Torrent Pharma is doing exceedingly well in Brazilian markets, creating a large business in five years. The company expects growth momentum to continue in the near-to-medium term. This will be led by improved sales force productivity and new product launches.
TPL has a strong product development pipeline for the Brazilian and other Latin American markets. It is planning to launch new products in the coming years which are growing at 20-22%.
The company expects to grow at 1.5 times the molecule growth rate. We believe Torrent’s product pipeline for the Brazilian market will help the company to maintain 20% and 15% growth in FY09 and FY10, respectively.
Under the same country head, and a similar branded strategy, the company is expanding into Mexico. The company expects to launch some products in Mexico beginning Q1FY10.
TPL has the long-term contract manufacturing and supply agreement with the Indian subsidiary of Denmark based Novo Nordisk.
According to the agreement, TPL will supply insulin to Novo Nordisk from its dedicated insulin facility.
In FY08, revenues from the contract manufacturing segment grew by 25.8% to Rs1.49 billion, contributing 11% of total sales. The company has increased insulin capacities at an investment of around Rs400 million. We expect this business continue to do well and provide constant cash flow to company.
TPL so far has filed 16 ANDAs and 10 DMFs with the US FDA as part of its US product pipeline and has received approval for 5 ANDAs. It has around 35 ANDA under development pipeline.
Outlook and valuation
We expect 15.1% and 25.3% revenue and earning CAGR, respectively over FY08-10E.
In FY09, we expect revenue growth of 18.2% to Rs16.01 bn and net profit growth of 39.2% to Rs1.87 billion while in FY10 we expect revenue and earning growth of 12.2% and 12.8% to Rs17.96 billion and Rs2.11 billion, respectively.
We expect operating margin to remain at 16.6% in FY09 and 17.4% in FY10E. We expect EPS of Rs22.2 for FY09E and Rs25 for FY10E.
We have fine-tuned our revenue and earning estimates slightly mainly due to better performance in H1FY09. We expect 15.1% and 25.3% revenue and earning CAGR over FY08-10E. We expect EPS of Rs22.2 for FY09E and Rs25 for FY10E.
At the current market price of Rs122, the stock is trading at 5.5x FY09 and 4.9x FY10 earning estimates.
We maintain ACCUMULATE with target price Rs222. At our target price, the stock will be valued at 10x FY09E and 8.9 FY10E price-to-earning multiple and 2.8x FY09E EV/EBIDTA multiple.