Mumbai: Shares of Torrent Pharmaceuticals Ltd gained nearly 10% on Wednesday after the company impressed the Street with a steady performance for the June quarter. Revenues grew 8% despite a plant shutdown in the US and a reorganisation of the company’s product portfolio in the India business.

Unlike large pharmaceutical companies which are largely exporters, Torrent Pharma derives as much as 45% of its revenues from India, making the domestic market crucial for its earnings. Revenues in India grew 9%, and if one adjusts for the impact of discontinued products, revenue growth will be 11% on a like-to-like basis, according to the company.

This is notably better than the 7.9% growth the Indian pharmaceutical market is estimated to have clocked last quarter.

The good news does not end there. Revenues in the US grew 13%. Following the plant shutdown and paucity of new drug approvals, analysts were at best expecting the company to report low single-digit revenue growth. But the company benefited from market share gains and short-term orders.

The 8% revenue growth rate at the company level does pale in comparison to the 29% rise Torrent delivered last financial year, boosted by an acquisition. Even so, the revenue growth in the June quarter is decent, given the headwinds in the mainstay India and US markets. What’s more, the growth was accompanied by an increase in margins.

Gross margins expanded two percentage points to 72% on the back of a favourable product mix. This drove net profit higher by 33%.

But the deceleration in the India pharmaceutical market is making analysts cautious. Volumes in the domestic market dropped for the second consecutive month in June. “Torrent's growth is contingent on the growth of its branded business — India and Brazil (52% of revenue and 75% of profit, in our view). With Brazil and the European Union continuing to grow, a slowdown in the Indian pharmaceutical market is the only concern facing Torrent," Antique Stock Broking Ltd said in a note.

The other key variable investors need to watch out for is approvals from the US drug regulator. Torrent did not receive fresh approvals for drugs post the US regulator’s classification of the Dahej facility as ‘official action indicated.’ A prolonged remediation process can hamper fresh drug approvals, capping growth in a crucial market.

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