Equity Research INDIA
September 28, 2022
BSE Sensex: 57108
Torrent Pharmaceuticals BUY
ICICI Securities Limited Maintained
is the author and
distributor of this report Torrent acquires derma player Curatio Rs1,534
Torrent Pharma (Torrent) is acquiring Curatio Healthcare Private Limited for a
purchase consideration of Rs20bn. While the implied deal valuation of ~7xFY23E
Company update and
sales and ~23x FY23E EBITDA (assuming 30% EBITDA margin) is more expensive
earnings revision
than the acquisitions done by the company in the past, there is significant cross
leveraging across the portfolio. Curatio is a leading player in the dermatology
space and derives ~84% of its revenue from cosmetic dermatology. This
Pharmaceuticals acquisition is expected to enhance the presence of Torrent Pharma in the derma
market and catapult its position from rank 21 to rank 10 in the segment (source:
Target price: Rs1,769 Company presentation). We believe this acquisition is synergistic to Torrent’s
domestic business. However, the acquisition is expected to be EPS dilutive on
Earnings revision
(%) FY23E FY24E account of higher interest and depreciation/amortisation charges. Maintain BUY
Sales 2.9 3.2 on the stock with a revised TP of Rs1,769/share (Earlier: Rs1,771/share)
EBITDA 2.9 3.2 About the company: Curatio is a leading player in cosmetic dermatology segment,
having operations in India, Nepal, Sri Lanka and Philippines. Dermatology
Target price revision
Rs1,769 from Rs1,771
constitutes ~95% of sales. The company holds a portfolio of 50+ brands in
dermatology therapy, including leading brands such as Tedibar (revenue – 760mn
Shareholding pattern in FY22), Atogla, Spoo, Permite and Perlice. Currently, top 10 brands contribute
Dec Mar Jun Sep ~75% to the portfolio. Moreover, ~7% of the portfolio is currently under NLEM (vs
’21 ’22 ’22 ’21 IPM average of 16%). Its operations are supported by ~600 MRs and 900+
Promoters 71.3 71.3 71.3 71.3
Institutional distributors.
investors 20.4 20.6 20.8
Acquisition details: Torrent will acquire 100% stake in Curatio for a purchase
20.3
MFs and others 6.7 7.5 7.7 6.7
FIs/Banks 0.3 0.2 0.2 0.1 consideration of Rs20bn. This consideration includes Rs1.15bn of cash and cash
FIIs
Others
13.4
8.2
12.9
8.1
12.9
7.9
13.5
8.4
equivalents in the business, indicating an enteprise value (EV) of Rs18.85bn.
Source: BSE India Curatio’s revenue grew from Rs1.75bn in FY20 to Rs2.24bn in FY22, at a CAGR of
13.1%. The acquisition is valued at ~8xFY22 and ~7xFY23E sales. Assuming 30%
Price chart EBITDA margin, the acquisition is ~23xFY23E EBITDA. The transaction is expected
1800 to close within one month.
1600 Outlook: We estimate revenue/EBITDA/PAT CAGR of 12.1%/18.9%/32.0% over
1400 FY22-FY24E, respectively. We expect margins to improve by 350bps over FY22-
1200
FY24E. RoCE may improve to 16.2% in FY24E from 11.2% in FY22. Debt-equity
ratio is expected to decline to ~0.4 by FY24E.
(Rs)
1000
Valuations and risks: Our revenue and EBITDA estimates have increased by ~3%
800
600
over FY23E-FY24E to factor in the acquisition. We are positive on the stock mainly
due to its strong branded chronic franchise in both India and Brazil. Plant clearance
Mar-20
Mar-21
Mar-22
Sep-19
Sep-20
Sep-22
Sep-21
in the US followed by new launches may support growth. Maintain BUY with a
revised target price of Rs1,769/share based on 19xFY24E EV/EBITDA (earlier:
Rs1,771/share based on 19xFY24E EV/EBITDA). In spite of the increase in
EBITDA, additional debt that is being procured for the transaction will is the key
reason for the decline in TP. Key downside risks: Slowdown in domestic growth
and forex volatility.
