BUY CMP 538.15 Target Price 592.00 TORRENT PHARMACEUTICALS LTD Result Update: Q3 FY14 JANUARY 25 th 2014 ISIN: INE685A01028 Index Details Stock Data Sector Pharmaceuticals BSE Code 500420 Face Value 5.00 52wk. High / Low (Rs.) 558.10/328.00 Volume (2wk. Avg.) 70000 Market Cap (Rs. in mn.) 91485.50 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales 27670.00 32319.60 36521.15 EBITDA 8110.00 10029.15 11372.14 Net Profit 5460.00 6789.05 7657.28 EPS 64.52 39.94 45.04 P/E 8.34 13.48 11.95 Shareholding Pattern (%) 1 Year Comparative Graph TORRENT PHARMACEUTICALS LTD S&P BSE SENSEX SYNOPSIS Torrent Pharmaceuticals Ltd is one of the leading pharmaceutical companies having presence in Indian and global markets. The company s net profit jumps to Rs. 1140.00 million against Rs. 838.40 million in Q3 FY13, an increase of 35.97%. Revenue for the quarter rose by 11.31% to Rs. 7330.00 million from Rs. 6585.00 million in Q3 FY13. During the quarter, Company entered into an agreement with Elder Pharma to purchase its Indian Branded Formulation Business for Rs. 20040 million. For Q3 FY14, the consolidated revenues stood at Rs. 10150 million, up by 27% from Rs. 7970 million in Q3 FY13. During Q3 FY14, Torrent Pharma Inc (USA) 46 ANDA approvals (including 6 tentative approvals) and pipeline consists of 22 pending approvals and 30 products under development in USA and expected to launch 8 to 10 products in FY15. During Q3 FY14, domestic formulation business recorded revenues of Rs. 2970 million, growing by 15% and International revenues grew by 41% to Rs. 6380 million. Torrent Pharma has declared an interim dividend of Rs. 5.00 per equity share of Rs. 5/- each. During Q3 FY14, the Company has launched Duloxetine (Cymbalta) in USA. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 35% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Torrent Pharmaceuticals Ltd 538.15 91485.50 64.52 8.34 2.76 460.00 Dr Reddys Laboratories Ltd 2660.60 452591.70 91.88 28.96 5.81 300.00 Aurobindo Pharma Ltd 421.15 122697.30 21.66 19.44 4.17 150.00 IPCA Laboratories Ltd 762.20 96189.00 28.89 26.38 6.13 160.00
Recommendation & Analysis - BUY During the quarter, the Company posted standalone revenue of Rs. 7330.00 million as against Rs. 6585.00 million in Q3 FY13, rose by 11.31%. Net profit jumps to Rs. 1140.00 million against Rs. 838.40 million in the corresponding quarter ending of previous year, an increase of 35.97%. For the quarter ended 31-Dec-13, the consolidated revenues stood at Rs. 10150 million, up by 27% from Rs. 7970 million in the comparable quarter of last year. Company declared an interim dividend of 100%. During Q3, domestic formulation business recorded revenues of Rs. 2970 million, growing by 15%. As per AIOCD Torrent grew at 12% during the quarter compared to covered market growth of 5% and Indian Pharmaceutical growth of 5%. International revenues grew by 41% to Rs. 6380 million. In the international operations, US business reported growth of 61%, Europe (incl.heumann) 59%, Brazil 26% and Rest of the World, including Russia, CIS, Mexico & Canada 9%. Consolidated Profit after Taxes for the quarter was Rs. 1580 million compared to Rs.1120 million during the same period last year. The Company acquired Indian Branded Formulations Business of Elder for a consideration of Rs. 20040 million and expected to close in the first half of 2014. The transaction is a strategic fit for Torrent and will strengthen its core prescription-based business. During Q3 FY14, the Company has 46 ANDA approvals (including 6 tentative approvals) and pipeline consists of 22 pending approvals and 30 products under development in USA and expected to launch 8 to 10 products in FY15. Over FY2012-15E, we expect the company to post a standalone CAGR of 21% and 35% in its top-line and bottom-line respectively. We recommend BUY for TORRENT PHARMACEUTICALS LTD on the stock with a price target of Rs. 592.00.
QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q3 FY14, Torrent Pharmaceuticals is Flagship of Torrent group, a leader in cardiovascular & central nervous system segments in India, reported its financial results for the quarter ended 31 st Dec, 2013. Months Dec-13 Dec-12 % Change Revenue 7330.00 6585.00 11.31 PAT 1140.00 838.40 35.97 EPS 6.71 9.91 (32.32) EBITDA 1820.00 1298.50 40.16 The company s net profit jumps to Rs. 1140.00 million against Rs. 838.40 million in the corresponding quarter ending of previous year, an increase of 35.97%. Revenue for the quarter rose by 11.31% to Rs. 7330.00 million from Rs. 6585.00 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 6.71 a share during the quarter, registering 32.32% decreased over previous year period due to increase the EPS of the company. Profit before interest, depreciation and tax is Rs. 1820.00 millions as against Rs. 1298.50 millions in the corresponding period of the previous year. Break up of Expenditure Break up of Expenditure Rs. millions Q3 FY14 Q3 FY13 Cost of Material Consumed 2280.00 2120.00 Purchase of Stock in Trade 250.00 200.00 Employee Benefit Expenses 1050.00 920.00 Depreciation & Amortization Expenses 200.00 190.00 Other Expenses 2230.00 1920.00
Latets Updates Torrent Pharmaceuticals Ltd has entered into a definitive binding agreement with Elder Pharmaceuticals Ltd to acquire its branded domestic formulations business in India and Nepal for a consideration of about Rs. 20040 million. Torrent Pharmaceuticals Ltd has declared an interim dividend of Rs. 5.00 per equity share of Rs. 5/- each fully paid up. During Q3, domestic formulation business recorded revenues of Rs. 2960 million, growing by 15%. As per and International revenues grew by 41% to Rs. 6380 million. In the international operations, US business reported growth of 61%, Europe (incl.heumann) 59%, Brazil 26% and Rest of the World, including Russia, CIS, Mexico & Canada 9%. The Company has launched Duloxetine (Cymbalta) in Q3 FY14 under FTF status having a market share of around 7% to 8% in USA. The Company has expanded operations into select overseas markets of Latin America and European Union. Expansion Plan The Company has commenced building new formulation and API manufacturing facility at Dahej SEZ in Gujarat with a cost of Rs. 1100 crores. The Company plans to increase its capacities to 80 TPA plus 14,000 million tablets/ capsules p.a. at Dahej SEZ. The additional capacities will be fully available from financial year 2016-17. COMPANY PROFILE Torrent Pharmaceuticals (TPL) was started in 1959 by U N Mehta as Trinity Laboratories. The company changed its name to present one in 1971. TPL is Flagship Company of the Torrent group, Torrent Pharma, with an annual turnover of over Rs. 3200 crores is the flagship Company of the Torrent Group. With many of its products ranking among the top 200 brands, Torrent continues to be at the forefront of the Indian pharmaceutical industry. Torrent has a fully equipped Research Center, employing almost 600 scientists, to support the company s operations and product pipeline for both domestic and overseas markets. Torrent has manufacturing facilities located at Indrad, Baddi & Sikkim having facilities to produce Formulations and Bulk drugs. The plants are approved by authorities from various regulated and semi regulated markets like US, UK, Brazil, Germany, Australia and South Africa. Torrent Pharma is a leader in cardiovascular and central nervous system segments. It also has presence in gastro-intestinal, diabetology, anti-infective and pain management segments.
