Torrent Pharmaceuticals Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Torrent Pharmaceuticals Ltd (TORNTPHARM) Q2 FY24 Earnings Concall

• Revenue Growth Across Key Markets
  • India business revenue grew 18% year-on-year; 12% growth excluding Curatio acquisition.
  • Strong constant currency revenue growth of 8% in Germany and 23% in Brazil.
  • US revenues declined due to loss of low-margin business and supply issues.
• Margin Expansion
  • Operating EBITDA margin increased to 31% from 22%.
  • EBITDA margins for India business 14% higher than pre-Curatio acquisition levels.
  • Focus on improving cost efficiency and streamlining processes in US business.
• New Product Launches
  • Commercialized first oncology product in US from new oral onco facility.
  • Launched niche derma product in US.
  • 5 product launches in Germany in H1.
  • 2 more CNS products and 2 cardio-diabetes products to be launched in Brazil
• Brazil Business Growth And Outlook
  • Brazil business grew 17.8% in Q2 with the market at 10%, an outperformance of almost 8%.
  • Added 26 reps in CNS division, expanding reach and balancing portfolio.
  • Branded generic growth of 13% versus market growth of 8%.
  • Launching 4 more products in Brazil by end of financial year.
  • Torrent expects to maintain 5% plus outperformance driven by new launches and penetration
• India Business Growth And Outlook
  • Torrent’s India business growth was 12% in Q2, with 7% from price increases and the rest from volume and new product launches.
  • Volume growth was muted at just 1-1.5%.
  • Torrent believes the market is growing 7-8%, higher than external reports, and expects market data to normalize in a few quarters.
  • The company believes the muted volume trends are temporary, not structural.
• M&A Strategy And Priorities
  • Torrent open to acquisitions but remains focused on India where it has a track record of successful integration.
  • For acquisitions, comfortable with starting net debt/EBITDA of 3x, falling to 1.5-2x over 2 years.
  • Focused on cash flow generation to service debt and fund growth.
• Capital Allocation
  • Majority of capital allocation focused on India, estimated at about 70-80%.
  • Much lower allocation to Brazil and other international markets due to lower familiarity.
  • Leverage comfort depends on cash flow generation of acquisition target.
• US Business Performance
  • US business declined to $30 million quarterly run rate in Q2 vs previous quarters.
  • Decline was due to single digit price erosion and loss of some contracts and supply issues.
  • Going forward, US sales expected to be $30-35 million range per quarter.
  • Manufacturing costs were capitalized in July, and there won’t be incremental costs in the future.
• Traction In Digital Marketing Initiatives
  • Seeing positive results so far in digital marketing pilots for brands like Tedibar and Unienzyme.
  • Significant increase in Shelcal sales in markets with media presence and distribution push.
  • Marketing and field force expansion stabilized, so no further cost increases expected.
• India Pharma Industry Growth
  • Industry growth to have a slight slowdown from the historical rate of around 10%.
  • Attributes this slowdown to structural changes such as trade generics and Jan Aushadhi, but believes it won’t be a significant threat.
  • Expects 0.5% reduction in IPM growth due to increased generic penetration, but not a major concern.
• Prescription Practices in India
  • Torrent expects branded generics will continue to exist even in a hybrid system.
  • Emphasized on developed markets also having a branded generic market alongside generics.