A weak outlook for the US market and a muted March quarter performance led to the downward revision of earnings of Torrent Pharma in the current financial year. As a consequence of the revision, the stock slipped 3.3 per cent on Tuesday. The key pain point has been performance in the US, with revenues falling 24 per cent on a sequential basis.
Performance in the region that contributes about a fifth to overall sales was pegged back by the recall of hypertension drug Losartan, as well as closure of a US plant. The discontinuation of key contributors to the top line and modernisation of plants will impact the company’s sales in the US market in FY20.
In fact, the company reported a loss on account of impairment and product recall charges to the tune of Rs 357 crore.
Analysts at CLSA expect the company’s performance in the US market to be affected in the current financial year, pegging the impact at $11.7 million. The worry for the Street also stems from the possible escalation of the US FDA observations regarding the Indrad plant (Gujarat).
This is a key plant with the maximum number of pending drug filings, and any delay in resolution could impact launches in the US market, which is expected to grow in low single digits during FY20. While weakness in the US business will impact the company over the next four quarters, what should hold up overall growth is the India business.
Though the company discontinued a few low value products that had a negative impact on sales in the March quarter, analysts are confident of prospects, given the presence in high growth specialty chronic therapies.
Synergies after the Unichem acquisition has helped Torrent improve margins. The firm’s India business — including contract research and manufacturing services — accounts for about half the company’s revenues.
While most brokerages have cut their earnings estimates, they continue to be positive on prospects, especially in the domestic market. Given the strong branded portfolio, Torrent is expected to post double-digit growth and outperform the sector.
Improving growth and margins should better its cash position and help pare debt. Brokerages believe a correction could be used to raise exposure to the stock.