Nomura expects Torrent to record strong cash flow generation over the next three years
Shares of Torrent Pharmaceuticals rallied 6 percent intraday on July 24 after June quarter numbers met analyst expectations. Global brokerages remained bullish on the stock, expecting double digit return from current levels.
Company's profit in June quarter grew 32.5 percent and revenue increased 8 percent compared to year-ago. At operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 13.4 percent and margin expanded 128bps YoY.
The stock was quoting at Rs 1,535.25, up Rs 66.65, or 4.54 percent on the BSE at 1126 hours IST.
The single digit growth in revenue was due to high base last year while India growth was at 9 percent and US business grew 13 percent compared to year-ago.
Global brokerage house CLSA has an outperform rating on the stock but slashed price target to Rs 1,690 from Rs 1,800 (implying 15 percent potential upside from current levels) as it cut EPS estimates by 4-5 percent for FY20-21.
"Q1 results were operationally in-line with estimates. Higher other income drove a 12 percent profit beat. India revenue growth YoY was in-line with our estimate but US sales were flat sequentially despite recent discontinuation of a key product," the brokerage said.
Company sees India's double-digit growth and ex-US export markets to remain strong while the US outlook depends upon US FDA classification of key plant Indrad in Gujarat.
Following recent correction, market is factoring in regulatory action at Indrad, said Japanese brokerage Nomura which has maintained buy call on the stock and raised price target Rs 1,855 from Rs 1,778 per share, implying 26 percent upside potential from current levels.
It said valuation of 25.4x FY21e P/E is at a premium to peers but premium valuation is justified owing to higher contribution from domestic formulation.
The brokerage expects Torrent to record strong cash flow generation over the next three years.
According to the research house, Q1 was ahead of its estimates and price increase in India is a key positive.
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