Company Detail Report

CMP: 1771.65 DEC 18th, 2018 TORRENT PHARMACEUTICALS LTD ISIN: Result Update (CONSOLIDATED BASIS): Q2 FY19 Overweight INE685A01028

Index Details SYNOPSIS Stock Data Torrent Pharmaceuticals Ltd, with annual revenues Sector Pharmaceuticals of more than Rs. 6,000 crores is the flagship 500420 BSE Code Company of the Torrent Group. Face Value 5.00 nd 52wk. High / Low (Rs.) 1871.95/1223.75 Consolidated revenue for the 2 quarter registered Volume (2wk. Avg.) 8909 at Rs. 18940.00 mn from Rs. 14170.00 mn, in the Market Cap (Rs. in mn.) 299834.05 corresponding period of the previous year, up by 33.66%. Annual Estimated Results(A*: Actual / E*: Estimated) Years(Rs in mn) FY18A FY19E FY20E During Q2 FY19, consolidated EBIDTA was Rs. Net Sales 60020.00 75025.00 87029.00 4830.00 mn as against Rs. 4070.00 mn in the EBITDA 16480.00 19563.00 22505.13 corresponding period of the previous year. Net Profit 6780.00 7165.72 8139.73 Consolidated PBT of the company for Q2 FY19 EPS 40.06 42.34 48.10 registered at Rs. 2050.00 mn as against Rs. 2720.00 P/E 44.22 41.84 36.84 mn in Q2 FY18. Shareholding Pattern (%) Consolidated net profit stood at Rs. 1790.00 mn in the current quarter as against Rs. 2040.00 mn in Q2 As on Sep 2018 As on June 2018 FY18. Promoter 71.25 71.25 EPS of the company registered at Rs. 10.58 as Public 28.75 28.75 against Rs. 12.05 in the corresponding period of Others -- -- previous year. s1 Year Comparative Graph The Revenue of the company registered a growth of Rs. 37660.00 mn in H1 FY19 as compared to Rs. 27790.00 mn in H1 FY18, up by 35.52%. During H1 FY19, PAT of the company stood at Rs. 3420.00 mn which stood at Rs. 3920.00 mn in H1 FY18. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 14% and 12% over 2017 to 2020E, respectively. TORRENT PHARMACEUTICALS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E(X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. In mn. (Rs.) Ratio Ratio (%) Torrent Pharmaceuticals Ltd 1771.65 299834.05 37.11 47.74 6.49 280.00 Aurobindo Pharma Ltd 737.25 431960.40 37.39 19.72 3.70 250.00 Ajanta Pharma Ltd 1114.40 98092.80 53.75 20.73 4.81 0.00 Cipla Ltd 522.90 421284.30 17.47 29.93 2.89 150.00

Results updates- Q2 FY19,

(Rs in millions) Sep-18 Sep-17 % Change

Revenue 18940.00 14170.00 33.66%

Net Profit 1790.00 2040.00 (12.25%)

EPS 10.58 12.05 (12.25%)

PBIDT 4830.00 4070.00 18.67%

The consolidated net profit registered at Rs. 1790.00 million in the current quarter as against Rs. 2040.00 million in the corresponding period of the previous year. Revenue for the 2nd quarter stood at Rs. 18940.00 million from Rs. 14170.00 million, up by 33.66% when compared with the prior year period. Reported earnings per share of the company stood at Rs. 10.58 per share during the quarter from Rs. 12.05 a share during the corresponding previous year quarter. Profit before interest, depreciation and tax is Rs. 4830.00 million as against Rs. 4070.00 million in the corresponding period of the previous year, up by 18.67%.

Break up of Expenditure

Value in Rs. Million Break up of Expenditure % Q2 FY19 Q2 FY18 Change

Cost of Material 2710.00 1810.00 50% Consumed

Purchases of Stock in 2380.00 1880.00 27% Trade

Employee Benefit 3430.00 2830.00 21% expenses

Depreciation & Amortization 1520.00 840.00 81% Expenses

Other Expenses 5300.00 3870.00 37%

 The India (Incl Unichem) business of the company registered a growth of 54% at Rs. 16450 mn in H1 FY19 as compared to Rs. 10710 mn in H1 FY18.