Market Cap Rs519bn/US$6.4bn Year to Mar FY21 FY22 FY23E FY24E
Reuters/Bloomberg TORP.BO/TRP IN Revenue (Rs mn) 80,050 84,279 96,371 1,05,849
Shares Outstanding (mn) 338.4 Net Income (Rs mn) 12,520 6,969 14,507 17,272
52-week Range (Rs) 1652/1242 EPS (Rs) 37.0 29.3 42.9 51.0
Free Float (%) 28.7 % Chg YoY 28.8 (20.8) 46.3 19.1
Research Analysts: FII (%) 12.9 P/E (x) 41.5 52.3 35.8 30.1
Daily Volume (USD/'000) 6,236 CEPS (Rs) 56.4 48.9 67.1 76.3
Vinay Bafna Absolute Return 3m (%) 7.2 EV/E (x) 22.5 24.0 19.3 16.6
[email protected]
+91 22 6807 7339 Absolute Return 12m (%) (0.1) Dividend Yield (%) 0.7 1.3 0.7 1.2
Rohan John Sensex Return 3m (%) 7.7 RoCE (%) 15.8 11.2 14.6 15.9
[email protected] Sensex Return 12m (%) (3.8) RoE (%) 23.5 16.8 22.4 22.8
+91 22 6807 7453
Please refer to important disclosures at the end of this report
Torrent Pharma, September 28, 2022 ICICI Securities
Concall highlights
Curatio, as well as the overall cosmetic dermatology, is highly skewed towards
South and West markets (particularly Mumbai). It intends to increase coverage
across North and East markets. Moreover, it believes there are enough organic
levers in the existing geographies of South and West, with greater awareness and
higher onset of atopic dermatitis led by population growth.
Price synergy – The key brand of Tedibar is priced significantly lower than its
competitors. (~Rs165 of Tedibar vs ~Rs200-250 of competitors). While there
exists an opportunity for a significant price hike, the company does not believe in
increasing prices substantially as a strategy.
Cost synergies - Higher negotiating power, productivity improvement and superior
fixed cost structure of Torrent Pharma may yield significant cost synergies for
Curatio.
Margins – Management expects operating leverage to kick in going forward. In the
near term, margins should move towards the group level EBITDA margins.
The acquisition will be funded through a mix of debt (guides ~75-85% of
consideration) and internal accruals.
~15-20% of the revenue comes from OTC channels.
Doctor reach - ~16,000 paediatricians and ~7,000 dermatologists.
Snippets from the presentation
Chart 1: Key brands of Curatio
Source: Company data
2
Torrent Pharma, September 28, 2022 ICICI Securities
Chart 2: Dermatology is a high growth therapy area
Source: Company data
Chart 3: Cosmetic dermatology is the key growth driver
Source: Company data
3
Torrent Pharma, September 28, 2022 ICICI Securities
Chart 4: Curatio acquisition bolsters Torrent’s position in derma segment
Source: Company data
Valuations
The stock currently trades at valuations of 35.8xFY23E and 30.1xFY24E earnings and
EV/EBITDA multiples of 19.3xFY23E and 16.6xFY23E, respectively. The P/E multiple
looks high due to significant amortisation charge. We remain positive on Torrent
considering its strong domestic franchise support driven by dominant chronic segment.
We maintain BUY on the stock with a revised target price of Rs1,769/share based on
19xFY24E EV/EBITDA (earlier: Rs1,771/share based on 19xFY24E EV/EBITDA). We
value the stock on EV/EBITDA(x) basis considering a significant amortisation cost,
which is a non-cash charge.