These units have received various certifications for its quality management such as ISO 9001, ISO 14001 and OHSAS 18001 and ISO/IEC- 17025. In India the company has 11 sales and marketing divisions. It has 1000 product registrations across 50 countries that include US Latin America, Russia, Europe, Japan and many more. Manufacturing facilities Indrad (Gujarat) The company s Indrad plants manufactures bulk drugs, APIs, formulation in form of tablets, capsules and vials. It has annual production capacity of 6000 million kg of formulations and 15000 kg of bulk drugs/apis. Baddi (Himachal Pradesh) TPL s Baddi plant has a manufacturing capacity of 3300 million tablets, 350 million capsules and 18 million oral liquid bottles per annum. Sikkim The manufacturing plant at at Sikkim has a capacity to manufacture 3,900 million tablets per annum. Subsidiary Companies Zao Torrent Pharma (Russia) Torrent Do Brasil Ltd (Brazil) Torrent Pharma GmbH (Germany) Torrent Pharma Inc. (USA) Torrent Pharma Philippines Inc. (Philippines). Global Presence United States of America Latin America Russia & CIS Europe Canada
FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2012-2015E TORRENT PHARMA LTD. FY12A FY13A FY14E FY15E SOURCES OF FUNDS (Rs.in.mn) Shareholder's Funds Share Capital 423.10 423.10 850.00 850.00 Reserves and Surplus 12621.90 16087.80 19790.70 23748.84 1. Sub Total - Net worth 13045.00 16510.90 20640.70 24598.84 Non Current Liabilities Long Term Borrowing 3220.50 4545.40 4863.58 5495.84 Deferred Tax Liabilities 631.70 568.90 614.41 589.84 Other Long term Liabilities 4.50 97.60 91.74 95.41 Long Term Provisions 596.50 710.10 788.21 851.27 2. Sub Total - Non Current Liabilities 4453.20 5922.00 6357.95 7032.36 Current Liabilities Short Term Borrowings 1381.20 1246.20 4986.00 5384.88 Trade Payables 3734.00 4496.90 4721.75 4910.61 Other Current Liabilities 2573.70 3298.70 4387.27 5264.73 Short Term Provisions 596.70 2078.40 727.44 814.73 3. Sub Total - Current Liabilities 8285.60 11120.20 14822.46 16374.95 Total Liabilities (1+2+3) 25783.80 33553.10 41821.10 48006.15 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 6285.90 7849.90 9576.88 11109.18 Intangible assets 77.10 63.90 74.12 83.02 Capital Work in Progress 268.70 2763.10 3260.46 3684.32 a) Sub Total - Fixed Assets 6631.70 10676.90 12911.46 14876.51 b) Non Current Investments 3912.90 1475.00 1548.75 1610.70 c) Long Term loans and advances 536.80 533.60 602.97 663.26 d) Other Non-current investments 462.50 239.00 712.50 826.50 1. Sub Total - Non Current Assets 11543.90 12924.50 15775.68 17976.98 Current Assets Current Investment 865.20 427.60 1250.50 1575.63 Inventories 3931.30 6970.90 7528.57 7980.29 Trade receivables 4096.10 8312.70 11449.54 13797.74 Cash and Bank Balances 3666.80 2777.60 3610.88 4260.84 Short-terms loans & advances 629.60 683.20 894.99 1038.19 Other current assets 1050.90 1456.60 1310.94 1376.49 2. Sub Total - Current Assets 14239.90 20628.60 26045.42 30029.17 Total Assets (1+2) 25783.80 33553.10 41821.10 48006.15
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 20760.40 27670.00 32319.60 36521.15 Other Income 1351.90 1320.00 385.00 415.80 Total Income 22112.30 28990.00 32704.60 36936.95 Expenditure -16756.50-20880.00-22675.45-25564.80 Operating Profit 5355.80 8110.00 10029.15 11372.14 Interest -397.80-370.00-574.00-677.32 Gross profit 4958.00 7740.00 9455.15 10694.82 Depreciation -639.00-720.00-798.00-877.80 Exceptional Items -612.00-370.00 0.00 0.00 Profit Before Tax 3707.00 6650.00 8657.15 9817.02 Tax -594.50-1190.00-1868.10-2159.75 Net Profit 3112.50 5460.00 6789.05 7657.28 Equity capital 423.10 423.10 850.00 850.00 Reserves 12621.80 16090.00 19790.70 23748.84 Face value 5.00 5.00 5.00 5.00 EPS 36.78 64.52 39.94 45.04 Quarterly Profit & Loss Statement for the period of 30 th June, 2013 to 31 st March, 2014E Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E Description 3m 3m 3m 3m Net sales 8850.00 7930.00 7330.00 8209.60 Other income 140.00 30.00 100.00 115.00 Total Income 8990.00 7960.00 7430.00 8324.60 Expenditure -5980.00-5310.00-5610.00-5775.45 Operating profit 3010.00 2650.00 1820.00 2549.15 Interest -80.00-150.00-160.00-184.00 Gross profit 2930.00 2500.00 1660.00 2365.15 Depreciation -190.00-200.00-200.00-208.00 Profit Before Tax 2740.00 2300.00 1460.00 2157.15 Tax -600.00-480.00-320.00-468.10 Net Profit 2140.00 1820.00 1140.00 1689.05 Equity capital 420.00 850.00 850.00 850.00 Face value 5.00 5.00 5.00 5.00 EPS 25.48 10.71 6.71 9.94
Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 36.78 64.52 39.94 45.04 EBITDA Margin (%) 25.80% 29.31% 31.03% 31.14% PBT Margin (%) 17.86% 24.03% 26.79% 26.88% PAT Margin (%) 14.99% 19.73% 21.01% 20.97% P/E Ratio (x) 14.63 8.34 13.48 11.95 ROE (%) 23.86% 33.06% 32.89% 31.13% ROCE (%) 33.97% 39.59% 35.51% 34.53% Debt Equity Ratio 0.35 0.35 0.48 0.44 EV/EBITDA (x) 8.68 5.99 9.74 8.63 Book Value (Rs.) 154.16 195.14 121.42 144.70 P/BV 3.49 2.76 4.43 3.72 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs.538.15, the stock P/E ratio is at 13.48 x FY14E and 11.95 x FY15E respectively. Earnings per share (EPS) of the company for the earnings for FY14E and FY15E are seen at Rs.39.94 and Rs.45.04 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 35% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 9.74 x for FY14E and 8.63 x for FY15E. Price to Book Value of the stock is expected to be at 4.43 x and 3.72 x respectively for FY14E and FY15E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.592.00 for Medium to Long term investment.
INDUSTRY OVERVIEW India s pharmaceutical sector will touch US$ 45 billion by 2020. In the period 2002 2012, the country s healthcare sector grew three times in size, touching US$ 70 billion from US$ 23 billion. India's pharmaceutical market experienced a similar boom, reaching US$ 18 billion in 2012 from US$6 billion in 2005. The rise of pharmaceutical outsourcing and investments by multinational companies (MNCs), allied with the country's growing economy, committed health insurance segment and improved healthcare facilities, is expected to drive the market s growth. India is today one of the top emerging markets in the global pharmaceutical scene. The sector is highly knowledge based and its steady growth is positively affecting the Indian economy. The organised nature of the Indian pharmaceutical industry is attracting several companies that are finding it viable to increase their operations in the country. Market Dynamics The domestic pharmaceutical market has reported total sales of Rs 6,883 crore (US$ 1.12 billion) in the month of July 2013, a growth of 13.5 per cent, according to IMS Health. The major factors responsible for this growth are increasing sales of generic medicines, continued growth in chronic therapies and greater penetration in rural markets. India currently exports drug intermediates, Active Pharmaceutical Ingredients (APIs), Finished Dosage Formulations (FDFs), Bio-Pharmaceuticals, and Clinical Services across the globe. The exports of pharmaceuticals from India grew to US$ 14.6 billion in 2012 13 from US$ 6.23 billion in 2006 07, registering a compound annual growth rate (CAGR) of around 15.2 per cent. The Ministry of Commerce has set a target for Indian pharma sector exports of US$ 25 billion by 2014 at an annual growth rate of 25 per cent. Among the top pharma companies, Abbott with total sales of Rs 452 crore (US$ 73.67 million), Cipla with Rs 322 crore (US$ 52.48 million), Sun Pharma with Rs 313 crore (US$ 51.02 million), and Zydus Cadila with Rs 268 crore (US$ 43.69 million) were the fastest growing companies in the month of September 2013. In terms of growth, Sun Pharma (17.8 per cent) is ahead of peers such as Cadila (1.8 per cent), Cipla (0.8 per cent) and McLeod (0.7 per cent). Investment Opportunities The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$ 11,391.03 million in the period April 2000 September 2013, according to Department of Industrial Policy and Promotion (DIPP).
