1. Healthcare

First Cut Analysis
January 29, 2015
Torrent Pharmaceuticals Ltd.
Previous
A subdued performance impacted by relatively lower sales
growth and higher interest outgo
Rating : HOLD
Rating : HOLD
Target : Rs.1,010
Target : Rs.1,010
Torrent Pharmaceuticals (TRP IN) reported below-expectation PAT at Rs1.67bn,
led by y-y sales de-growth in Europe and higher interest cost. EBITDA margin
improved by 53bps y-y to 19.7%, despite gross margin remaining stable for the
quarter on y-y basis. At CMP of Rs1,209, the stock trades at 22.5x FY15E EPS of
Rs53.6 and 21.5x FY16E EPS of Rs56. We have HOLD rating with PT of Rs1,010,
based on 18x FY16 earnings. We will review our estimates, PT and rating post
concall scheduled today at 5pm.
Current
CMP : Rs.1,209
Rs.mn
Revenue
EBIDTA
Adjusted
PAT
PAT
Q3FY15
11,560
2,280
Q3FY14
9,900
1,900
Q2FY15
12,030
2,590
Y-O-Y %
16.8
20.0
Q-o-Q %
(3.9)
(12.0)
INSPL Est Variance(%)
12,962
(10.8)
2,845
(19.9)
1,670
1,580
1,980
5.7
(15.7)
2,045
(18.3)
1,670
1,580
1,980
5.7
(15.7)
2,045
(18.3)
Source: IndiaNivesh Research
Domestic formulation and US sales drive overall sales growth for the quarter:
TRP’s sales came in at Rs11.6bn, up 16.8% y-y, led by addition of Elder portfolio,
decent growth in remaining domestic formulation (DF) segment. Excluding Elder
portfolio, the DF sales grew by 15% y-y. Even the Elder portfolio grew at healthy
rate of 15% y-y compared to market contraction of 5% on rolling quarter basis.
There has been moderate growth of 14% y-y in US sales to US$27mn. The y-y growth
has been on downtrend for third consecutive quarter now. This has been mainly
due to lack of potential approvals and high base of past quarters. Europe sales
declined by 9% to Rs2.3bn. Brazil sales grew at modest rate of 6% to Rs1.6bn. After
two consecutive quarters of strong y-y growth in Brazil, the y-y growth dipped in
Q3FY15, mainly due to currency fluctuations. In constant currency terms, Brazil
sales grew by 19% on y-y basis for the quarter. ROW sales at Rs1.1bn grew by 12%
y-y for the quarter.
Though sales up 16.8% y-y, PAT is up only 5.7% y-y: Gross margin at 67.8% was
stable y-y and down 51bps q-q. The sequential drop in gross margin is due to
increased competition in few products in US market. However, EBITDA margin grew
by 53 bps y-y to 19.7% y-y. This is mainly due to improved productivity resulting in
employee cost as % of sales reducing from 18.1% to 17.2% for the quarter. The
improvement in EBITDA margin and higher other income was offset by higher
depreciation and higher interest cost. This resulted in moderate growth of 5.7% y-y
in adjusted PAT to Rs1.7bn.
Daljeet S. Kohli
Head of Research
Tel: +91 22 66188826
[email protected]
Tushar Manudhane
Research Analyst
Tel: +91 22 66188835
[email protected]
IndiaNivesh Research
Inorganic growth on cards: Board of TRP has decided to obtain enabling approval
from shareholders for issue of equity shares including convertible bonds or
debentures through qualified institutional placement (QIP) or depository receipt
or any other mode for amount not exceeding Rs30bn. Board has decided to obtain
approval for private placement of unsecured/secured redeemable non-convertible
debentures/bonds for amount not exceeding Rs75bn, subject to overall borrowing
not exceeding Rs100bn. Raising maximum amount of Rs30bn as equity would have
dilution of equity to the extent of 15% on pre-dilution outstanding equity shares.
The amount of money to be raised indicates acquisition in medium term. We would
give more details post clarification in the concall scheduled today.
Valuation: At CMP of Rs1,209, the stock trades at 22.5x FY15E EPS of Rs53.6 and
21.5x FY16E EPS of Rs56. We will review our estimates, PT and rating post concall
scheduled today at 5pm. We have HOLD rating with PT of Rs1,010, based on 18x
FY16 earnings.
IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.
First Cut Analysis (contd...)
