Torrent Pharmaceuticals Ltd.

CMP 2,800 Rating Buy

INDSEC Initiating Coverage Report Target 3,456 Upside 23%

STOCK DETAILS
Bloomberg code TRP IN Tailwinds expected in US on back of facility clearances:
Market Cap (Rs. bn) 479 Two of the facilities (Indrad and Dahej) are under OAI status which is a major deterrent for product approval. How-
Market Cap (USD bn) 6.3 ever, facility in Levittown is expected to start commercialization of existing approved products from Q3FY21. Torrent
Sector Pharmaceuticals has completed all the CAPA’s for Indrad & Dahej and have offered USFDA a desktop audit. However, the timelines
Index BSE 200 are not yet decided and the company will be waiting for further actions. Continued double digit ANDA’s filling and
52 w.High/Low 3,031/1,555 target to launch atleast 12-15 products p.a is expected to bolster topline. The upcoming liquid oral facility will bring
Avg Monthly Turnover (Rs.mn) 7160 in incremental revenues for the company.
Shares in Issue (mn) 169
Opening up of clinics and new product launches in the domestic market to ramp up sales:
BSE Sensex 38,854
NSE Nifty 11,646
With the gradual relaxation in lockdown rules, activity levels are expected to pick up in hospitals and clinics, which
SHAREHOLDING PATTERN should help the company gather momentum. New launches will be the major growth driver for the domestic busi-
% June-19 Sep-19 Dec-19 Mar-20 ness. Domestic portfolio grew 10% in Q1FY21 even during lockdowns. However, we expect Torrent to post an above
Promoter 71.3 71.3 71.3 71.3
Pledge
industry growth on back of new launches and increasing wallet share of existing brands.
FII 7.5 7.6 8.5 9.8 Upgradation of facility in Germany to finish by Q3 FY21
DII 11.2 13.1 12.2 10.9
Others 10.0 8.0 8.0 8.0 Torrent had decided to up grade its facilities catering to the Germany market. This upgradation was in connection to
FINANCIALS the Standard Operating Procedure (SOP) suggested by USFDA for US facilities. As 50% of the supplies to the German
Rs Mn. FY19 FY20E FY21E FY22E
market is from vendors, Torrent also had to communicate to vendors to upgrade their facilities, which led to further
Revenue 74.6 77.8 86.4 96.2
delays in production. However, out of the total molecules, procedures for ~85% molecules are implemented and
EBITDA 19.8 21.7 23.5 27.2
another 12% is expected in Q3FY21. This procedurals adjustments is expected to bring Germany sales back on track.
EBITDA(%) 26.6% 27.9% 27.2% 28.3%
PAT 4.4 10.3 11.3 14.3 Minimum capex requirement to help reduce debt and increase free cash flow:
PAT(%) 5.8% 13.2% 13.1% 14.9%
Torrent has finished all the major capex requirement and will be spending only Rs 2-3bn on maintenance capex go-
EPS 25.8 60.6 66.8 84.5
ing forward. The company targets to reduce debt by Rs 100bn in FY21. Lower capex requirement will help generate
P/E(x) 108.7 46.2 41.9 33.1
free cash flow and in turn also help to reduce debt going forward. Interest expense are expected to be lower on
back of high cash generation which will improve the company’s return ratios.
Rishabh Kale
Research Analyst
[email protected]
+91 22 61146116

September 11, 2020

Indsec Research is also available on www.indsec.com and Bloomberg RESP_ISFL <GO>, Thomson Reuters, Factset and Bluematrix
Page 1
 INDSEC
Torrent Pharma

Valuation:
At CMP of Rs 2,800 the stock trades at 18.3x/23.3x of FY21E/FY22E our EV/EBITDA estimates. We value the company on the
basis of DCF by taking a terminal growth of 5%, WACC at 10% and arrive at an enterprise value of Rs 3,918 per share and debt
at Rs 260 Per share, which brings us to an equity value of Rs 3,456 with a upside of 23% from current levels. We expect Torrent
Pharma to emerge as a winner in the recent pandemic, given its strong presence in the chronic segment. With opening up of
clinics and hospital, we expect demand to pickup. People are now extra cautious about their health and are expected to in-
crease their healthcare spending. Germany issues have been resolved and we expect some traction in this business. Tailwinds
are expected from US as Levittown factory is expected to start in Q3FY21 and USFDA clearance for Indrad and Dahej is on the
cards. With only 40% utilization of the Dahej facility and 98 approved ANDA’s, clearance of the facilities will ramp up sales.

Key risk to our valuation:

Drug Price Control:
Currently 376 drugs and 790 formulations are covered under National List of Essential Medicines [NLEM]. It is likely that the gov-
ernment may bring more such drugs and formulations under price control or change the mechanism of calculating the ceiling
price of the Drugs which are under the ambit of Drug Price Control Order 2015 [DPCO 2015], which in turn will impact the margins
of the Company.
New product risk:
New product development and launch involves substantial expenditure, which may not be recovered due to several factors in-
cluding development uncertainties, increased competition, regulatory delays lower than anticipated price realizations, delay in
market launch and marketing failure.

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Covid Impact on the sector

Key Impacts of covid on the pharmaceuticals sector

 Economic impact on growth
A downturn in the economic outlook could negatively impact pharmaceutical spending in countries with high out-of-pocket medi-
cal expenditure.
 Impact on APIs/generics
Potential API and generic shortages could lead to medium-term price increases.
 Delays in non-COVID treatment
Postponement of non-urgent treatment may lead to a short-term deceleration in volume growth
 Face-to-face interactions minimized
A reduction in face-to-face detailing may lead to a short-term negative impact on sales
 Upsurge in demand for symptomatic medicines
Short-term boost in volume through retail channels as the public stockpiles analgesics and cough & cold preparations.
India Impact:
Doctor engagements have reduce and the lockdown has led to lower non-emergency visits to hospitals which will impact the de-
mand in the near term.
Brazil Impact:
There is shift towards e-prescriptions as the footfalls to healthcare professionals and hospitals has reduced drastically due to so-
cial distancing measures. There are differences in federal and state government views on handling the pandemic which has result-
ed in widespread social and economic confusion, leading to sharp currency depreciation.
US impact:
Diagnostic visits to physicians have dropped by more than 70%. Remote engagement is rising in the US by 60% (as compared to
April, 2019) to mitigate concerns on infection risk and health care professionals’ unavailability for face to face interactions.

