Torrent draws up plan to reduce dependence on US

With Unichem in its kitty, Ahmedabad-based Torrent Pharmaceuticals is likely to draw around 47 per cent of its revenues from the domestic business by 201920, according to analysts. Besides, the Ebitda contribution from the Indian business is also expected to improve to 67 per cent by then, as opposed to 10 per cent from the US. In 2016-17, the share of the India business in Torrent’s turnover was 34 per cent, which is expected to rise to 38-40 per cent in 2017-18.

The company is a strong player in the domestic formulations business. It acquired a portfolio of 120 brands from Unichem’s India and Nepal business in November last year. Driven by margin improvement in the Unichem portfolio, Torrent’s profit after tax is likely to grow at compounded annual rate of 23.1 per cent over the period 2017-18 to 2019-20.

Torrent’s high-margin formulations businesses are in India and Brazil, which contributed 46 per cent to its revenue in 2016-17. Analysts expect this to rise to 58 per cent by 201920. In contrast, the contribution of the US generics business would decline to 16 per cent in 2019-20 from 23 per cent in 2016-17, they added.

Sources indicated that the company was working towards a strategy where price erosion and volatility of the US business did not affect its growth prospects in the coming years.

“The Unichem acquisition helps in the overall de-risking strategy by increasing our share in the branded business,” a Torrent spokesperson said. The company continued to remain focussed on its four keymarkets of India, Brazil, the US and Germany, he added.

“India and Brazil are branded generics markets that provide a high level of sustainable growth. Torrent is also able to succeed in cost competitive genericmarkets like the US and Germany. While there is a strong variability in the US market, Torrent has demonstrated consistent double-digit growth in Germany,” he said.

Torrent has been facing difficulties in the US for quite some time. The US contributed 40 per cent to Torrent’s turnover in 2015-16, which fell to 23 per cent in 2016-17. Analysts expect this to further contract to 18 per cent in 2017-18. According to Amey Chalke, analyst with HDFC Securities, while Torrent will focus on the domestic business as a long-term strategy, going by its interest in Sanofi’s EU assets, if a tempting opportunity comes up in the US, the company may go for it. “They would be careful not to stretch their balance sheet by taking on toomuch debt, and also analyse if the target company would take too long to turn around. But if they can pull off a good deal that starts contributing to the cash flow soon, Torrent might consider buyouts in the future,” he added.

In a recent report, ICICI Securities said the consolidation of the acquired branded formulations business of Unichem would increase the contribution of Torrent’s domestic branded formulations business toits total earnings significantly.

India Infoline said in its recent review of the company that Torrent intended to grow the Unichem portfolio at least on a par with market growth. “The bulk of synergies from the acquisition is expected to accrue through rationalisation of the field force or divisions. The 90 per cent prescriber overlap between Torrent's 3,000 and Unichem's 2,000 sales representatives will provide levers for the company to reduce the field headcount,” IFL said.