Quarterly financial summary
Rs mn
Net Sales
Other operating income
Consumption of raw material
Employee Cost
Manufacturing & Other Expenditure
Operating Expenses
EBITDA
Other income
Depreciation and Amortization
EBIT
Net Interest Expenses
Profit Before Tax
Tax
Net Profit After Tax
Minority Interest
Adj. PAT
Adj. EPS (Rs)
EO items
Reported PAT
Rep. EPS (Rs)
Q3FY15
11,560
120
3,720
1,990
3,570
9,280
2,280
650
540
2,510
500
2,010
340
1,670
1,670
9.9
1,670
9.9
Q3FY14
9,900
250
3,180
1,790
3,030
8,000
1,900
100
210
2,040
160
1,880
300
1,580
1,580
9.3
1,580
9.3
Y-y (%)
16.8
(52.0)
17.0
11.2
17.8
16.0
20.0
550.0
157.1
23.0
212.5
6.9
13.3
5.7
NA
5.7
5.7
5.7
5.7
Q2FY15
12,030
140
3,810
2,240
3,390
9,440
2,590
720
560
2,890
540
2,350
370
1,980
1,980
11.7
1,980
11.7
Q-q (%)
(3.9)
(14.3)
(2.4)
(11.2)
5.3
(1.7)
(12.0)
(9.7)
(3.6)
(13.1)
(7.4)
(14.5)
(8.1)
(15.7)
NA
(15.7)
(15.7)
(15.7)
(15.7)
9MFY15 9MFY14
34,510
28,290
480
1,300
10,540
9,230
6,070
5,330
9,800
9,010
26,410
23,570
8,100
4,720
1,860
640
1,310
640
9,130
6,020
1,280
390
7,850
5,630
1,640
1,070
6,210
4,560
6,210
4,560
36.7
26.9
(360.0)
6,210
4,200
36.7
24.8
Y-y (%)
22.0
(63.1)
14.2
13.9
8.8
12.0
71.6
190.6
104.7
51.7
228.2
39.4
53.3
36.2
NA
36.2
36.2
47.9
47.9
Key ratios
Ratios
Adj Gross Margins
Adj EBITDA margin
Net Margin
Material cost/Net Sales
Employee Cost/ Net Sales
Other Expenditure/ Net Slaes
Tax Rate
67.8
19.7
14.3
32.2
17.2
30.9
16.9
67.9
19.2
15.6
32.1
18.1
30.6
16.0
(6)
53
(127)
6
(87)
28
96
68.3
21.5
16.3
31.7
18.6
28.2
15.7
(51)
(181)
(197)
51
(141)
270
117
69.5
23.5
17.7
30.5
17.6
28.4
20.9
67.4
16.7
15.4
32.6
18.8
31.8
19.0
208
679
234
(208)
(125)
(345)
189
Sales breakdown
( Rs Mn)
Q3FY15
Q3FY14
Y-y (%)
Q2FY15
Q-q (%)
9MFY15
9MFY14
Y-y (%)
Branded business
4,203
881
5,084
1,558
1,717
2,257
1,064
11,680
2,960
760
3,720
1,470
1,480
2,480
1,000
10,150
42.0
15.9
36.7
6.0
16.0
(9.0)
6.4
15.1
4,420
980
5,440
1,600
1,670
2,480
980
12,170
(4.9)
(10.1)
(6.5)
(2.6)
2.8
(9.0)
8.6
(4.0)
12,143
2,121
14,314
4,648
6,077
7,037
2,914
34,990
9,050
2,430
11,510
4,050
3,760
6,790
3,470
29,580
34.2
(12.7)
24.4
14.8
61.6
3.6
(16.0)
18.3
Contract Manufacture
Total Domestic Sales
Brazil
USA
Europe
ROW
Net Sales
Source: Company Filings; IndiaNivesh Research
IndiaNivesh Research
Torrent Pharmaceuticals Ltd|First Cut Analysis
January 29, 2015| 2
First Cut Analysis (contd...)
Financial Summary
Profit & Loss
Y E March (Rs m)
Net sales
Growth %
Other Operating Income
Total sales
Expenditure
Raw Material
Employee cost
Other expenses
EBITDA
Growth %
EBITDA Margin %
Depreciation
EBIT
EBIT Margin %
Other Income
Interest
PBT
Tax
Effective tax rate %
Extraordinary items
Minority Interest
Adjusted PAT
Growth%
PAT margin %
Reported PAT
Growth%
Balance sheet
FY12
FY13
FY14
FY15E
FY16E
25,944
22.3%
1,015
26,959
30,540
17.7%
1,580
32,120
40,360
32.2%
1,480
41,840
49,334
22.2%
1,562
50,896
57,643
16.8%
1,722
59,365
9,260 12,430
6,230
7,410
9,700 12,480
6,930
9,520
38.4% 37.4%
22.7% 23.6%
830
870
6,100
8,650
20.0% 21.4%
430
380
340
590
6,190
8,440
1,470
1,800
23.7% 21.3%
(370)
(20)
4,700
6,640
34.5% 41.3%
15.4% 16.5%
4,330
6,640
52.4% 53.3%
14,677
9,425
14,251
12,543
31.8%
25.4%
1,030
11,513
23.3%
1,810
1,788
11,535
2,457
21.3%
9,078
36.7%
18.4%
9,078
36.7%
18,302
11,040
16,401
13,622
8.6%
23.6%
1,125
12,497
21.7%
1,000
1,474
12,023
2,525
21.0%
9,498
4.6%
16.5%
9,498
4.6%
8,631
5,337
7,984
5,007
22.4%
19.3%
817
4,189
16.1%
445
395
4,240
723
17.1%
(654)
(23)
3,494
29.3%
13.5%
2,840
5.1%
Y E March (Rs m)
FY12
FY13
FY14
FY15E
FY16E
Share Capital
Reserves & Surplus
Net Worth
Minority Interest
423
11,803
12,226
40
423
13,796
14,219
4
846
18,178
19,024
4
846
25,562
26,409
4
846
33,081
33,927
4
Secured Loans