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Index

About the company ……………………………………………………………………………..5

Investment Rationale …………………………………………………………………………16

Valuation ……………………………………………………………………………19

Industry overview …………………………………………………………………………..20

Subsidiary …………………………………………………………………………..25

Financials …………………………………………………………………………..26

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About the Company

Torrent Pharma blazed a new trail in the Indian Pharmaceuticals industry by successfully implementing the concept of niche mar-
keting. They are pioneers in initiating the concept of niche marketing and rank amongst the leaders in therapeutic segment of cardi-
ovascular (CV), central nervous system (CNS), gastro-intestinal (GI) and women healthcare (WHC). The Company also has significant
presence in diabetology, pain management, gynaecology, oncology and anti-infective segments.
Torrent Pharma also has a strong international presence spread across 40 countries with operations in regulated and emerging mar-
kets like US, Europe, Brazil and Rest of the World. The Company operates through its wholly owned subsidiaries spread across 12
nations with major setups in Brazil, Germany and US.

Torrent Pharma
FY20

India International CRAMS

44% 51% 5%

US Germany Brazil
39% 23% 19%

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India Overview

Torrent stands ranks 8th in the IPM and continues to grow faster than the IPM. Torrent stands at 5th position among combined
chronic / sub chronic therapy areas. 17 brands feature amongst Top 500 brands of the IPM. 10 brands have revenues of more than
Rs 1bn compared to 8 brands in FY19, a result of Torrent’s continued focus on brand building productivity.

Chronic / Chronic /
Sub Chronic Sub Chronic
53% 78%

IPM Torrent

100% 100%

Acute Acute

47% 22%

Indian Pharma Market MAT Market Share

Product (INR Mn) Theraphy Apr-20 May-20 Jun-20 Jul-20 Products Apr-20 May-20 Jun-20 Jul-20
Shelcal Vitamins 2,214 2,220 2,280 2,319 Shelcal 1.8% 1.8% 1.9% 1.9%
Chymoral Forte Pain/Analgesics 1,596 1,560 1,518 1,510 ChymoraForte 1.7% 1.6% 1.6% 1.6%
Nikoran Cardiac 1,164 1,173 1,243 1,252 Nikoran 0.6% 0.6% 0.7% 0.7%
Azulix-Mf Anti-Diabetic 1,055 1,049 1,094 1,084 Azulix-Mf 0.7% 0.7% 0.8% 0.8%
Nexpro Rd Gastrointestinal 1,031 1,027 1,070 1,076 Nexpro Rd 0.7% 0.7% 0.7% 0.7%
Nebicard Cardiac 968 968 1,014 1,014 Nebicard 0.5% 0.5% 0.5% 0.5%
Losar H Cardiac 908 906 941 947 Losar H 0.5% 0.5% 0.5% 0.5%
Dilzem Cardiac 866 865 903 899 Dilzem 0.5% 0.5% 0.5% 0.5%
Losar Cardiac 862 859 894 915 Losar 0.5% 0.5% 0.5% 0.5%
Total 44,478 44,172 44,538 44,439 Total 3.1% 3.1% 3.1% 3.1%

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India Overview
Therapy Wise Breakup India Sales ( INR Bn)

Cardiac 4
6.0% 3.5
3.5 3.2
Gastrointestinal 8.7%
3
31.8% 2.4
Neuro/CNS 2.5
12.4% 2.0
2 1.8
Vitamins/Minerals/Nutri
ents 1.5
Anti-Diabetic 1
14.8%
15.9% 0.5
Pain/Analgesics
0
FY16 FY17 FY18 FY19 FY20

Key Highlights:
FY16: India business grew 15% despite impact of hygiene improvement measures and discontinuation of promotional schemes.
FY16 led to successful integration of Elder acquisition and the launched two biosimilars to increase focus on specialty.
FY17: The Company completed the acquisition of Regestrone and Pregachieve brands for India from global pharma player Novartis
AG, Switzerland. These brands are widely prescribed by gynecologists for the management of abnormal uterine bleeding, peri &
post-menopausal symptoms and infertility.
FY18: Torrent becomes the 8th largest company in the Indian Pharmaceutical Market with the acquisition of the branded business
of Unichem Laboratories Ltd for India and Nepal including Sikkim manufacturing facility. The acquisition included a portfolio of
more than 120 brands of Rs 2bn (Losar) and three brands of more than Rs 500mn ( Ampoxin, Unienzyme and Telsar).
FY19: Integration objectives with respect to the Unichem India business acquisition were successfully achieved and the business
has become cash accretive in the first year of acquisition.
FY20: Important new launches for the year included Vildagliptin and Ticagrelor along with the in-licensed Remogliflozin and novel
FDC Repaglinide+Voglibose .

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India Overview

Key data points:

• The company plans to launch 9-10 products p.a
• The team of marketing representative stands at 4000 in number and their productivity stands at Rs 7.7 lakhs pa in Q1FY21.
• It has a strong distribution network covering more than 90% of doctors in India.
• Torrent sells only prescription products with Unienzyme being the only product on the OTC platform.
• Sikkim's Unit I, Unit II, Unit III facilities cater to the Indian market with a total capacity of 6.8 billion tablets per year.
• Third-party sales contributes 40% of India sales.
• Unichem portfolio was acquired by Torrent pharma for Rs 35bn in FY18, where it acquired 120 brands. Five core brands con-
tributed 50% of the Unichem’s revenue mainly 1) Losar, 2) Telsar , 3)Ampoxin,4) Vizylac , 5) Unienzyme.