 During H1 FY19, US Business of the company stood at Rs. 7270 mn as against Rs. 5270 mn in H1 FY18, up by 38%.

 Brazil Business of the company rose by 5% at Rs. 3160 mn H1 FY19 which was stood at Rs. 3010 mn in H1 FY18.

 During H1 FY19, Germany Business of the company stood at Rs. 5030 mn as against Rs. 3990 mn in Q2 FY18, up by 26%.

 Other countries busiess registered a growth of 7% at Rs. 2500 mn in H1 FY19 as compared to Rs. 2330 mn in H1 FY18.

 Others (inclu. Contract Manufacturing) of the company contributed 7% of Revenue which was at Rs. 2500 mn in H1 FY19 as against Rs. 2330 mn in H1 FY18.

 Gross margins at 70.6%, up by 0.1% over H1 FY18.

 R&D spend at Rs. 2630 mn against Rs. 2080 mn in H1 FY18.

Consolidated Revenues for Q2 2018-19:

 The India (Incl Unichem) business of the company registered a growth of 34% at Rs. 8160 mn in Q2 FY19 as compared to Rs. 6070 mn inQ2 FY18.

 During Q2 FY19, US Business of the company stood at Rs. 3930 mn as against Rs. 2550 mn in Q2 FY18, up by 54%.

 Brazil Business of the compaqny rose by 23% at Rs. 1470 mn Q2 FY19 which was stood at Rs. 1200 mn in Q2 FY18.

 During Q2 FY19, Germany Business of the company stood at Rs. 2510 mn as against Rs. 2090 mn in Q2 FY18, up by 20%.

 Other countries busiess registered a growth of 22% at Rs. 1200 mn in Q2 FY19 as compared to Rs. 980 mn in Q2 FY18.

 Gross margins of the company stood at 71.1%, up by 0.6% (YoY).

 R&D spend at Rs. 1360 mn against Rs . 1070 mn in Q2 FY18.

Torrent Pharma, with annual revenues of more than Rs. 6,000 crores is the flagship Company of the Torrent Group. Torrent Pharma continues to be at the forefront of the Indian pharmaceutical industry with many of its products ranking among the top 500 brands (AIOCD Dataset) in India. Its widespread international presence also includes several markets where Torrent is amongst the leading pharmaceutical companies in the respective countries. Torrent has a fully equipped Research Center, employing almost 900 scientists, to support the Company's operations and product pipeline for both Domestic and Overseas markets. The Company's manufacturing plants located at lndrad, Baddi, Sikkim, Dahej, Pithampur and Vizag have facilities to produce Formulations and Bulk drugs. The plants are approved by authorities from various regulated and semi regulated markets like US, UK, Brazil, Germany, Australia and South Africa. Company's recently acquired plant in Pennsylvania, USA has capabilities of manufacturing oral solutions, suspensions and suppositories.

