Buy Torrent Pharmaceuticals, target Rs 1,560: IIFL

IIFL has a buy call on Torrent Pharmaceuticals with a target price of Rs 1,560.

The current market price of Torrent Pharmaceuticals is Rs 1,303.40.

Time period given by the brokerage is one year when Torrent Pharmaceuticals price can reach the defined target.

Investment rationale:
No major acquisitions/capital raising planned for now: Torrent has withdrawn its bid for a rumoured large generic business in Europe. The company continues to focus on integrating/turning around its two recent acquisitions in India and the US (Unichem and Bio-Pharm respectively). We derive comfort from the fact that evaluation of inorganic opportunities is an ongoing process at Torrent and the company would enter into a deal only if it satisfies its internal hurdle/benchmark rates. Additionally, the company disclosed that the proposed capital raising is just an enabling resolution, and it does not have any significant capital needs as of now.

Initial trends from Unichem acquisition are in line with expectations: Management disclosed that based on early signs, synergies from the Unichem acquisition are trending in line with the company’s expectations. While Torrent intends to grow the acquired portfolio at least at par with market growth, bulk of the synergies from the acquisition are expected to accrue through rationalisation of the field force/divisions. The 90% prescriber overlap between Torrent’s 3,000 and Unichem’s 2,000 sales reps would provide enough levers for the company to reduce the field headcount. Additionally, there will be some integration opportunities between Torrent’s 17 and Unichem’s 11 domestic divisions according to economictimes.indiatimes.com.

The US continues to be one of the key focus markets: Despite the US generic market facing challenges, it continues to be one of the focus markets for Torrent. However, Torrent has capped its R&D spend at Rs4-4.5bn p.a. for the next few years. Bulk of the additional filings in US will be oral-solids, followed by topicals and liquids. The Bio-Pharm acquisition has added capabilities in oral solutions/suspensions to Torrent’s fold, along with a US-based R&D and manufacturing set-up. Ten new launches are planned in US for FY19 vs. seven launches expected for FY18.