Distribution presence Brand-wise distribution

Brand-wise % of Sales Key Data Points

24% 26% NLEM 9%
Top 10 Brands 26%
Inventory 60 days
11 to 25 Brands 18% Marketing Representa-
26 to 50 Brands 15% 4,000
tives (MR)
Above 50 Brands 41% MR Productivity Rs 7.7 Lakhs
North, South - 26%,
Distribution Network East, West - 24%
each
24% Target product launches 9-10
26%
Only OTC Product Unienzyme
North South East West

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Top 6 products
Shelcal 500 Mg Chymoral Forte Nikoran 5mg Tablet

Price: Rs 302 (1 Tablet)

Price: Rs 99 (15 Tablets) Price: Rs 385 (20 Tablets)
Alternative: Nicostar ( Mfg Lupin)
No Alternative No Alternative
Price Rs 247

Azulix 2 MF Nexpro 40 Mg
Losar H

Price: Rs 191 (15 Tablets)

Price: Rs 148 (10 Tablets)
Alternative: Zilos H ( Mfg FDC)
Price: Rs 173 (15 Tablets) Alternative: Esoz D 40 Mg ( Mfg Glenmark)
Price Rs 75
No Alternative Price Rs 153

Page 9
 INDSEC
About the Company

USA Overview
Torrent is ranked No. 11 amongst the US generic Indian companies and has a market share of around 17% in its covered market. The
new product approvals have been on hold pursuant to its Dahej and Indrad facility being classified OAI and WL respectively. The
Company received 3 ANDA approvals in 2019-20. The Company has 96 ANDA approvals (including 6 tentative approvals) and its
pipeline consists of 48 pending approvals and 34 products under development. Torrent is ramping up its pipeline with products like
Oral liquids, Ophthalmics, Ointments.
The company aims to strengthen its position in the market by launching complex generics which include specialty oral solids
(Oncology) and value added medicines 505(b)(2) in the coming times.
Torrent has strengthened its US presence through acquisition of Bio-Pharm, Inc. (BPI) a generic pharmaceuticals and OTC Company,
based in Levittown Pennsylvania, USA, which includes, its first overseas US FDA registered manufacturing facility.

ANDA’s filing
Approval Received during the Year

16
120

14.0 100
14 100 96
84
12
80
10 62 65
60
8 7.0 48
39
6 5.0 40 32
28
4.0
4 3.0 20 14
2
0
0 FY16 FY17 FY18 FY19 FY20
FY16 FY17 FY18 FY19 FY20
Approval Pending

Page 10
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USA Overview

Key Highlights: US Sales (INR Bn)

FY17: Sharp price erosion including in limited competition 3

products and ongoing customer consolidation accelerated the

2.5
price erosion in FY17, leading to a de-growth.
2
FY19: Volume share increased from 12.4% in FY 18 to 16.4% in
FY19. Recalled 107 batches of Valsartan and 132 batches of 1.5

Losartan due to detection of certain impurities in outsourced 1

API.
0.5

FY20: Pursuant to Dahej facility receiving OAI and Indrad facili-

0
ty receiving warning letter, the new product approvals from FY16 FY17 FY18 FY19 FY20

these facilities are on hold until the facilities get cleared by

USFDA. The remediation work at these facilities has advanced
US Sales ($ Mn)
significantly during FY20.

Rupee/ $ $450
399
$400

$76 75 $350
74
$74 $300
$72
$250
201 212 207
$70
67 67 $200 170
$68
$66 65 $150

$64 $100
$62 $50
$60
$0
$58 FY16 FY17 FY18 FY19 FY20
FY16 FY17 FY18 FY19 FY20

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International Business— Brazil

Among the Indian companies, in terms of value Torrent ranks Sales (INR Rs)
No. 1, with the second largest company less than half the size
450
of Torrent. Currently, Torrent has commercialized 23 branded 409
generics and 20 generic products. In its branded generic 400
366
355
portfolio, the Company has 9 filings under approval, 23 under 350
344
preparation for filing in existing business and 19 in new busi-
300
ness. In addition, the Company has been building its portfolio 271
in the generics with parallel filings of branded generic prod- 250
ucts.
200
The company is present only in the chronic segment such as
150
CNS, Cardia and Diabetics. Directionally, the Brazilian market
is moving towards generics and so Torrent has shifted its focus 100

on generics. With the sales force of 300 Market Representa- 50

tive, the company plans to target 25-30% market share. His-
0
torically the company has grown at a CAGR of 11% from FY16- FY16 FY17 FY18 FY19 FY20
FY20. It plans to launch 2-3 products and to file 3-4 products a
year.
Revenue Distribution FY20

Rupee VS Reals

25
18.7 20.3 20.0 6%
20 18.8 6%
17.5
15 14.5
10
5
80%
0
FY16 FY17 FY18 FY19 FY20 Q1FY21

Rupee/Reais
Trade Generics Generics Tender

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International Business - Germany

Germany is the fourth-largest pharmaceutical market in the Germany Sales (INR Rs)
world and the largest in Western Europe. It is valued around 12
Euro 28 Bn and is expected to grow at a CAGR of 2-5% till CAGR 9%
10
2025. Majority of the market is tender driven and it is ex-
pected to continue for foreseeable future which is putting the 8

pressure on the margins of the industry. Among the Generic 6

players, Torrent holds the 6th position with a market share of
4
4.2% and is ranked No. 1 among Indian players in the Market.
2

0
FY16 FY 17 FY18 FY19 FY20

ROW Sales (INR Rs)

Rest of the world: Torrent caters to more than 40 countries
with major ones Philippines, Sri Lanka, Malaysia, Mexico and 9
Russia. ROW market is pure branded generics with major fo-
8 7.7
cus on Chronic therapies like CNS, Cardiac, anti– diabetic etc.
6.8
7
• Business Model: Similar business model as India and the
market depends aggressive marketing strategies. There 6
5.2
4.8
are total 140 marketing representative in ROW market. 5
4.3
• Growth projection: ROW expected to grow ~15% mainly 4

from market share improvement and new product 3

launches.
2

0
FY16 FY17 FY18 FY19 FY20

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Business Overview

Contract Manufacturing: This segment registered revenues of CRAMS Sales (INR Rs)
Rs 2.7 bn during the year, a major portion of which is from
7
manufacture of human insulin. The Company has been a sta-
6.0
ble partner for manufacture of human insulin for Novo 6
5.5

Nordisk for their India market needs. It’s a long term contract 5 4.7 4.7
with the company since 1990 and is expected to be stagnant. 4.1
4

