Q3FY20 revenue declined 4% y-o-y and came in 3% below our estimate. Revenue growth in India and Germany were below our forecasts. In India, adjusted revenue growth came in at 8.5% y-o-y and Germany sales declined by 18% y-o-y. Despite weaker-than-estimated revenues, Ebitda/ PAT came in 3%/16% ahead of our forecasts due to lower R&D, staff cost, and higher other income (forex gain).
We cut FY20-22F sales and Ebitda estimates by 1-2/0-3%. We lift FY20F/ 21F/22F earnings estimates by 4/5/1% as we assume higher other income and lower tax rate. We raise our TP to `2,227 from `2,054 based on 15x (unchanged) FY22 EV/Ebitda. Our TP implies upside of 10% from current levels. Hence we downgrade the stock to Neutral.
After the recent run-up in the stock, (since Oct ’19 the share price is up 25%), the stock is trading at 16x one-year forward Ebitda, which is at the higher end of its historical range of 12-16x. We think the stock now seems to factor in improvement in margin through price increases and cost control. We think any further rise in valuation multiple will be contingent upon improvement in sales growth or a value-accretive acquisition.
Valuation and risks: In terms of its P/E multiple the stock is trading at 30.3x and 25.0x FY21F and FY22 EPS of `65.9 and `80.9, respectively, which is at a 59/56% premium to peers. On an EV/Ebitda basis, the stock trades at 15.3x/13.4x FY21/22 estimates, which is at a premium of 31/30% to peers. We prefer Buy-rated DRRD and LPC over TRP at the current valuations. Key risks: slower than estimated growth in India; expanded price control in India; higher than expected price erosion in the US; and adverse currency movements in emerging markets.