Torrent Pharma reported Q2FY12 net profit at R100 crore up 31% yoy and about 21% higher than our estimate of R82.3 crore (excluding forex gains). Net sales were at R660 crore, higher than our estimate of R630 crore, primarily driven by strong growth in exports mainly from Brazil and Germany.
Company?s Ebitda at R140 crore (yoy 20%) was higher than our estimates by about 10% due to higher sales, forex gains (R7 crore), and lower R&D expenses. Net profit was also higher, benefitting from a lower tax rate at 17.4% vs our estimate of 21%.
Brazil was up about 34% while Germany grew 28% yoy. US sales grew 57% yoy to R51.5 crore on the back of new launches including donepezil and venlafaxine XR. RoW business was up 20% yoy. India grew a mere 7% yoy due to continuing weak performance in acute segments (especially gastrointestinal). Contract manufacturing decelerated by 2% yoy to R54.7 crore. Higher exports have led to increase in working capital requirement?with increase in debtors.
The company expects to launch four new products each in US and Brazil in the second half. Domestic formulation is expected to grow at 15% for H2FY12. We are making slight changes to our model, incorporating lower sales growth in India and higher costs with increased focus on brand promotion. We also use a lower tax rate on the back of the contribution from Sikkim facility. As a result, our EPS changes by about 5.5% in FY12 and 1.2% in FY13. In addition, we lower our PE multiple from 15x to 13x as we roll forward our target price to September 12. Our new target price of R680 is derived by 13x September 13 EPS of R52.2.
Our proprietary HSBC India Drug Index has corrected by about 12% YTD. The mid-cap index is down 10%YTD. For mid-caps with higher share of India, sensitivity to declining domestic growth is higher. In line with that, we reduce PE multiple from earlier 15x to 13x and therefore change our target price from R715 to R680. The potential return on our target price is in the Neutral band of 1-21%; hence we are Neutral on the stock.
At the current market price, the stock is trading at 14.8x FY12 and 12.4x FY13 earnings estimates.
HSBC