0
FY16 FY17 FY18 FY19 FY20

R&D: The Company is currently developing several in-house R&D (INR Rs)/ % of sales
New Chemical Entities (NCE) in the areas of metabolic, cardio-
vascular, gastrointestinal, dermatological and respiratory dis- 5 4.4 8%
orders. The Company has cumulatively filed 806 patent appli-
2, 7% 3.7 4.0 7%
cations for NCEs from these and 473 patents have been grant- 4 3.8
6%
ed / accepted so far. The most advanced discovery program of 3, 6%
5%
the Company is a metabolic modulator NCE for the reduction 3 2.7
4, 5%
5, 5% 4%
of cardiovascular risk. This program is currently undergoing
2 1, 4%
the pivotal Phase III clinical trial in key markets where the 3%
Company has presence. The Company believes that this pro- 2%
1
gram is uniquely positioned to address the consequences of 1%
relative chronic over-nutrition, which is assuming alarming 0 0%
proportions of health hazard in India and other emerging FY16 FY17 Fy18 FY19 FY20
economies besides developed countries

Page 14
 INDSEC
Torrent in Charts

90 Sales ( INR Bn) 50%

30 EBITDA ( INR Bn) 45%
80 44%
40% 41% 40%
70 25
35%
29% 30%
60
20 30%
50 20% 24% 27%
26% 25%
40 15 23%
10% 20%
30 2% 3%
0% 10 15%
20
-13% 10%
-10% 5
10
5%
0 -20%
0 0%
FY16 FY17 FY18 FY19 FY20
FY16 FY17 FY18 FY19 FY20

Total Inco me YoY

EBITDA YoY

PAT ( INR Bn) ROCE/ ROE

20 150% 30%
18 131%
25%
24%
16 100% 25%
21%
14 70%
20%
12 50% 21%
15% 20%
10
15%
8 0% 16%
-11%
6 -46% -27% 10% 13%
4 -50%
2 5%
0 -100%
FY16 FY17 FY18 FY19 FY20 0%
FY17 FY18 FY19 FY20
Net Profit YoY
Return on Capital Return on Equity

Page 15
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Manufacturing Facilities
Name Capacity Purpose Countries
Indrad 45MT API Back ward Integrate
Dahej 25MT API Back ward Integrate
Vizag 25MT API Back ward Integrate
Europe, Brazil and other regulated & semi-regulated markets
Baddi 4,400mn Tablets & capsules, 16mn Sachets
including Domestic market.
Sikkim Unit I 5,000mn Tablets WHO-GMP, India
Sikkim Unit II 1,000mn Tablets India
Sikkim Unit III 800mn Formulation India
115.2 million tubes, 5.8 million bottles, 25 million sachets
Pithampur 153mn USA, India
and 7.2 million jars p.a.
Levittown Pennsylvania 120mn 70 million bottles, 50 million suppositories p.a. USA
Indrad 5,500mn Tablets & Capsules, 30mn Vials USFDA, EU
Dahej 1,400mn Tablets & Capsules USFDA, ANVISA- Brazil, EU
Total Formulation 24,473 mn

Date Event Regulatory Nature & Status

06-Apr-19 Dahej Plant Inspection USFDA Procedural Observation
26-Apr-19 Indrad Plant Inspection USFDA Procedural Observation
17-Jul-19 Dahej Plant Inspection USFDA OAI (Official Action Indicated)
12-Aug-19 Indrad Plant Inspection USFDA OAI (Official Action Indicated)

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Investment Rationale

Tailwinds expected in US on back of facility clearances:

Two of the facilities (Indrad and Dahej) are under OAI status which is a major deterrent for product approval. However, facility in
Levittown is expected to start commercialization of existing approved products from Q3FY21. Torrent has completed all the CAPA’s
for Indrad & Dahej and have offered USFDA a desktop audit. However, the timelines are not yet decided and the company will be
waiting for further actions. Continued double digit ANDA’s filling and target to launch atleast 12-15 products p.a is expected to bol-
ster topline. The upcoming liquid oral facility will bring in incremental revenues for the company.
Sharp price erosion in US market including limited competition product and customer consolidation accelerated price erosion in
FY17. New product approvals from Dahej and Indrad are on hold as the facilities have received warning letters on 17th July 2019
(Dahej facility) and 12 August 2019 (Indrad Facility). Usually it takes 12-15 months for the observation to be cleared. Due to the pan-
demic, USFDA is not visiting the facility and resolution is extending. However, the company has submitted all the CAPA’s and are
awaiting a revert from the USFDA. We believe once this headwinds are done, the company has a good pipeline of products with 49
Approved ANDA’s and with a target of launching 12-15 products in US which is expected to bring US growth back on track.

Top generic product in US US Sales (USD Mn)

Top 10 Products in US by Sales $300.00

1 Aripiprazole
2 Celecoxib $250.00
3 Citalopram Hbr
$200.00
4 Duloxetine Hcl
5 Escitalopram Oxalate $150.00
6 Montelukast Sodium
$100.00
7 Pantoprazole Sodium
Rosuvastatin Calcium $50.00
8
9 Sildenafil Citrate $0.00
10 Zolpidem Tartrate FY18 FY19 FY20 FY21E FY22E

Page 17
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Investment Rationale

Opening up of clinics and new product launches in the domestic market to ramp up sales:
With the gradual relaxation in lockdown rules, activity levels are expected to pick up in hospitals and clinics, which should help the
company gather momentum. New launches will be the major growth driver for the domestic business. Domestic portfolio grew 10%
in Q1FY21 even during lockdowns. However, we expect Torrent to post above industry growth on back of new launches and increas-
ing the wallet share of existing brands.
The economy has started opening up with 85% medical representative back on field. The company has gained substantial market
share in the products launched in Q4 FY20. Vildagliptin total market share increased from 4.3% in Q4 to 5% in Q1FY21, similarly Ti-
cagrelor market share is up from 3.9% to 4.2% and the Rimo market share is up from 13.1% to 14.3% . It has launched 2 products in
Q1FY21 in the Oncology and the Gastro space and plans to launch 9-10 products in FY21.

