Torrent Pharma: Recommendation Review

We had recommended Torrent Pharma in DSIJ Vol. 26, Issue No. 25 (dated November 21-December 4, 2011), when
it was trading at Rs 559. After seeing a downtrend in December, the scrip is now trading up by 11 per cent at Rs 623. Our reasons to recommend the counter were the consistent growth in its topline and also a better growth in its bottomline.

Torrent Pharma has consistently been a dividend paying company. The promoters have not pledged any of their shares, which indicates the confidence they have in the business. Its low debt-to-equity ratio was also a reason why we were very positive on the scrip in a high interest rate regime. In 2011, when all the indices were hammered, the counter remained very firm.

The company sells in the domestic as well as the export markets. It has products in various therapeutic segments, including specialty segments like diabetology, cardiovascular, Central Nervous System, etc. It recently launched 19 products in the gynaecology segment, and has about six products in the pipeline that are yet to be launched. Its business, which is well integrated with formulations, API and CRAMs, is also one of the reasons why we remain positive on the scrip.

For the first nine months of this fiscal, the company has reported a topline growth of 19 per cent to Rs 1946 crore, while its bottomline grew by 26 per cent to Rs 287 crore. Its EBITDA margins took a little beating due to the increase in input costs. We believe that the next quarter’s performance is already factored into the price of the stock. Hence, investors should take this opportunity to book profits at the current levels.