Document code: FOTL_181220184_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as of March 31, 2017 -2020E FY17A FY18A FY19E FY20E ASSETS 1) Non-Current Assets a) Property, plant and equipment 18710.00 24170.00 25620.20 26901.21 b) Capital Work in Progress 4630.00 4230.00 4610.70 4979.56 c) Goodwill 1600.00 3990.00 4269.30 4482.77 d) Other Intangible Assets 16580.00 50390.00 47870.50 45955.68 e) Intangible Assets Under Development 560.00 2240.00 2531.20 2784.32 f) Financial Assets i) Investments 0.00 0.00 20.00 21.00 ii) Loans 20.00 30.00 31.50 32.76 iii) Other Financial Assets 1050.00 210.00 3145.45 3931.81 g) Non-Current Tax Assets (net) 820.00 900.00 1080.00 1242.00 h) Deferred Tax Assets (Net) 3100.00 2760.00 3836.40 4795.50 i) Other Non Current Assets (net) 1160.00 890.00 1112.50 1312.75 Sub - Total Non- Current assets 48230.00 89810.00 93015.25 95126.60 2) Current Assets a) Inventories 15590.00 19660.00 20643.00 21468.72 b) Financial Assets i) Investments 8040.00 4920.00 7134.00 9630.90 ii) Trade Receivables 9510.00 12540.00 16051.20 19582.46 iii) Cash and Cash equivalents 2790.00 2410.00 5253.80 6567.25 iv) Bank Balance other than Cash 6150.00 6260.00 4507.20 5318.50 v) Loans 20.00 30.00 43.50 55.68 vi) Other Financial Assets 3260.00 1590.00 643.49 482.61 c) Other Current Assets 3430.00 5210.00 4168.00 3542.80 Sub - Total Current Assets 48790.00 52620.00 58444.19 66648.92 Total Assets (1+2) 97020.00 142430.00 151459.44 161775.53 EQUITY AND LIABILITIES 1) EQUITY a) Equity Share Capital 850.00 850.00 850.00 850.00 b) Other Equity 42660.00 45370.00 52535.72 60675.44 Total Equity 43510.00 46220.00 61525.44 61525.44 2) Non-Controlling Interest 0.00 10.00 10.92 10.92 3) Non Current Liabilities a) Financial Liabilities i) Borrowings 22410.00 41110.00 39054.50 37882.87 ii) Other Financial Liabilities 80.00 180.00 734.45 940.10 b) Provisions 2630.00 2870.00 3214.40 3471.55 c) Deferred Tax Liabilities 1010.00 0.00 0.00 0.00 d) Other Non-Current Liabilities 0.00 20.00 54.45 68.06 Sub - Total Non Current liabilities 26130.00 44180.00 43057.80 42362.58 4) Current Liabilities a) Financial liabilities i) Borrowings 0.00 16260.00 16910.40 17417.72 ii) Trade Payables 17490.00 20480.00 22528.00 24670.21 iii) Other Financial Liabilities 6140.00 10520.00 11166.42 11415.62 b) Provisions 2390.00 3270.00 2746.80 2417.18 c) Current Tax Liabilities 630.00 490.00 303.80 227.85 d) Other Current Liabilities 730.00 1000.00 1350.00 1728.00 Sub - Total current liabilities 27380.00 52020.00 55005.42 57876.58 Total Equity and Liabilities (1+2+3+4) 97020.00 142430.00 151459.44 161775.53

Value(Rs.in.mn) FY17A FY18A FY19E FY20E Description 12m 12m 12m 12m Net Sales 58570.00 60020.00 75025.00 87029.00 Other Income 2230.00 2990.00 956.80 1052.48 Total Income 60800.00 63010.00 75981.80 88081.48 Expenditure -44790.00 -46530.00 -56418.80 -65576.35 Operating Profit 16010.00 16480.00 19563.00 22505.13 Interest -2060.00 -3080.00 -4466.00 -5180.56 Gross profit 13950.00 13400.00 15097.00 17324.57 Depreciation -3070.00 -4090.00 -5439.70 -6310.05 Profit Before Tax 10880.00 9310.00 9657.30 11014.52 Tax -1540.00 -2530.00 -2491.58 -2874.79 Net Profit 9340.00 6780.00 7165.72 8139.73 Equity capital 846.20 846.20 846.20 846.20 Reserves 42660.00 45370.00 52535.72 60675.44 Face value 5.00 5.00 5.00 5.00 EPS 55.19 40.06 42.34 48.10

