We initiate coverage on Torrent Pharma (TRP) with a ‘buy’ and a target price of Rs 1,278, valuing it at 23x FY17F EPS of R55.6. Key markets for TRP are India, US, Brazil and Germany. We estimate these markets to contribute 36%, 21%, 11% and 9% to FY16F sales, respectively.
In our view, management has a reasonably strong track record on execution. The company has emerged as the largest Indian pharma player in Brazil and Germany despite regulatory and competitive challenges.
TRP is profitable in both geographies. In India, TRP has a chronic heavy portfolio and is growing ahead of the broader market. TRP expanded its platform in India by acquisition of Elder’s portfolio, which we reckon is a positive move and is likely to be an important growth driver. In the US, the base is small and, hence, incremental launches can materially impact earnings. Overall, we expect TRP to sustain earnings growth at >20% over the next three years. We think India and the US will be key to drive growth.
With a strong balance sheet, we expect TRP to pursue inorganic opportunities as well. TRP’s presence in the US is limited to oral solids with sales per approved ANDA at $2.8 million lower than peers ($3-9 million).
The pipeline is lean with only 19 ANDAs pending approval. However, TRP is likely to address some high-value brands going off patent, including Nexium and Abilify. Such products have the potential to surprise on the upside in case of lower competition, in our opinion.
By Nomura