India Sales (INR Bn)

Product Therapy Apr-20 May-20 Jun-20 Jul-20 5 4.7

Shelcal Vitamins 2,214 2,220 2,280 2,319 4.2

Chymoral Forte Pain/Analgesics 1,596 1,560 1,518 1,510 4 3.7

3.5
Nikoran Cardiac 1,164 1,173 1,243 1,252
Azulix-Mf Anti-Diabetic 1,055 1,049 1,094 1,084 3

Nexpro Rd Gastrointestinal 1,031 1,027 1,070 1,076

Nebicard Cardiac 968 968 1,014 1,014 2

Losar H Cardiac 908 906 941 947

Dilzem Cardiac 866 865 903 899 1

Losar Cardiac 862 859 894 915

Total 44,478 44,172 44,538 44,439 0
FY20 FY21E FY22E FY23E

Page 18
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Investment Rationale

Minimum capex requirement to help reduce debt and increase free cash flow:
Torrent has finished all the major capex requirement and will be spending only Rs 2-3bn on maintenance capex going forward. The
company targets to reduce it debt by Rs 100bn in FY21. Lower capex requirement will help generate free cash flow and in turn also
help to reduce debt going forward. Interest expense are expected to be lower on back of high cash generation which will improve
the company’s return ratios.
The debt started piling up from FY15 where the company entered into an agreement to purchase Elder pharmaceutical Limited, fol-
lowed by the acquisition of Zyg pharma. In FY18 the company acquired Unichem’s branded business followed by acquisition of Bio
Pharma Inc leading to additional debt. In mean while, company also expanded its Phase 2 of Dahej facility and set up an additional
plant in Sikkim. However, all the capacity expansion has been done and there are no new further expansion plans at least for the
next 2-3 years.

Total debt ( INR Bn)

70 1.40
1.26x

60 1.20
1.04x
50 0.93x 1.00
• Acquisition of Unichem portfolio of 120 brands 16
(Rs 35bn), Bio Pharma Inc ( Rs 4.4bn) acquisition 9
40 11 0.80
and Purchasing of Golchem Industries in Vizag led 0.6x
to increase in debt in FY18 0.54x 0.52x 0.5x
30 0 12 0.60
0 14
20 41 39 0.40
33
10 22 23 0.20
18 18

0 0.00
FY16 FY17 FY18 FY19 FY20 FY21E FY22E

LT ST D/E

Page 19
 INDSEC
Investment Rationale

Upgradation of facility in Germany to be done by Q3 FY22

Torrent had decided to up grade its facilities catering to the Germany market. This upgradation were in connection to the Standard
Operating Procedure (SOP) suggested by USFDA for US facilities. As 50% of the supplies to the German market is from vendors, Tor-
rent also had to communicate vendors to upgrade their facilities, which led to further delays in production. However, out of the to-
tal molecules, procedures for ~85% molecules are implemented and another 12% is expected in Q3FY21. This procedurals adjust-
ments is expected to bring Germany sales back on track.

Valuation:
At CMP of Rs 2800 the stock trades at 18.3x/23.3x of FY21E/FY22E our EV/EBITDA estimates. We value the company on the basis
of DCF by taking a terminal growth of 5%, WACC at 10% and arrived at enterprise value of Rs 3918 per share and debt at Rs 260
Per share. Fair value of the equity stands at Rs 3,456 with a upside of 20% from current levels. We expect Torrent Pharma to
emerge as a winner in the recent pandemic, given its strong presence in the chronic sustainable segment. With opening up of
clinics and hospital , we expect demand to pickup. People are now extra cautious about their health and are expected to increase
their healthcare spending. Germany issues has been resolved and we expect some traction in the business. Tailwinds are ex-
pected from US as Levittown factory is expected to start in Q3FY21 and USFDA clearance for Indrad and Dahej is on the cards.
With only 40% utilization of the Dahej facility and 98 approved ANDA’s, clearance of the facilities will ramp up sales.

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 INDSEC
Industry Overview
Indian Pharma Market (INR Bn)
Over the past five years through 2014-19, Indian Pharmaceutical Market (IPM) has been one of
1,600
1,502
the fastest growing markets in the world. As per IQVIA, the turnover of IPM reached Rs 1.50 tril-
1,400 1,313

1,194
lion (about US$ 22 billion) in FY 2019-20, a growth of 10.8% from the previous year. Going for-
1,200 1,113
ward, IQVIA projects IPM to grow at a CAGR of 8-11% over 2020-24 to reach US$ 31-35 billion in
984
1,000
2024 which is double the rate of growth when compared to its global peers. This growth will be
800
driven by a combination of factors such as rising income levels with steady economic growth,
600
rise in chronic diseases due to sedentary lifestyles, improvements in healthcare infrastructure,
400 higher life expectancy, new launches by innovator companies and increasing acceptance of
200 online sales of pharmaceutical products. Growth in domestic pharmaceutical market is also ex-
0 pected to be supported by the government’s focus on enhancing healthcare access for economi-
FY16 FY17 FY18 FY19 FY20
cally weaker sections of the society.

Therapy Wise sales INR bn Therapy Wise mix FY20

FY16 FY17 FY18 FY19 FY20 Anti-infectives

14% 12%
200 Cardiac
Gastro Intestinal
150
5%
12% Anti-Diabetic

6% Respiratory
100
Vitamins / Minerals / Nutrients

7% 10% Pain / Analgesics

50
Dermatology
Neuro / CNS
0 8%
10%
Anti-infectives

Cardiac

Gastro Intestinal

Anti-Diabetic

Respiratory

Vitamins / Minerals /

Pain / Analgesics

Dermatology

Neuro / CNS

Gynaecology

Gynaecology
8% Others
8%
Nutrients

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 INDSEC
Industry Overview (USA)