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-June-18 30-Sep-18 31-Dec-18E Description 3m 3m 3m 3m Net sales 17220.00 18720.00 18940.00 19697.60 Other income 420.00 270.00 100.00 135.00 Total Income 17640.00 18990.00 19040.00 19832.60 Expenditure -13580.00 -13950.00 -14210.00 -14997.75 Operating profit 4060.00 5040.00 4830.00 4834.85 Interest -1210.00 -1220.00 -1260.00 -1297.80 Gross profit 2850.00 3820.00 3570.00 3537.05 Depreciation -1510.00 -1500.00 -1520.00 -1626.40 Profit Before Tax 1340.00 2320.00 2050.00 1910.65 Tax 940.00 -690.00 -260.00 -238.26 Net Profit 2280.00 1630.00 1790.00 1672.39 Equity capital 846.20 846.20 846.20 846.20 Face value 5.00 5.00 5.00 5.00 EPS 13.47 9.63 10.58 9.88

Particulars FY17A FY18A FY19E FY20E EPS (Rs.) 55.19 40.06 42.34 48.10 EBITDA Margin (%) 27.33% 27.46% 26.08% 25.86% PBT Margin (%) 18.58% 15.51% 12.87% 12.66% PAT Margin (%) 15.95% 11.30% 9.55% 9.35% P/E Ratio (x) 32.10 44.22 41.84 36.84 ROE (%) 21.47% 14.67% 13.42% 13.23% ROCE (%) 19.63% 11.96% 12.92% 13.86% Debt Equity Ratio 0.52 1.24 1.05 0.90 EV/EBITDA (x) 19.63 21.38 17.82 15.35 Book Value (Rs.) 257.07 273.08 315.42 363.52 P/BV 6.89 6.49 5.62 4.87

Charts

. At the current market price of Rs. 1771.65, the stock P/E ratio is at 41.84 x FY19E and 36.84 x FY20E respectively.

. Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 42.34 and Rs. 48.10, respectively.

. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 14% and 12% over 2017 to 2020E, respectively.

. On the basis of EV/EBITDA, the stock trades at 17.82 x for FY19E and 15.35 x for FY20E.

. Price to Book Value of the stock is expected to be at 5.62 x and 4.87 x for FY19E and FY20E respectively.

. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

The pharmaceutical sector was valued at US$ 33 billion in 2017. The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion. India’s pharmaceutical exports stood at US$ 17.27 billion in 2017-18. In 2018-19 these exports are expected to cross US$ 19 billion.

Document code: FOTL_181220184_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the US Food and Drug Administration (USFDA) in 2017. The country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.

The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per cent under the automatic route for manufacturing of medical devices subject to certain conditions.

The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 15.83 billion between April 2000 and June 2018, according to data released by the Department of Industrial Policy and Promotion (DIPP).

Government Initiatives

Some of the initiatives taken by the government to promote the pharmaceutical sector in India are as follows:

 The National Health Protection Scheme is largest government funded healthcare programme in the world, which is expected to benefit 100 million poor families in the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for secondary and tertiary care hospitalisation. The programme was announced in Union Budget 2018-19.

 In March 2018, the Drug Controller General of India (DCGI) announced its plans to start a single-window facility to provide consents, approvals and other information. The move is aimed at giving a push to the Make in India initiative.

 The Government of India is planning to set up an electronic platform to regulate online pharmacies under a new policy, in order to stop any misuse due to easy availability.

 The Government of India unveiled 'Pharma Vision 2020' aimed at making India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investments.

 The government introduced mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability of medicines.

Road Ahead

Medicine spending in India is expected to increase at 9-12 per cent CAGR between 2018-22 to US$ 26-30 billion, driven by increasing consumer spending, rapid urbanisation, and raising healthcare insurance among others.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti- cancers that are on the rise.

Document code: FOTL_181220184_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an official confirmation of any transaction. The information contained herein is from publicly available secondary sources and data or other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients’ investment decision based on this document.

