and RoW.
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.
Over last 6 years, Torrent has delivered 30% EPS
CAGR, even as capital employed CAGR was just
18%. It consistently improved profitability, with
RoCE increasing from 14.5% in FY05 to 35.7% in
FY13.
The stock trades at 16.0x FY15E and 13.2x FY16E
EPS. Maintain
Buy
with target price of INR580 (15x
FY16E EPS).
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.
Valuation and view
Key investment arguments
Torrent derives its strength from being the leader
in some of the most lucrative and fastest growing
chronic therapy segments like 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 since FY11.
Sector view
Recent developments
Launched gCymbalta with shared exclusivity
Acquired part of Elder Pharma’s domestic
formulations business for INR20b.
Torrent
Pharma
16.0
16.0
4.7
3.9
2.2
2.2
10.9
10.7
Glenmark
Pharma
20.6
16.4
4.2
3.5
2.7
2.2
13.3
11.2
Cadila
Healthcare
18.8
15.7
4.7
3.8
2.6
2.2
12.2
10.2
Comparative valuations
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
31.7
31.7
Consensus
Forecast
30.4
34.4
Variation
(%)
4.2
-8.0
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Target price and recommendation
Current
Price (INR)
508
Target
Price (INR)
580
Upside
(%)
14.2
Reco.
Buy
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
71.5
8.1
10.7
9.7
Sep-13
71.5
8.9
8.1
11.5
Dec-12
71.5
9.7
7.2
11.6
Stock performance (1-year)
22 January 2014
6

Torrent Pharmaceuticals
Financials and valuation
Income statement
Y/E March
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 (%)
Margins (%)
2013
30,540
18
6,930
21.6
830
6,100
340
430
370
5,820
1,470
25.3
-20
4,350
4,705
43
15
(INR Million)
2014E
38,516
26
7,864
19.9
898
6,966
539
450
-260
7,137
1,513
21.2
0
5,624
5,364
14
14
2015E
47,167
22
9,865
20.5
1,753
8,111
1,630
495
0
6,976
1,604
23.0
0
5,371
5,371
0
11
2016E
55,436
18
11,931
21.1
2,126
9,805
1,822
495
0
8,477
1,950
23.0
0
6,528
6,528
22
12
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Valuation (x)
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
Profitability Ratios (%)
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
2013
27.8
30.5
84.9
23.0
21.7
19.5
6.0
15.6
5.6
2.5
11.7
4.8
35.8
33.5
1.5
2014E
31.7
38.5
108.0
9.5
15.1
13.8
5.0
12.3
4.4
2.0
10.2
2.0
32.9
30.5
1.4
2015E
31.7
42.1
128.6
9.5
14.2
12.0
3.9
11.3
3.7
2.1
10.1
2.0
26.8
22.9
1.0
2016E
38.6
51.1
153.6
11.6
12.3
10.5
3.2
9.3
3.1
1.7
8.2
2.4
27.3
20.6
1.1
Balance sheet
Y/E March
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
2013
423
13,947
14,371
6,930
258
21,561
14,960
4,852
10,108
1,094
605
25,861
9,239
6,878
6,270
3,475
16,107
12,387
3,720
9,755
21,561
(INR Million)
2014E
846
17,429
18,275
9,031
369
27,678
17,560
5,750
11,811
1,047
605
29,707
8,085
8,298
9,501
3,822
15,491
11,913
3,578
14,216
27,679
2015E
2016E
846
846
20,915 25,151
21,761 25,997
26,031 26,031
369
369
48,164 52,401
40,322 43,078
7,503
9,629
32,819 33,449
1,023
1,012
605
605
31,820 38,256
10,900 12,689
10,115 11,852
6,601
9,091
4,204
4,625
18,104 20,921
14,514 16,891
3,590
4,030
13,716 17,335
48,164 52,401
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
6,930
0
430
0
-1,727
-2,349
2,914
-2,876
636
0
-2,241
0
1,112
-340
-2,273
-1,146
-473
6,743
6,270
(INR Million)
2014E
7,864
0
450
0
-1,401
-1,230
5,942
-2,554
0
0
-2,554
423
2,101
-539
-1,883
-98
3,291
6,270
9,501
2015E
9,865
0
495
0
-1,604
-2,401
6,354
-22,738
0
0
-22,738
0
17,000
-1,630
-1,885
13,484
-2,900
9,501
6,601
2016E
11,931
0
495
0
-1,950
-1,128
9,347
-2,744
0
0
-2,744
0
0
-1,822
-2,291
-4,113
2,490
6,601
9,091
22 January 2014
7

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4. Investment Banking relationship with company covered
TORRENT PHARMACEUTICALS LTD
No
No
No
No
Torrent Pharmaceuticals
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Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
22 January 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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