Gains from Unichem acquisition to help Torrent outperform peers

Integration, new launches to help improve growth outlook

The stock of Torrent Pharma has gained 21 per cent since the start of June, on expectations of strong domestic growth from both its own portfolio as well as the acquired Unichem business.

The contribution from Unichem, acquired last year for ~36 billion, is improving and this should help it become profitable by the end of the current fiscal year. The company derives 44 per cent of its revenues from the domestic market.

The India business grew 52 per cent year-on-year in the June quarter, including the contribution from Unichem portfolio and GSTled adjustments. Excluding the Unichem business, India growth was still strong at 15 per cent year-on-year. What’s more, analysts say that the company has benefited from the completion of procurement-related synergy benefits after the Unichem acquisition. Increased penetration and low attrition rates after the field force integration have also led to gains.

Analysts at Sharekhan say Torrent will be able to successfully turn Unichem around. Further, with the recent launch of four prescription products, the acquisition will start making money by the end of FY2019.

While this is being seen as a major trigger, Torrent has been doing well in other geographies too. The US business, which is slightly less than a fifth of the overall business, had reported a strong 23 per cent year-onyear growth during the June quarter, led by volume growth in its existing product range and contribution by the bio-pharma segment.

Analysts expect the US business to continue posting robust growth rates on new product launches and a low base. Torrent plans to launch 10 new products and file 15 more abbreviated new drug applications (ANDA) in FY19. With 41 ANDAs pending approval, analysts at Anand Rathi expect 18.9 per cent annual growth in revenue over FY18-20, considering 910 launches.

Meanwhile the firm’s other major presence, in Brazil and Germany, is expected to generate good returns over the long term. The German business, which had grown 32 per cent year- on-year in the June quarter, is expected to continue its momentum with the launch of 12 new pending products, in FY19. While the Brazil business has declined 7 per cent year-onyear due to discontinuation of a drug, it is expected to grow 9-10 per cent with new launches, say analyst.

With the Unichem integration synergies starting to reflect on financials, analysts at Sharekhan expect Torrent Pharma to report sales and profit growth of 28 per cent and 40 per cent, respectively, over the FY18-21 period. Thus, debt-equity ratio is likely to improve from 1.5 times in FY18 to 0.5 times by FY21, say analysts.