Torrent Pharmaceuticals (Torrent) has reported a revenue growth of 24.3% to Rs405 crore for Q4FY2009 (against our estimate of Rs374.5 crore).
The revenue growth was driven by a strong growth across international businesses (up by 31%) and a steady traction in the domestic business (up by 19.2%).
While Brazil, Europe and the rest of world (ROW) markets (up by 25%) in Q4FY2009 continued their buoyant performance, the revenue mix between domestic and export markets currently stands at 49:51 compared to 55:45 earlier and clearly reflects the surge in export revenues from the key markets.
Torrent’s German business, Heumann Pharma GmbH & Co. Generica. KG (Heumann), grew by an impressive 35% to Rs70 crore in Q4FY2009 (above our estimate of Rs58.7 crore) due to improved cost efficiencies and shifting manufacturing to India (to reap benefits of low cost production in India).
However, on account of uncertain market conditions prevailing in Germany (with shift to a tender-based system), the future prospects of Heumann remain blurry.
Despite strong growth in revenues, the operating profit margin (OPM) contracted by 280 basis points to 13.0% in Q4FY2009 on the back of bad debt write-off of Rs7.7 crore (in Brazil and Russia), increase in research and development (R&D) costs and higher employee costs. Consequently, the operating profit grew by 2.2% to Rs52.7 crore in Q4FY2009.
We expect the margin to improve in the coming quarters on the back of a strong growth and improving profitability in various international businesses.
The reported net profit dipped by 18.7% to Rs36.1 crore in Q4FY2009 (against our estimate of Rs29.9 crore) due to lower operating margins.
However, the Q4FY2008 profitability was aided by minimum alternative tax (MAT) credit realisation of Rs16 crore. Thus adjusting the tax impact and bad debt charges, the adjusted profit grew significantly by 62.6% in Q4FY2009. The earnings for the quarter stood at Rs4.3 per share.
We are revising our FY2010 estimates for Torrent to account for lower than expected operating margin in FY2009 (due to forex loss of Rs41.2 crore).
While our revenue estimates remains unchanged, we have downgraded our profit by 2.6% to Rs206 crore in FY2010E. Our revised earnings per share (EPS) estimate stands at Rs24.3 in FY2010.
We are also introducing our FY2011 numbers in th
Outlook and valuation
is report. We expect the company to register a revenue growth of 13.2% in FY2011 to Rs2,067.2 crore.
The profit is expected to go up by 22.4% to Rs252 crore, resulting in and earnings of Rs29.8 per share in FY2011.
At the current market price of Rs179, Torrent is discounting its FY2010E earnings by 7.4x and its FY2011E earnings by 6.0x.
We roll over our valuations to FY2011 earnings estimate and maintain our BUY recommendation on the stock with a price target of Rs260.