Chart 5: 1-year forward EV/EBITDA
EV/EBITDA Mean +1x SD -1x SD
25
23
21
19
17
(x)
15
13
11
9
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Jan-18
Jan-21
Jan-19
Jan-20
Jan-22
May-18
May-19
May-20
May-21
May-22
Source: Company data, I-Sec research
4
Torrent Pharma, September 28, 2022 ICICI Securities
Financial summary (consolidated)
Table 1: Profit and loss statement Table 3: Cashflow statement
(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY21 FY22 FY23E FY24E FY21 FY22 FY23E FY24E
India 37,390 42,860 51,187 57,066 PBT (Adj. for Extraordinary) 15,260 11,459 20,129 24,030
Brazil 6,300 7,420 8,014 8,655 Depreciation 6,580 6,620 7,927 8,297
EU 10,380 9,660 9,177 9,636 Net Chg in WC (3,370) (3,519) (2,943) (2,466)
US 12,610 10,670 12,221 13,033 Taxes (1,760) (4,210) (3,623) (4,325)
ROW 8,200 8,810 9,955 10,951 Others (180) 5,130 1,607 256
Contract Mfg & Others 3,980 4,770 5,724 6,411 CFO 16,530 15,480 23,097 25,793
Other Operating Income 1,190 89 93 98 Capex (3,340) (1,958) (24,000) (4,000)
Total Gross Sales 80,050 84,279 96,371 105,849 Net Investments made (1,200) (348) - -
Excise duty - - - - Others 50 339 - -
Total Net Revenue 80,050 84,279 96,371 105,849 CFI (4,490) (1,966) (24,000) (4,000)
YoY Growth% 0.8 5.3 14.3 9.8 Change in Share capital - - - -
Total Op. Exp. 55,200 60,770 66,978 72,612 Change in Debts (9,570) (8,464) 5,000 (15,000)
EBITDA 24,850 23,509 29,393 33,237 Div. & Div Tax (3,380) (6,769) (3,893) (6,045)
Margins % 31.0 27.9 30.5 31.4 Others 284 (290) - -
YoY Growth% 14.5 (5.4) 25.0 13.1 CFF (12,667) (15,524) 1,107 (21,045)
Depreciation 6,580 6,620 7,927 8,297 Total Cash Generated (627) (2,010) 204 748
EBIT 18,270 16,889 21,466 24,939 Cash Opening Balance 6,667 6,040 4,030 4,234
Other Income 570 1,970 2,069 2,172 Cash Closing Balance 6,040 4,030 4,234 4,982
Interest 3,580 2,550 3,406 3,081 Source: Company data, I-Sec research
EO Items - (4,850) - -
PBT 15,260 11,459 20,129 24,030
Tax 2,740 4,490 5,622 6,759 Table 4: Key ratios
Tax Rate (%) 18.0 39.2 27.9 28.1 (Year ending March 31)
Minority Interest 0 0 0 0 FY21 FY22 FY23E FY24E
Reported PAT 12,520 6,969 14,507 17,272 Adj. EPS 37.0 29.3 42.9 51.0
Adj PAT 12,520 9,919 14,507 17,272 YoY Growth% 28.8 (20.8) 46.3 19.1
Net Margins (%) 15.6 11.8 15.1 16.3 Cash EPS 56.4 48.9 66.3 75.5
Source: Company data, I-Sec research EBITDA - Core (%) 31.0 27.9 30.5 31.4
NPM (%) 15.6 11.8 15.1 16.3
Table 2: Balance sheet Net Debt to Equity (x) 0.7 0.7 0.7 0.4
(Rs mn, year ending March 31)
P/E (x) 41.5 52.3 35.8 30.1
FY21 FY22 FY23E FY24E
EV/EBITDA Core (x) 22.5 24.0 19.3 16.6
Paid-up Capital 846 846 1,692 1,692
P/BV (x) 8.9 8.7 7.4 6.4
Reserves & Surplus 57,530 58,680 68,448 79,675
EV/Sales (x) 7.0 6.7 5.9 5.2
Total Equity 58,376 59,526 70,140 81,367
Minority Interest 0 0 0 0
Total Debt 48,250 49,898 54,898 39,898 RoCE (%) 15.8 11.2 14.9 16.2
Deferred Liabilities (4,210) (3,000) (1,001) 1,432 RoE (%) 23.5 16.8 22.4 22.8
Capital Employed 102,416 106,425 124,038 122,697 RoIC (%) 17.0 11.9 15.7 17.1
Current Liabilities 34,124 19,635 22,670 25,200
Total Liabilities 136,540 126,060 146,707 147,898 Book Value (Rs) 172 176 207 240
DPS (Rs) 10.0 20.0 11.5 17.9
Net Fixed Assets 79,540 70,520 86,593 82,296 Dividend Payout (%) 27.0 97.1 26.8 35.0
Investments 960 1,110 1,209 1,287 Div Yield (%) 0.7 1.3 0.7 1.2
Inventory 26,810 24,620 27,135 29,418
Debtors 15,230 16,330 18,673 20,509 Asset Turnover Ratio 0.6 0.6 0.7 0.7
Other Current Assets 6,570 7,610 7,023 7,566 Avg Collection days 72 68 66 68
Cash and Equivalents 7,430 5,870 6,074 6,822 Avg Inventory days 110 111 98 98
Total Cur. Assets 56,040 54,430 58,905 64,315 Source: Company data, I-Sec research
Total Assets 136,540 126,060 146,707 147,898
Source: Company data, I-Sec research
5
Torrent Pharma, September 28, 2022 ICICI Securities
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