Growth in India is crucial for the health of Torrent Pharma despite a sharp drop in volume


Torrent Pharma had corrected 21% from its February highs, before recovering the lost ground in the past two weeks. One of the main concerns of the street has been its growth in interior volume over the past year, regulatory concerns and assessments.

After its January figures, analysts at Emmay Global highlighted the downward trend in volumes. “Torrent Pharma has now experienced the fifth consecutive month of volume decline (9% in January 2020). Although the company has managed to take price increases, we believe that it is not sustainable in the long term. "

Praful Bora and Rajat Srivastava from the brokerage believe that the company's main brands – Shelcal and Losar H – continue to experience a sharp drop in volume.

However, the company – which derives the majority of its revenue from chronic therapies – posted growth of 17% in February, surpassing the 12% growth in the pharmaceutical market.

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This development is largely due to the rise in prices, up 8 to 9%. It will be interesting to see if the company is able to support domestic growth, given that it is the largest market, accounting for around 44% of revenues.

One of the main concerns on the street is the resolution of regulatory issues at the Dahej and Indrad facilities, which will allow it to launch its high value products in the United States.

Analysts say activity in the U.S. (about one-fifth of sales) may decline with U.S. FDA warning letter on Indrad / Levittown facility, as well as official action against the plant from Dahej. While a re-inspection of Dahej is planned for the middle of the 20th century and for Indrad by the end of the 20th century, any negative outcome of these would be negative for society.

The appraisals are also in the expensive area. At its current price, the stock is trading at 33 times its one-year forward earnings forecast, compared to its five-year average of 23 times.

Motilal Oswal Financial Services analysts say the company's premium ratings are largely tied to its domestic operations, where price-driven growth is not expected to continue.

Additionally, with most of the margin gains from the Unichem acquisition being factored in, there may not be more gains in this regard.

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