TORRENT'S BRANDED BUSINESS SOLID BUT GENERICS STUMBLE

News: Revenues grew 5.7% YoY to Rs.2108 crore. Domestic formulations grew 15.3% YoY to Rs.1072 crore driven by robust performance of top brands in all focus therapies, while 5.2% YoY growth to Rs.182 crore in Brazil was witnessed on account of performance of top brands and new launches. This was largely offset by 19.5% YoY decline in US due to price erosion in the base business and lack of new approvals amid pending re-inspection of facilities. Germany business de-grew 10.6% YoY to Rs.237 crore mainly impacted due to muted market growth and increasing competition in tender segment. EBITDA margins declined 490 bps YoY to 25.5%, lower than I-direct estimate of 30.2% driven by price erosion in US and one-offs 1) higher freight expenditure impacted ~ 1%, 2) provisioning for one discontinued US product impacted ~ 1% and 3) higher overhead cost amid less than expected manufacturing in Q3FY22 impacted ~ 1%. EBITDA de-grew 11.4% YoY to Rs.538 crore. Subsequently, net profit declined 16.2% YoY to Rs.249 crore

Views: Torrent Pharma’s Q3FY22 revenues were in line with I-direct estimates while margin profile was below our expectations due to pricing pressure in US and one-off expenditures. Torrent continues to face prolonged delays in re-inspection of US facilities on account of the pandemic, coupled with higher than anticipated pricing pressure in US business has adversely affected this quarter. Management has initiated cost optimisation measures which should help get back on track with respect to margins in the upcoming quarters while India business continues to be on a strong footing. Torrent continues to impress thanks to thoughtful capital allocation and robust margin profile, which can be attributed to a global portfolio that comprises ~60% branded generics. The company’s portfolio is finely balanced between India, Brazil, Germany and the US with India being the leader. With consistent FCF generation and moderation in core capex, we expect the leverage situation to improve substantially.

Impact: Neutral