Torrent Pharmaceuticals (Torrent) is a 52-year-old company with humble beginnings. Founded by the late U.N. Mehta who worked as a medical representative (MR) for Sandoz, Mehta’s company is now run by his son Sudhir Mehta and today has 3,600 MRs on its rolls.
Torrent focuses on lifestyle drugs, the country’s fastest-growing segment of medicines. These drugs — which cover areas such as cardio vascular system (CVS), central nervous system (CNS), gastro-intestinal, diabetology, anti-infective and pain management — account for nearly 60 per cent of Torrent’s revenue. Sales growth has been robust at 18.5 per cent (annualised) over the last five years. In the CVS segment, Torrent ranks second with a market share of 6.8 per cent in terms of value. In CNS, it ranks third with an 8.6 per cent share (by value).
Opportunities in domestic business.
Domestic branded sales bring in 39 per cent of Torrent’s revenue. Contract research and manufacturing services (CRAMS) add another 10 per cent while exports account for 51 per cent. Domestic branded sales bring in the bulk 70 per cent of the company’s EBITDA.
But Torrent now faces tough competition in the domestic market from larger players like Sun Pharma.
Opportunities in international business.
The international business is improving and there is lot of scope for scaling up the CRAMS business. Torrent has 32 ANDAs pending approval with the US Food and Drug Administration (FDA). Its operations in Brazil and Germany have been growing at a fast clip. CRAMS, which grew 44 per cent in Q1FY12, is also expected to maintain the pace.
Torrent has consistently improved its returns. ROCE has increased from 14.5 per cent in FY05 to 24.1 per cent in FY11. Debt-equity ratio stands at 0.6 (FY11). Earnings per share (EPS) has grown at a compounded annual rate of 34 per cent over the last five years.
Despite a strong domestic business and improving international revenues, the company is available at a reasonable PE of 14.72 times its 12-month trailing earnings. Compare that with earnings growth and Torrent’s PEG ratio comes to 0.47 times, which makes it a compelling buy.