Choice Broking's Sumeet Bagadia picks Torrent Pharma as top Christmas pick; here's why

Sumeet Bagadia of Choice Broking has chosen Torrent Pharma as his ‘Christmas 2023 Pick’. Bagadia has recommended a ‘Buy’ on the pharma stock at ₹2,185 and up to ₹2,090 for a target price of ₹2,420 to ₹2,490.

According to the expert, the stock has recently displayed a notable technical pattern on its daily chart, shaping a cup and handle formation—a bullish signal reflecting inherent strength and potential upward momentum. This positive sentiment is further fortified by a substantial support zone situated around 2090 levels, in close alignment with the 20-day Exponential Moving Average (EMA). The stock's ability to sustain levels above crucial moving averages underscores its bullish stance.

Read here: 2023 in review- Steel manufacturers ride on strong double-digit demand momentum

Adding to the optimistic scenario, the emergence of a bullish engulfing pattern accentuates the potential for an upward trajectory in prices. This candlestick pattern typically signifies a shift in market sentiment from bearish to bullish. Examining the momentum dynamics, the Relative Strength Index (RSI) currently stands at 65 levels and is on an upward trajectory. This ascending RSI suggests that buying interest is strengthening, complementing the broader technical picture, said Bagadia.

So, based on the above structure, he is recommending a ‘buy’ position in the stock for the medium to long term.

Stock Price Trend

The stock has already jumped 43 percent in 2023 YTD and 36 percent in the last 1 year. In comparison, the Nifty Pharma index has advanced 30.5 percent in 2023 YTD and 27 percent in the last 1 year.

Torrent Pharma has given positive returns in 8 of the 12 months of 2023. The stock has risen 3.5 percent in December, extending gains after a 10.5 percent jump in November.

The stock hit its record high of ₹2,215.85, earlier in trade today (December 22). It has now rallied over 53 percent from its 52-week low of ₹1,446.15, hit on March 1, 2023.

Read here: Wealth Destroyers of 2023: These 7 stocks eroded 80-95% investor wealth this year

Earnings

The pharma company posted a consolidated net profit of ₹386 crore for the September quarter, up 24 percent from a year ago, while its revenue rose by 16 percent to ₹2,660 crore from ₹2,291 crore a year earlier. Meanwhile, its earnings before interest, taxes, depreciation and amortisation (EBITDA) was at ₹825 crore, while EBITDA margin was at 32 percent in Q2FY24.

Fundamental View

According to Motilal Oswal Financial Services, Torrent Pharmaceuticals remains on track for superior execution in the branded generics market (DF & Brazil). It is further scaling up additional levers of growth (trade generics and consumer healthcare) in India. With new launches and increased field force, it is well positioned to sustain growth momentum in Brazil.

“While US generics base business continues to witness price erosion, new approvals would drive growth prospects. Considering these factors, we expect 14 percent/19 percent/34 percent sales/EBITDA/ PAT CAGR over FY23-25 to ₹12,400 crore/ ₹4,000 crore/ ₹2,200 crore," said the brokerage firm. It reduced its FY24 earnings estimate by 4% to factor in higher interest costs and moderation in the US generics business. It maintained earnings estimates for FY25.

Read here: 27 Nifty 50 stocks recorded new all-time highs this year; will the rally continue in 2024?

Meanwhile, Goldman Sachs has a 'buy' call on Torrent with a price target of ₹2,325. Buoyed by that, the firm now forecasts an over 20 percent EBITDA CAGR (Compounded Annual Growth Rate) for the overall business of Torrent Pharma over FY23-26. The brokerage attributed the strong growth in the drugmaker's core markets to its beat on profitability, keeping its long-term positive outlook intact.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.