Analyst Certification

The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best of their knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. The analyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

Exposure/Interest to Sectors company/sector Under Name of the Analyst Qualifications Covered Coverage in the Current Report Dr.C.V.S.L. Kameswari M.Sc, PGDCA, Pharma & No Interest/ Exposure M.B.A, Diversified Ph.D (Finance) U. Janaki Rao M.B.A Capital No Interest/ Exposure Goods B. Anil Kumar M.B.A Auto, IT & No Interest/ Exposure FMCG V. Harini Priya M.B.A Diversified No Interest/ Exposure

Important Disclosures on Subject Companies

In the next 3 months, neither Firstcall Research nor the Entity expects to receive or intends to seek compensation for any services from the company under the current analytical research coverage. Within the last 12 months, Firstcall Research has not received any compensation for its products and services from the company under the current coverage. Within the last 12 months, Firstcall Research has not provided or is providing any services to, or has any client relationship with, the company under current research coverage.

Within the last 12 months, Firstcall Research has neither provided or is providing any services to and/or in the past has not entered into an agreement to provide services or does not have a client relationship with the company under the research coverage.

Certain disclosures listed above are also for compliance with applicable regulations in various jurisdictions. Firstcall Research does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, No-Weight and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all weights used in Firstcall Research. In addition, since Firstcall Research contains more complete information concerning the analyst's views, investors should carefully read Firstcall Research, in its entirety, and not infer the contents from the weightages assigned alone. In any case, weightages (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell should depend on individual circumstances (such as the investor's own discretion, his ability of understanding the dynamics, existing holdings) and other considerations.

Overweight (O): The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Equal-weight (E): The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

No-weight (NR): Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Underweight (U): The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Unless otherwise specified, the weights included in Firstcall Research does not indicate any price targets. The statistical summaries of Firstcall Research will only indicate the direction of the industry perception of the analyst and the interpretations of analysts should be seen as statistical summaries of financial data of the companies with perceived industry direction in terms of weights.

Firstcall Research may not be distributed to the public media or quoted or used by the public media without the express written consent of Firstcall Research. The reports of Firstcall Research are for Information purposes only and is not to be construed as a recommendation or a solicitation to trade in any securities/instruments. Firstcall Research is not a brokerage and does not execute transactions for clients in the securities/instruments.

Firstcall Research - Overall Statement S. No Particulars Remarks 1 Comments on general trends in the securities market Full Compliance in Place 2 Discussion is broad based and also broad based indices Full Compliance in Place 3 Commentaries on economic, political or market conditions Full Compliance in Place 4 Full Compliance in Place Periodic reports or other communications not for public appearance 5 The reports are statistical summaries of financial data of the companies as and where Full Compliance in Place applicable 6 Analysis relating to the sector concerned Full Compliance in Place 7 No material is for public appearance Full Compliance in Place 8 We are no intermediaries for anyone and neither our entity nor our analysts have any Full Compliance in Place interests in the reports 9 Our reports are password protected and contain all the required applicable Full Compliance in Place disclosures 10 Analysts as per the policy of the company are not entitled to take positions either for Full Compliance in Place trading or long term in the analytical view that they form as a part of their work 11 Full Compliance in Place No conflict of interest and analysts are expected to maintain strict adherence to the company rules and regulations. 12 Full Compliance in Place As a matter of policy no analyst will be allowed to do personal trading or deal and even if they do so they have to disclose the same to the company and take prior approval of the company 13 Full Compliance in Place Our entity or any analyst shall not provide any promise or assurance of any favorable outcome based on their reports on industry, company or sector or group Document code: FOTL_181220184_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved 14 Researchers maintain arms length/ Chinese wall distance from other employees of Full Compliance in Place the entity 15 Full Compliance in Place No analyst will be allowed to cover or do any research where he has financial interest 16 Our entity does not do any reports upon receiving any compensation from any Full Compliance in Place company

Firstcall Research Provides

Industry Research on all the Sectors and Equity Research on Major Companies forming part of Listed and Unlisted Segments

For Further Details Contact: Mobile No: 09959010555

E-mail: [email protected] [email protected] www.firstcallresearch.com