Unsecured Loans
Total debt
Net defered tax liability
Total Liabilities
3,220
2,520
5,740
510
18,516
5,474
1,587
7,061
258
21,542
8,890 19,890 17,890
2,464
2,464
2,464
11,354 22,354 20,354
(182)
(182)
(182)
30,201 48,586 54,104
Gross Block
Less: Depreciation
Net Block
Capital Work in Progress
Investments
Current Assets
Inventories
Sundry Debtors
Cash & Bank Balance
Other Current Assets
Loans & advances
12,650
4,105
9,160
1,070
666
12,955
4,757
8,198
3,273
844
14,200
5,447
8,753
6,177
2,464
37,654
6,477
31,177
6,177
2,464
41,689
7,602
34,087
6,177
2,464
5,320
5,230
7,610
1,150
560
19,870
9,239
6,878
6,270
1,859
968
25,213
10,060
10,994
7,694
2,590
1,209
32,547
14,192
11,083
3,819
2,590
1,216
32,901
16,582
12,950
5,934
2,590
1,421
39,477
11,550
700
12,250
7,620
18,516
12,266
3,720
15,986
9,227
21,542
16,202
3,538
19,740
12,807
30,201
20,595
3,538
24,133
8,768
48,586
24,564
3,538
28,102
11,376
54,104
FY12
16.8
21.6
4.3
72.2
FY13
25.6
30.5
11.5
84.0
FY14
39.2
44.4
10.0
112.4
FY15E
53.6
59.7
8.6
156.0
FY16E
56.1
62.8
10.0
200.5
ROCE
ROE
12.6%
23.2%
13.4%
30.5%
16.9%
34.9%
14.1%
34.4%
14.3%
28.0%
EBITDA Margin %
Net Margin %
19.3%
13.5%
22.7%
15.4%
23.6%
16.5%
25.4%
18.4%
23.6%
16.5%
PER (x)
P/BV (x)
P/CEPS (x)
EV/EBITDA (x)
Dividend Payout (%)
72.04
16.7
55.9
40.5
23.6
47.25
14.4
39.7
29.64
45.6
30.81
10.8
27.2
21.88
27.0
22.54
7.7
20.2
17.79
20.0
21.54
6.0
19.3
16.08
20.0
7.9
(0.2)
(0.4)
6.7
0.1
0.1
5.1
0.2
0.4
4.1
0.7
1.5
3.5
0.4
1.1
Current Liabilities & provisions
Current Liabilities
Provisions
Net Current Assets
Total assets
Key ratios
Cash Flow
Y E March (Rs m)
PBT
Depreciation
Interest
Other non cash charges
Changes in working capital
Tax
Cash flow fromoperations
Capital expenditure
Free Cash Flow
Other income
Investments
Cash flow from investments
Equity capital raised
Loans availed or (repaid)
Interest paid
Dividend paid (incl tax)
Cash flow from Financing
Net change in cash
Cash at the beginning of the year
Foreign currency exchange impact
Cash at the end of the year
FY12
3,586
817
66
(87)
1,436
(827)
4,991
(1,613)
3,378
305
(62)
(1,370)
(248)
(307)
(1,373)
(1,927)
1,694
6,048
(134)
7,610
FY13
5,820
827
430
(4,218)
(1,325)
1,535
(2,929)
(1,394)
425
87
(2,417)
1,343
(312)
(834)
197
(685)
7,608
(49)
6,270
FY14
8,440
870
312
186
(1,197)
(2,617)
5,994
(4,001)
1,994
337
106
(3,558)
4,149
(610)
(2,674)
865
3,301
6,270
(624)
7,694
FY15E FY16E
9,679 12,023
1,030
1,125
1,788
1,474
164
(493)
(2,457) (2,525)
10,204 11,604
(3,453) (4,035)
6,751
7,569
(20,000)
(23,453) (4,035)
11,000 (2,000)
(1,788) (1,474)
(1,693) (1,980)
7,518 (5,454)
(5,731) 2,115
9,550
3,819
3,819
5,934
Y E March
EPS (Rs)
Cash EPS (Rs)
DPS (Rs)
BVPS
m cap/sales (x)
net debt/equity (x)
net debt/ebitda (x)
Source: Company Filings; IndiaNivesh Research
IndiaNivesh Research
Torrent Pharmaceuticals Ltd|First Cut Analysis
January 29, 2015| 3
First Cut Analysis (contd...)
Disclaimer: This document has been prepared by IndiaNivesh Securities Private Limited (“INSPL”), for use by the recipient as information only and is not for circulation or public distribution. INSPL includes
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This report is based / focused on fundamentals of the Company and forward-looking statements as such, may not match with a report on a company’s technical analysis report
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report
accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this report: Daljeet S Kohli, Amar Maurya, Abhishek Jain, Yogesh Hotwani, Prerna Jhunjhunwala, Kaushal Patel, Rahul Koli, Tushar Manudhane & Dharmesh Kant.
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January 29, 2015| 4
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