BSE SENSEX
33,686
S&P CNX
10,453
Torrent Pharmaceuticals
CMP: INR1,315
TP: INR1,400 (+6%)
Neutral
Entering big league through this acquisition
High interest cost a concern
5 November 2017
Update | Sector: Healthcare
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
TRP IN
169
1,572/1,144
-1/-11/-23
222.6
3.4
360.7
28.8
Financials Snapshot (INR b)
2017 2018E 2019E
Y/E Mar
Net Sales
58.6
62.4
77.9
EBITDA
13.8
14.5
19.9
PAT
9.3
8.5
10.4
EPS (INR)
55.2
50.0
61.4
Gr. (%)
-7.7
-9.3
22.8
BV/Sh (INR)
257.1 289.0 328.2
RoE (%)
23.8
18.3
19.9
RoCE (%)
18.6
15.5
18.7
P/E (x)
23.8
26.3
21.4
P/BV (x)
5.1
4.6
4.0
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
71.3
71.3
71.3
DII
9.0
8.7
7.1
FII
9.6
9.2
11.0
Others
10.2
10.9
10.6
FII Includes depository receipts
Stock Performance (1-year)
Torrent Pharma.
Sensex - Rebased
1,700
1,550
1,400
1,250
1,100
Big leap- to become top-5 player:
Torrent has entered into a definitive
agreement with Unichem to acquire its branded business of India and Nepal for
INR36b on slump sale basis (transaction closure expected by 2017
end). Through this acquisition, Torrent will acquire >120 brands in India and
Nepal and manufacturing plant at Sikkim.
Building leadership position through strings of acquisitions:
This is the fifth
acquisition in India by Torrent pharma in last 4 years (Brands from Elder and
Novartis, manufacturing plants from Zyg Pharma and Glochem). According to
IMS, Torrent will be ranked 5th in terms of secondary sales in Indian Pharma
Market post this acquisition (According to AIOCD- Torrent’s Rank will move
from 13th to 8th). Torrent’s market share in IPM will move from 2.4% to 3.4%.
Complimentary therapy focus:
Cardiac, Neuro, GI & anti-infective accounts for
84% of domestic top-line for Unichem. Except anti-infective, all other three
therapy areas are also the top-3 therapies for Torrent. Torrent’s market share
in Cardio, CNS & GI will increase to 8.6% from 5.6%, 8.4% from 6.4% and 3.9%
from 3.1%, respectively. Top 50 brands for Unichem contribute ~80% of top-
line. Unichem’s Losar brand is >INR2b whereas 3 other brands including
Unienzyme, Ampoxin & Telsar are >INR500m brand.
Entry into OTC segment:
Torrent will also enter into OTC market through this
acquisition. Unienzyme is an established brand with sales of ~INR600m.
Strengthening on the ground presence:
Torrent will add 3,000 employees
through this acquisition. Also distribution reach will get extended by ~2,000
stockists.
Deal Valuations & financing:
Unichem generated top-line of ~INR8.4b from
branded formulations sales in India. We believe India business of Unichem
would be making EBITDA margins of ~25-30%. At transaction value of INR36b,
this deal was valued at 4.3x FY17 EV/ sales. The company plans to finance ~75%
of the deal through debt with interest cost between 8.25%-8.75%. The deal will
be cash accretive in 1
st
year and EPS accretive in 3 years.
2QFY18 results takeaways:
TRP reported sales of INR14.3b (+2% YoY; >10%
below est). Miss in top-line is attributed to decline in the US business and Brazil
business. India business grew by 22% YoY to INR6.1b (~28% growth adj. for
GST). EBITDA was flat at INR3.3b (-18% v/s est.), while margin stood at 23% (-
50bp YoY and +100bp QoQ). PAT declined by 30% YoY to INR2b (-15% v/s est.).
Deal to be EPS accretive in 3 years:
Due to high interest cost, Unichem deal
will take 3 years to become EPS accretive (additional interest cost burden of
IN2.5-2.7b). Although TRP remains one of the better plays on India’s growth
story (because of chronic heavy portfolio and one of the best margins), lack of
growth catalyst in near term will keep the stock range bound. Our TP is
INR1,400@20x 1H FY20E PER (v/s INR1,350 @ 20x FY19E EPS). We cut
FY18E/19E EPS by ~6% & 9% as we build in the impact of high interest cost due
to this deal.
Kumar Saurabh – Research analyst
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Ankeet Pandya – Research analyst
(Ankeet.Pandya@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.