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  • Nov 3, 2016 - Torrent: Pricing Pressures in US Market Impacts Performance

Torrent: Pricing Pressures in US Market Impacts Performance
Nov 3, 2016

Torrent Pharmaceuticals has announced its September quarter (2QFY16) results. The company has reported a decline of 15.1% YoY in sales and 59.3% YoY decrease in net profits. Here is our analysis of the results.

Performance summary
  • Topline declined by 15.1% YoY during the quarter. This was largely due to pricing pressure in the key drug (Abilify). Since April 2016, four new players entered the market leading to sharp erosion in the pricing. The US sales for the quarter decreased by 55% YoY for the quarter. The company's market share in some other drugs also impacted growth. India business witnessed growth of 12% YoY. In the near-term domestic growth is likely to remain modest as company continues to move away from promotional sales. Brazil which is another important geography for Torrent continues to face headwinds. Tender business that forms around 12-14% of Brazil business declined 20%. On the other hand, its trade business was impacted by 2-3%. Despite this, Brazil grew 8% on constant currency terms as the company could take price increase in its branded portfolio. This helped to prop up growth in this market.
  • Strain in the US business severely impacted its operating performance too. Operating margins declined to 23.1% during 2QFY17 from 42.4% in 2QFY16.
  • Owing to poor operational performance, the bottomline too plunged by 59.3% YoY.

    Financial Performance : A snapshot
    (Rs m) 2QFY16 2QFY17 Change 1HFY15 1HFY16 Change
    Net sales 16,570 14,060 -15.1% 35,450 29,190 -17.7%
    Other operating income 360 230 970 610
    Expenditure 9,760 10,990 12.6% 20,130 22,130 9.9%
    Operating profit (EBDITA) 7,170 3,300 -54.0% 16,290 7,670 -52.9%
    EBDITA margin (%) 42.4% 23.1% 44.7% 25.7%
    Other income 710 430 -39.4% 1,460 690 -52.7%
    Interest (net) 480 510 1,030 1,000 -2.9%
    Depreciation 590 690 16.9% 1,160 1,370 18.1%
    Profit before tax 6,810 2,530 -62.8% 15,560 5,990 -61.5%
    Tax 1,720 460 -73.3% 3,970 1,000 -74.8%
    Profit after tax/(loss) 5,090 2,070 -59.3% 11,590 4,990 -56.9%
    Net profit margin (%) 30.7% 14.7% 32.7% 17.1%
    No. of shares (m) 171
    Diluted earnings per share (Rs) 29
    Price to earnings ratio (x)* 23.10

    *based on trailing 12 months earnings


    Consolidated Business snapshot
    (Rs m) 2QFY16 2QFY17 Change 1HFY15 1HFY16 Change
    India 4,420 4,960 12.2% 9,330 10,000 7.2%
    % Sales
    Exports 11,100 7,910 -28.7% 24,060 16,990 -29.4%
    % Sales
    Contract Manufacturing 1,410 1,420 0.7% 3,030 2,800 -7.6%
    % Sales
    Total 16,929 14,290 -15.6% 36,419 29,790 -18.2%
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