ANDA’s Approval The US currently holds the top spot globally for spends on pharmaceuticals. It is also the largest
importer of drugs and therefore plays a key role in the global industry’s growth. Growing at a
1400 CAGR of 3-6% over 2020-2024, the US market is estimated to reach US$ 605-635 billion and
1232 continue to retain its leadership position at the end of this period.
1200 1100
1067 Key growth drivers:
964
1000
843 807 837 • Aging Population.
800
629 • Rising focus of pharmaceutical companies on rare and specialty diseases.
600 • Innovations in newer areas such as advanced biologics, nucleic acid therapeutics and cell
400 304 336 therapies.
290
201
200
Generic Market: The US generics market continues to attract a large number of Abbreviated
New Drug Application (ANDA) filings and approvals, as also evidenced in the calendar year 2019.
0 837 approvals in CY 19 as against 807 final ANDA approvals in 2018. In the past few years,
CY16 CY17 CY18 CY19
growth in the US, the world’s largest pharmaceutical market, has remained subdued for most
ANDA Filings Approval Aproval For Indian Companies Indian players. Consolidation of pharmaceutical distributors and a faster pace of approvals of
new generic drugs by the USFDA has resulted in continued pressure on generic drug pricing.
Loss of brand exclusivity:
With more than US$ 100 billion worth of branded drugs losing exclusivity over the next 5 years
and Indian companies steadily expanding their presence in specialty and novel drugs, the US is
expected to remain the most important market for exports of Indian pharmaceutical products.

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 INDSEC
Industry Overview

Drugs Going Generic in 2021

Brand Generic Company What is it for? Anticipated release date Market Size ANDA Filling Companies
Amitiza Lubiprostone Mallinckrodt Plc Constipation January, 2021 $208mn
Sutent Sunitinib Pfizer Inc Kidney cancer February, 2021 $936mn Mylan
Amerigen Pharma, Glen-
mark, Hetero, Torrent,
Bystolic Nebivolol Allergan Plc High blood pressure September, 2021 $600mn
Watson, Alkem, Aurobin-
do
Emtricitabine /
Truvada Gilead HIV September, 2021 $2.6bn
tenofovir
Sunovion Phar-
Brovana Arformoterol Asthma & COPD September, 2021 $320mn
maceuticals Inc
Boehringer Ingel-
Pradaxa Dabigatran heim Pharmaceu- Atrial fibrillation September, 2021 $1.8bn
ticals, Inc

Drugs Going Generic in 2022

Brand Generic Company What is it for? Anticipated release date Market Size ANDA Filling Companies
Revlimid Lenalidomide Cilgen multiple myeloma March, 2022 $10bn
Alembic, Amneal, Auro-
bindo, Breckenridge,
Glenmark, Hetero,
Vimpat Lacosamide UCB Inc epilepsy March, 2022 $1.5bn
Mylan, Sandoz, Sun
(Ranbaxy), Teva, Watson,
Zydus Cadila
Assertio thera-
Zipsor Diclofenac pain & swelling March, 2022 $12.5mn
peutics Inc
Viibryd Vilazodone Allergen Plc depression June, 2022 $412mn
Sitagliptin / Apotex, Mylan, Sandoz,
Janumet Merck & Co. Inc type 2 diabetes July, 2022 $5.5bn
metformin Sun Pharma, Teva, Wat-
Toviaz Fesoterodine ER Pfizer Inc overactive bladder July, 2022 $250mn

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 INDSEC
Industry Overview (Brazil)
Brazilian Market:
Brazil is the biggest pharmaceutical market in Latin America and ranked 9th in the world with
market size of $33.6bn. Growth in the Brazilian pharmaceutical market took off during the
1990’s, due to the expansion and modernization of pharmaceutical manufacturing in Brazil – an
Brazil Pharma Market (Real Bn)
emerging economy with a population over 200 million (of which over 100 million belongs to a
middle class). Since the introduction of Brazilian patent law in 1996, the research-based phar-
140
maceutical industry in the country has seen substantial investments in the improvement of op-
120 erational infrastructure, expansion of its industrial parks, and R/D. The pharmaceutical industry
100 in Brazil currently comprises about 550 companies, both national and multinationals, including
laboratories, distributors, and importers. The leading domestic pharmaceutical companies on
80
the Brazilian market are EMS, Hypermarcas, Medley, Europharma, and Aché.
60
Distribution Network
40
The companies distribute their products to the Brazilian market through approximately 60,000
20
pharmacists and drug stores that serve the public in general; 27 networks of drug stores, and
0 6600 hospitals, clinics, and first aid posts. The medicines are available throughout all of Brazil,
FY16 FY17 FY18 FY19 FY20
thanks to the logistic support network of 130 distributors.
Consumer Preference:
In 2017, Interfarma produced a study for consumer preferences for pharmaceutical drugs. What
they found was that the decisive factor for most consumers (54%) was the price, followed by
quality (34%). The implications of this are that most Brazilians will always prefer to find a gener-
ic drug, compared to a brand name, when it is available. According to the study, 74% of Brazilian
consumers ask for cheaper alternatives at the pharmacy counter, which indicates that the over-
all majority of Brazilian consumers prefer a cheaper alternative over the prescribed drug where
applicable.

Page 24
 INDSEC
Industry Overview

Generics:

Top 10 generics companies in Brazil by sales Market Size and growth expectation

1 Ache In Brazil there are 133 generic manufacturers, responsible for more than 3,700 drug registra-
2 EMS tions that derive more than 21,700 commercial presentations. On an average, a generic drug
3 Europharma will be sold at a 35% lower price than that of the branded drug. The sector's revenue, which
4 Sanofi approached R 9.8 bn in PPP in 2019, is expected to advance above 10% in CY20, pulling sales
5 Novartis growth from the rest of the Brazilian pharmaceutical industry, which will grow by approximate-
6 Neo Quimica ly 12% in values. Among the 10 largest pharmaceutical companies installed in the country, 9
7 Mantecorp Farmasa have a generic medication manufacturing line, that is, many companies that developed and are
8 Libbs responsible for the commercialization of internationally known branded products, currently
9 Biolab- Sanus Farma also dedicate themselves to the manufacture of generics.
10 Takeda Pharma
Therapies
There are generic drugs in the Brazilian market for the treatment of diseases of the cardio-
circulatory system, anti-infectives, digestive system / metabolism, central nervous system, hor-
monal and non-hormonal anti-inflammatories, dermatological, respiratory diseases, urinary /
sexual system, ophthalmology, antithrombosis, anemia, anti helminthic / parasitic, oncological
and contraceptive. The next few years reserve expiration dates for important patents, products
Top 10 Highest selling drugs in Brazil
for cardiology, nervous system diseases and Parkinson's, which will soon have their generic ver-
1 Dorflex sions available to the population.
2 Xarelto
3 Saxenda In Brazil, generics are becoming increasingly popular as consumers perceive generics as equiva-
4 Neosaldina lent to branded medication, but at a significantly lower price. This growing consciousness
5 Addera D3 about generics is beginning to penetrate the market, as prescriptions for generics increased by
6 Glifage Xr 65% between 2015 and 2018. This can be compared with the increase in domestic production
7 Torsilax of generics which grew by 130%, from 146 generic medication products, up to 336 (2014-
8 Victoza 2017). However, there is still room for more growth, as generic drugs only make up 33% of
9 Anthelios drugs prescribed by physicians and a little over 32% of all medication consumed. This suggests
10 Puran T-4
that the market for generic drugs will continue to be an attractive sector for future investment.

