Torrent Pharma's stock rises driven by growth recovery expectations
Premium- Torrent Pharma's reported profit growth impressed, leading to expectations of a rebound in sales growth. The stock gained more than 6% in morning trades on Wednesday.
The Q4 performance by Torrent Pharma remained a mixed bag. While the company continued to grow well in the domestic arena, the sales growth in most other geographies remained subdued.
The company’s overall revenues during the quarter at ₹1,937 crore was down by 1% year-on-year (y-o-y) despite India sales (about half of overall) growing 10% y-o-y. The US sales continue to disappoint and declined 30% y-o-y during Q4. Though Brazil sales in constant currency terms were up by 19% y-o-y, adverse currency movement meant that in rupee terms, sales declined 3% during the quarter. Only Germany sales supported by favourable currency movement were up 23% year-on-year y-o-y.
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2 min read . 10:12 AM ISTWhile revenue growth remained subdued, the positives accrued on the operating front. The gross margins expanded, which analysts attribute to better product mix. The cost controls also meant operating margins improved driving earnings. Operating profits improved 6% y-o-y, operating margins at 30% helped by lower operating costs were better than 28% in the year-ago quarter. Net profits grew by 3% y-o-y. The company said that adjusted for a one‐time tax benefit, net profit grew by 24%.
As reported profit growth impressed, the expectations of a rebound in sales growth are driving the stock prices. The stock gained more than 6% in morning trades on Wednesday.
The company’s growth prospects hinge on domestic performance, from where it derives the majority of its revenues. The company has a strong product range for the domestic market and domestic growth of 10% beating India pharma market growth of 5% during Q4 encourages. Though the near-term impact of covid led disruption remains unclear, nevertheless, domestic growth momentum is likely to remain strong, feel analysts. The company is also working to grow its covid-19 treatment portfolio. Torrent Pharma has already entered into a voluntary licensing agreement with Lilly for Baricitinib for covid-19 in India. More such partnerships will be watched for. Besides the company has restructured its field force to improve productivity.
However, US sales continue to disappoint and the company is yet to resolve regulatory issues pertaining to its Dahej and Indrad manufacturing facilities. There is uncertainty regarding fresh inspection by the US drug regulator, looking at travel restriction. The resolution timeline thereby also remains uncertain. However, Street optimism is on the company launching new products from other facilities. Further, US sales were impacted by price erosion in base business and base impact of Sartan portfolio discontinuation. Analysts at Yes Securities Ltd said, "Although we have cut US sales estimates for FY22/23 on a sharp 8% decline in Q4, the start of Sartan's supplies and commercialization of liquid products from Levittown would mark a bottom in US revenues in FY22 at $155million."
Besides, the company’s sales in Germany and Brazil markets saw sequential recovery in Q4 and it expects better trends ahead on rising covid-19 vaccination said analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd.
It is not surprising that the Street is expecting earnings to have bottomed out and anticipating a recovery. Analysts at Sharekhan by BNP Paribas said that “ on the basis of encouraging commentary for the US and a healthy growth outlook for other geographies shared by the management, we have upgraded our recommendation to 'Buy'."
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