India, with almost 200 United States Food & Drug Administration (USFDA)-approved drug manufacturing facilities, is the biggest foreign supplier of medicines to the United States (US). Exports to the US rose nearly 32 per cent last year to US$ 4.23 billion. India accounts for nearly 40 per cent of generic drugs and over-the-counter products and 10 per cent of finished dosages used in the US. The Department of Pharmaceuticals has projected an investment of Rs 3,000 crore (US$ 489.19 million) to set up 10 more National Institute of Pharmaceutical Education and Research (NIPER) over the next few years. Some of the major investments in the Indian pharmaceutical sector include the following: GlaxoSmithKline Plc plans to invest Rs 864 crore (US$ 140.86 million) to set up a new factory in India. The plant, which is expected to be operational by 2017, will include a warehouse, site infrastructure and utilities to support the manufacturing and packing of the medicines. Cadila Pharmaceuticals Ltd (CPL) plans to invest Rs 100 crore (US$ 16.30 million) on expansion, upgradation and modernisation of its manufacturing unit at Samba in Jammu district. HLL Biotech Limited (HBL), a subsidiary of HLL Lifecare Ltd, has entered into a long-term supply and technology license agreement with the Institute of Immunology, Zagreb (IMZ), Croatia, for the manufacture of measles vaccine in India. Under the partnership agreement, IMZ will transfer the technology to manufacture bulk measles vaccine to HBL. Ranbaxy Laboratories Ltd has received an approval from the Central Drugs Standard Control Organisation (CDSCO) to manufacture and market a new drug for the treatment of malaria in adults. Cipla has acquired a majority stake in Uganda-based Quality Chemical Industries Ltd (QCIL), with the acquisition of an additional 14.5 per cent stake for US$ 15 million through its subsidiary, Meditab Holdings Ltd (MHL). Dr Reddy's Laboratories Ltd has received approval from the USFDA for its Azacitidine injection. The drug is used for treatment of some types of cancer and disorders that affect the bone marrow. Government Initiatives The Government of India has allowed 100 per cent FDI through automatic approval route in the new pharma projects but the foreign investment in the existing pharma companies needs approval from Foreign Investment Promotion Board (FIPB). The Cabinet has approved Pharmaceuticals Purchase Policy (PPP) for 103 medicines to ensure optimum utilisation of the installed capacity of the pharma central public sector enterprises (CPSEs) and availability of quality medicines at low prices to the masses, besides ensuring drug security of the nation.
The Government of India has made tax breaks available to the pharma sector and a weighted tax deduction of 150 per cent for any R&D expenditure incurred. It has also introduced 19 dedicated special economic zones (SEZ) to help stimulate pharma sector investment across the country. The government has signed a bilateral agreement with the Republic of Hungary for promotion and development of traditional systems of medicine. Road Ahead The small and medium enterprises (SMEs) are expected to play a significant role in the growth story of the country's pharma sector as they contribute 35 40 per cent to the industry in terms of production with a turnover of about Rs 35,000 crore (US$ 5.70 billion). With the support of Pharmexcil and the Government in the form of Brand India Pharma project iphex, the sector would continue to grow and meet the healthcare requirements of the developing world. The country will also see the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare sector. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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