Page 25
 INDSEC
Subsidiaries
100% Subsidiaries
INR Mn FY16 FY17 FY18 FY19 FY20
Zao Torrent Pharma, Russia
Revenue 416 598 581 646 705
PAT 30 19 (8) 16 22

Torrent Do Brasil Ltda , Brazil

Revenue 5,043 6,943 6,814 6,494 5,936
PAT (292) 255 528 (88) 398

Torrent Pharma Inc., USA

Revenue 26,457 12,639 10,751 15,187 15,833
PAT 621 (173) (363) (2,648) (347)

Heumann Pharma Gmbh & Co. Generica

Revenue 6,110 6,772 8,265 8,143 8,301
PAT 393 866 1,216 1,480 642

Heunet Pharma Gmbh

Revenue 1,648 1,741 1,912 1,669 2,549
PAT 32 69 27 177 286

Torrent Pharma (UK) Ltd

Revenue 361 479 800 1,438 1,873
PAT (73) (133) (171) 2 104

Laboratories Torrent (Malaysia) SDN.BHD.

Revenue 231 240 402 518 606
PAT (3) 13 28 11 23

Page 26
 INDSEC
Financials
SUMMARY INCOME STATEMENT SUMMARY BALANCE SHEET
(in mn) FY18 FY19 FY20 FY21E FY22E (in mn) FY18 FY19 FY20 FY21E FY22E
Total Income 59,498 76,730 79,390 86,041 98,928 Assets
%YoY 2% 29% 3% 8% 15% Net Block 24,168 28,007 28,179 32,117 32,164
Cost Of Revenues (incl Stock Adj) 16,539 22,190 21,670 25,812 29,678 Capital WIP 4,232 4,793 5,766 2,000 2,000
Gross Profit 42,959 54,540 57,720 60,228 69,249 Intangible Assets under development 56,616 50,848 47,151 43,094 39,036
Gross Margins 72% 71% 73% 70% 70% Other Non current Assets 211 1,482 1,284 1,284 1,284
Employee Cost 11,353 14,040 14,290 15,290 16,361 Current Assets
Other Operating Expenses 18,114 20,660 21,730 23,614 26,464 Current Investment 4,923 3,514 0 0 0
EBITDA 13,493 19,840 21,700 21,324 26,424 Inventories 19,663 19,352 21,482 21,687 24,935
EBITDA Margins 23% 26% 27% 25% 27% Trade receivables 12,535 14,357 16,493 16,501 18,972
Other Income 2,988 570 1,220 1,220 1,220 Cash 2,411 5,888 6,618 5,562 14,246
Net Interest Exp. 3,085 5,040 4,510 3,739 2,679 Bank balances 6,261 2,273 48 48 48
Depreciation 4,086 6,180 6,540 6,386 6,511 Other Current Assets 6,831 4,993 5,447 5,447 5,447
Exceptional Items 0 3,570 0 0 0 Total Current Assets 52,624 50,375 50,090 49,245 63,649
PBT 9,310 12,760 11,870 12,419 18,455 Current Liabilities & Provisions
Tax 2,529 1,260 1,620 1,863 2,768 Trade payables 20,482 20,967 20,769 17,731 19,864
Net Profit 6,781 11,500 10,250 10,556 15,687 Other current liabilities 12,009 17,203 18,959 18,959 18,959
NPM 11% 15% 13% 12% 16% Short-term provisions 3,274 4,142 4,186 4,186 4,186
EPS 40 26 61 62 93 Total Current Liabilities 52,022 51,653 54,822 52,921 56,859
Net Current Assets 602 -1,278 -4,732 -3,676 6,790
Total Assets 87,651 85,858 81,224 78,395 84,850
Liabilities
Share Capital 846 846 846 846 846
Reserves and Surplus 45,376 46,397 47,386 54,557 66,013
Total Shareholders Fund 46,222 47,244 48,232 55,403 66,859
Minority Interest
Total Debt 57,371 48,470 43,947 35,084 31,888
Long Term Provisions 2,867 2,885 3,383 3,383 3,383
Total Liabilities 87,651 85,858 81,224 78,395 84,850

Page 27
 INDSEC
Financials

SUMMARY CASH FLOW STATEMENT SUMMARY RATIOS

(in mn) FY18 FY19 FY20 FY21E FY22E FY18 FY19 FY20 FY21E FY22E
PBT 9,310 5,617 11,866 12,419 18,455 Profitability
Depreciation & Amort., Total 4,086 6,177 6,544 6,386 6,511 Return on Assets 32% 44% 36% 35% 49%
After other adjustments Return on Capital 13% 16% 20% 21% 26%
(Inc) / Dec in Working Capital (3,602) 994 (3,858) (3,250) (3,587) Return on Equity 15% 25% 21% 20% 26%
Taxes (2,836) (2,812) (2,840) (1,863) (2,768) Margin Analysis
Cash from Ops. 8,942 17,981 13,918 17,431 21,290 Gross Margin 72% 71% 73% 70% 70%
Capital Expenditure & investments (7,913) (6,628) (4,068) (2,500) (2,500) EBITDA Margin 23% 26% 27% 25% 27%
Cash from Investing (47,070) (2,413) (1,516) (2,500) (2,500) Net Income Margin 11% 15% 13% 12% 16%
Issue of Share capital Short-Term Liquidity
Others Current Ratio 1.0 1.0 0.9 0.9 1.1

