* Net profit up 54% YoY: Torrent Pharma reported 2Q10 net profit of
Rs740mn up 54% YoY, above our expectation at Rs592mn. This
increase in profits was partly due to higher other operating income and
improvement in margins. The other operating income at Rs250mn
includes dossier income and DEPB benefits. EBITDA margins (excluding
other operating income) at 20% were up c.550bps YoY and 300bps
QoQ. Sales at Rs4.65bn were in line with expectation at Rs4.68bn, up
16% YoY on back of growth in domestic and emerging markets.
* Brazil growth muted, rest of regions in-line: Brazil at Rs870mn
was up 2% YoY against our expectation of 12% growth largely due to
price reductions taken in certain molecules in last 6M. Overall, such
cuts led to a 8% decline in sales, which was offset by 6% volume
growth, 2% contribution of new products and 3% price growth leading
to local currency growth of 3%. This compared to 11% volume growth
in 1Q10 and 8-9% local currency growth. India formulations grew inline
15% YoY. The company continues to maintain high margins on
back of healthy product mix and lower input costs. Heumann at
Rs610mn was up 9% (3% in Euro) vs. our estimate of flat sales. New
products contributed 10% and existing products grew 6% in volumes.
35% of products have completed site-transfers helping improvement in
gross margins. The company has been growing above industry in
covered market. ROW sales grew a solid 42% YoY (30% in constant
currency term) with stable margins. Europe/US sales were in-line.
Russia declined 30% YoY with company booking Rs40m loss due to bad
debts. Contract manufacturing was up 36% YoY to Rs488mn.
* Margin improvement encouraging: While staff costs grew 16% YoY,
raw materials/sales declined. Other expenses were curtailed partly due
to forex loss of Rs100m in 2Q09 vs. Rs10m in 2Q10.
* Maintain Buy: We broadly maintain estimates for FY10-12. Target of
Rs410 is after rolling forward to Dec-10, maintaining PE multiple of
10x.
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