Recommendation from Pharmaceuticals Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
TORRENT PHARMACEUTICALS LIMITED : GETTING INTO THE TOP SLOT
HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good returns on capital employed
Torrent Pharmaceuticals Limited is engaged in the research, development, manufacturing and marketing of generic pharmaceutical formulations in India, the United States, Germany, Brazil, and other countries. The company reported net sales of Rs 7,780 crore in FY20. It had reported net sales of Rs 7,462 crore in FY19, an increase of 4.26 per cent. The company reported PBIDT of Rs 2,170 crore in FY20, an increase of 9.38 per cent. It had reported PBIDT of Rs 1,984 crore in FY19.
The company reported PAT of Rs 1,025 crore in FY20, an increase of 135.09 per cent. It had reported PAT of Rs 436 crore in FY19. The company has reported cash from operating activities of Rs 1,798 crore in FY20 as against Rs 1,972 crore it reported in FY19. The company’s net sales were at Rs 1,972 crore in December 2020, up by 2.49 per cent from Rs 1,924 crore in December 2019. Domestic business rose 6.8 per cent YoY to Rs 930 crore, led by new launches, continued boost in chronic and strong recovery in sub-chronic brands. The PBIDT was Rs 607 crore in December 2020, up 12.41 per cent from Rs 540 crore in December 2019.
The EBITDA margin improved 290 bps to 30.4 per cent due to stringent cost measures. The quarterly net profit was at Rs 297 crore in December 2020 as against net profit of Rs 251 crore in December 2019, an increase of 18.33 per cent. Increase in PAT was further aided by lower interest and taxes. Q3 saw continued recovery in the sub-chronic segment while the chronic segment continued its growth momentum. Growth momentum is expected to continue on account of robust new launches in the domestic business. The company is awaiting response from USFDA for its Indrad and Dahej facility.
Additionally, the management said that the Levittown facility is likely to commence operation from Q1FY22. In the US market, 47 ANDAs are pending for approval and six have been tentatively approved as on December 31, 2020. The company has added two new promising brands, including Dapagliflozin and Rivaroxaban. The acquisition of Elder Pharmaceutical’s branded portfolio has added new therapies like nutraceuticals and gynaecology and helped fill up its portfolio gaps. The Unichem acquisition has added a branded portfolio comprising some power brands besides achievement of long-term synergy benefits. Going ahead, continued ramp-up in its Germany business is expected as up-gradation of its quality management systems is now complete.
Robust pipeline and upward traction in India, Brazil and Germany markets are key catalysts. Also, lower cost and interest expenses should help the margin further. Growth momentum in India, Brazil and Germany markets will likely support top-line aided by new launches. Additionally, stringent cost control measures and lower interest expense owing to debt repayments should support margin over the medium term. The company is focusing on product rationalisation which will further strengthen the margins. With consistent FCF generation and moderation in core capex, we expect the leverage situation to improve substantially. It has reduced its debt. The total debt to equity ratio is 1.21. On the returns front, it has ROE and ROCE of 21.46 per cent and 15.28 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.