Issuance of Dividend (2,648) (3,097) (7,185) (3,385) (4,231) Quick Ratio 0.6 0.6 0.5 0.5 0.7

Cash from Financing 34,174 (13,145) (15,490) (15,987) (10,106) Avg. Days Sales Outstanding 67.6 64.0 70.9 70.0 65.4
Extraordinary receipts/payment Avg. Days Inventory Outstanding 108.1 92.8 93.9 91.6 86.0
Net Change in Cash (3,954) 2,424 (3,088) (1,056) 8,684 Avg. Days Payables 150.6 133.0 132.0 108.6 94.6
BF Cash 10,676 7,020 9,401 6,618 5,562 Long-Term Solvency
END Cash 7,020 9,401 6,618 5,562 14,246 Total Debt / Equity 1.2 1.0 0.9 0.6 0.5
EBITDA / Interest Expense 4.4 3.9 4.8 5.7 9.9
Valuation Ratios
EV/EBITDA 38.0 25.5 23.3 23.4 18.4
PER 69.1 107.4 45.7 44.4 29.9
P/B 10.1 9.9 9.7 8.5 7.0

Page 28
 INDSEC
INDSEC Rating Distribution

BUY : Expected total return of over 20% within the next 12-18 months.
HOLD : Expected total return between 0% to 20% within the next 12-18 months.
SELL : Expected total return is negative within the next 12-18 months.
NEUTRAL: No investment opinion, stock under review.

DISCLOSURE

DISCLOSURE
BUSINESS ACTIVITIES:
Indsec Securities and Finance Limited (ISFL) is a corporate member of BSE (Equity, WDM segment), of NSEIL (Equity, WDM, Futures & Options and Currency Derivative segments) and has also secured membership of the MSEI Exchange (Currency
Derivative Segment) vide registration No. INZ000236731. ISFL is an AMFI Registered Mutual Fund Advisor (MRMFA) vide Registration Number 9194. ISFL is also a Depository Participant of the National Securities Depository Limited (NSDL) and a
SEBI registered Portfolio Manager. With this setup ISFL is in a position to offer all types of services in the securities industry.
Since inception company’s focus has been on research. In view of its research capabilities ISFL focused mainly on institutional business and is today empaneled with most of the local financial institutions, insurance companies, banks and mutual
funds. ISFL has grown from being a medium size broking outfit to become one of the largest capitalized Indian broking company offering the complete range of broking services.
ISFL was incorporated on 28th July 1993 and doesn’t have any associates/ subsidiaries. ISFL is a registered Portfolio Manager under SEBI (Portfolio Managers) Regulations, 1993 vide registration No. INP000001892.
DISCIPLINARY HISTORY:
• No material penalties / directions have been issued by the SEBI under the securities laws, SEBI Act or Rules or Regulations made there under
• No penalties have been imposed for any economic offence by any authority.
• No material deficiencies in the systems and operations of the Company have been observed by any regulatory agency.

• There are no pending material litigations or legal proceedings, findings of inspections or investigations for which action has been taken or initiated by any regulatory authority against the Company or its Directors, principal officers or em-
ployees or any person directly or indirectly connected with the Company.
DECLARATION:
• ISFL/Research Analysts or their associates or their relatives do not have any financial interest in the subject company (ies);
• ISFL/Research Analysts or their associates or their relatives do not have actual or beneficial ownership of 1 % or more in the subject company (ies);
• Directors may have actual or beneficial ownership of 1 % or more in the subject company (ies);
• ISFL/Research Analysts or their associates or their relatives do not have any material conflict of interest in the subject company(ies) at the time of publication of this document;
• ISFL has not received any compensation from the subject company (ies) in the past twelve months;
• ISFL has not managed or co-managed public offering of securities for the subject company (ies) in the past twelve months;
• ISFL has not received any compensation for investment banking or merchant banking or brokerage services or any other service from the subject company (ies) in the past twelve months;

• ISFL has not received any compensation or other benefits from the subject company (ies) or third party in connection with this document;
• None of the research analysts have served as an officer, director or employee of the subject company (ies);
• ISFL has not been engaged in the market making activity for the subject company (ies);

Page 29
 INDSEC
DISCLOSURE

GENERAL TERMS AND CONDITION/ DISCLAIMERS:

This document has been issued by ISFL and is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of security.

This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources believed to be reliable. However, we do not guarantee its accuracy and the information may be incomplete
and condensed. Note however that, we have taken meticulous care to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the analyst nor any other employee of our company is in any way responsible for
its contents. The Company’s research department has received assistance from the subject company (ies) referred to in this document including, but not limited to, discussions with management of the subject company (ies). All opinions, projec-
tions and estimates constitute the judgment of the author as of the date of this document and these, including any other information contained in this document, are subject to change without notice. Prices and availability of financial instru-
ments also are subject to change without notice. While we would endeavor to update the information herein on reasonable basis, we are under no obligation to update or keep the information current. Also, there may be regulatory, compli-
ance, or other reasons that may prevent us from doing so.

Securities recommended in this document are subject to investment risks, including the possible loss of the principal amount invested. Any decision to purchase/sale securities mentioned in this document must take into account existing public
information on such security or any registered prospectus. The appropriateness of a particular investment, decision or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies dis-
cussed in this document may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Each recipient of this document should make such investigations as it deems necessary to
arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved).

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject the company to any registration or licensing requirement within such jurisdiction. Further, this document is not directed or intended for distribution to the US taxpayers covered under
US Foreign Account Tax Compliance Act (FATCA) provisions. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are
required to inform themselves of and to observe such restriction

This is just a suggestion and the company will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Any comments or statements made herein are those of the analyst and do not necessarily
reflect those of the company. No matter contained in this document may be reproduced or copied without the consent of the company. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prose-
cution. The information contained in this document is intended solely for the recipient and may not be further distributed by the recipient. The Company accepts no liability whatsoever for the actions of third parties.

The research analyst(s) of this document certifies that all of the views expressed in this document accurately reflect their personal views about those issuer(s) or securities. Analyst’s holding in the stocks mentioned in the Report:-NIL

Page 30