Torrent Pharma slips 6% on profit-booking; outlook remains a concern

Unlike peers, Torrent Pharma guided for a relatively moderate outlook across geographies, note analysts at Emkay Global Financial Services.

Shares of Torrent Pharmaceuticals slipped 6 per cent to Rs 2,420 on the BSE on Wednesday on profit-booking after the company’s profit before interest, taxes, depreciation, and exceptional item (EBITDA) for the quarter ended March 31, 2020 (Q4FY20) increased by 26 per cent to Rs 562 crore against Rs 486 crore during the corresponding quarter last year. EBITDA margins expanded 300 basis points (bps) to 29 per cent from 26 per cent in Q4FY19.

The management said Q4 margins expansion was largely from the synergies of the acquired Unichem portfolio, incremental productivity, and cost control. Revenues; however, grew in single digit by 5 per cent to Rs 1,946 crore from Rs 1,856 crore in the year-ago quarter.

The stock of the pharmaceutical company fell nearly 8 per cent from the opening level of Rs 2,618 on the BSE. In the past two months, it has rallied 42 per cent, as compared to a 2.2 per cent rise in the S&P BSE Sensex.

“Unlike peers, Torrent Pharma guided for a relatively moderate outlook across geographies, owing to lack of new approvals in the US, supply issues in Germany (to sort by H1 end) and weak FY21 economic outlook in Brazil,” analysts at Emkay Global Financial Services said in result update.

The brokerage firm believes that pricing-led growth is unlikely to sustain in the long run and believe any slowdown in India sales would have a cascading impact on the company’s premium multiples.

While India growth should outpace the industry in the near term as demand for chronic drugs recovers from Q2 onwards, the brokerage firm concerns remain on the dwindling volumes in key products even before Covid-19 struck. The company’s premium valuation multiples are highly sensitive to India growth, and we see scope for disappointment here, it added.

Though the company remains confident of outperforming Indian pharmaceutical market growth, analysts at Dolat Capital remain wary of the exports (US – 2 key facilities under warning letter (WL) and official action indicated (OAI), Brazil – adverse currency and batch traceability regulations in Germany) given the weaker outlook.

Further, as per the management, growth sustenance without any newer approvals would be challenging in the US. We believe growth levers from India business has been captured largely and margins have peaked for Torrent. The focus will now shift to growth and balance sheet de-leveraging amidst a challenging environment, the brokerage firm said in result update.

At 11:43 am, Torrent Pharma was down 4 per cent at Rs 2,475 on the BSE, as compared to a 0.70 per cent rise in the S&P BSE Sensex. The trading volumes on the counter more than doubled with a combined 1.35 million shares changing hands on the NSE and BSE.