Torrent Pharmaceuticals (Torrent) has reported a revenue growth of 24.4% to Rs432.6 crore for Q3FY2009.
This was driven by a strong growth across international businesses in Europe (up by 63.6%), the rest of the world (ROW) markets (up by 54.0%) and Brazil (up by 15.5%). The revenues were above our estimate of Rs401.1 crore.
After a tepid performance for the past few quarters, the domestic formulation business recovered smartly during the third quarter and grew by 11.6% to Rs159.8 crore.
However, the operating profit margin (OPM) declined by 50 basis points to 17.0% during the quarter, causing the operating profit to grow slower at 20.4% to Rs73.3 crore.
Despite a lower input cost, the margin growth was subdued as it was restricted by a foreign exchange (forex) loss of Rs25 crore.
We expect the margin to improve in the coming quarters on the back of a strong growth and improving profitability in the various international businesses.
We have revised our FY2009 estimates for Torrent to reflect the better than expected performance in M9FY2009. We are revising upwards our FY2009 revenue estimate by 3.5% to Rs1,605.6 crore and profit estimate by 18.2% to Rs196.6 crore.
Our FY2010 revenue estimate has been revised upwards by 5.1% to Rs1,826 crore and our profit estimate has been raised by 14.0% to Rs211.5 crore. Our revised EPS estimate stands at Rs23.3 in FY2009 and Rs25.0 in FY2010.
At Rs132, Torrent is discounting its FY2009E earnings by 5.7x and its FY2010E earnings by 5.3x. We maintain our BUY recommendation on the stock with a price target of Rs260.