TORRENT PHARMA & SIKKIM PROJECT


Ahmedabad-based Torrent Pharma has been charting a steady growth trajectory over the past four quarters. Strong growth in its domestic formulations
business coupled with robust performance by its Brazil and the US business enabled the company to post a healthy 19% y-o-y growth in revenues (calculated over four trailing quarters) and steady improvement in its operating profit margins.

The company has recently entered into a licensing and supply agreement with AstraZeneca, a UK-based pharma company. While the financial implications of the arrangement have not been divulged, the UK drug maker will brand and market 18 drugs manufactured by Torrent Pharma in nine emerging markets. This is likely to further boost Torrent’s revenues and earnings.

The company, which earns 50% of its revenues from the domestic market, manufactures drugs for a variety of therapeutic areas like cardiovascular, gastrointestinal, central nervous system, diabetology, anti-infective and pain management. It also offers contract-manufacturing services of sourcing, manufacturing and supplying
insulin formulations.

Torrent’s domestic formulations business has outperformed the pharma industry. While the performance of its German subsidiary Heumann remains far from satisfactory, its remaining international business is gaining traction. The company has been investing heavily in expanding its field force in the domestic market. It is also setting up manufacturing units in Sikkim and Dahej SEZ to cater to the increased demand from the regulated markets.

The company’s stock price has also tracked its financial performance. Torrent Pharma’s stock, which has been rallying since 2009, has undergone a rapid re-rating. It has appreciated by 285% in the past one year — outperforming the Sensex and ET Pharma Index. The company is now valued at a market capitalisation of over Rs 4,000 crore — more than twice its annual consolidated revenues. It is trading at a consolidated price-to-earnings (P/E) multiple of 20.

These are fair valuations for a mid-cap generic pharma company. With its international business gaining traction and domestic business growing better than the industry average, the company is likely to continue its growth momentum. This makes it a good investment bet for the long-term investor