Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '25 Earnings Conference Call of Torrent Pharma Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhir Menon, Chief Financial Officer and Executive Director of Finance. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to the first quarter earnings call for FY '25. We continue to see strong performance in our branded market. Our 2 largest branded markets, India and Brazil, both have done well. Brazil, while secondary sales continue to grow in double digits, primary sales got impacted this quarter due to flood in one of the provinces. And therefore, quarter 2 should normalize this impact. The second impact, which Brazil had was on the currency depreciation of around 5% for this quarter. On the generic side, Germany continues to grow well. U.S. on a rolling quarter basis is consistent, while it has registered a degrowth due to a high base last year. In terms of the key financial performance indicators, we have a revenue of INR 2,859 crores, up by 10%. The operating EBITDA is up by 14% Y-o-Y. Other expenses include one-off of INR 20 crores. And adjusted for this, the underlying operating margins are INR 924 crores and the EBITDA margins are at 32.3%. The overall leverage, which is the net debt to EBITDA, now stands at 0.65. I'll now hand over the call to Aman for India business.

Thanks, Sudhir. India revenues at INR 1,635 crores registered a growth of 15%. As per the AIOCD secondary market data, the IPM growth for the quarter stands at 8% Torrent's chronic business grew at 14% versus the IPM's chronic business growth of 8%, driven by strong revival in our cardiac divisions and continued traction in anti-diabetes new launches. Torrent has entered into a nonexclusive licensing agreement with Takeda and has commercialized Vonoprazan during the quarter. Our brand [ CAB-V ] of Vonoprazan was the first licensed product to be launched in the market and is ranked #1 as of June 2024, based on the AIOCD [ data set ] . The initial response of the molecule seems quite promising. This marks our third licensing deal in the recent quarters, and we continue to scout for similar opportunities, which can bring more novel treatments to the Indian market. Field force strength at the end of the quarter stands at 5,700. We continue to see PCPM improvements in recently expanded divisions. Overall, PCPM for the India business during the quarter stands at 9.4 lakhs, and we are confident of crossing the 10 lakh PCPM mark once again in the next year. At the end of quarter, Torrent has 20 brands in the top 500 of the IPM, with 18 brands more than INR 100 crores sales as of MAT June 2024. We expect the India business to continue outperforming the market growth. Our focus during the year will remain on improving our market share in chronic therapies, new launches, improving field force productivity in expanded divisions and regions and continuing the scale-up of the Consumer Health portfolio. I will now have to Mr. Sanjay Gupta for the International business.

Thanks, Aman. We will start with our branded generics market of Brazil. As per IQVIA, market growth was at 11% for Q1. Secondary, sales growth for Torrent was at 12%. Based on internal sales, Q1 constant currency revenue was BRL 123 million, registering an 8% year-on-year growth. We would be launching 5 products during the rest of the year. Going forward, we intend to maintain about 3 to 6 launches per year. And currently, we have 19 molecules waiting for ANVISA approval. In Germany, constant constancy revenue were EUR 32 million, up by 9%. During the quarter, we won incremental new tenders, which will start delivering incremental sales from Q3 and Q4 of '24, '25. For the last 5 quarters, we have increased our overall value of wins in tenders. This is, in large part, due to cost optimization efforts, which has led to increased competitiveness in the tender segment. Our overall share of the German generic market is increasing steadily quarter-on-quarter and currently stands at 6.1% for the quarter, with Torrent ranked #5 in Germany in the overall generics business. In the U.S., we registered constant currency revenues of USD 31 million, down by 13%. Adjusted for one-off income in Q1 of the previous year, constant currency de-growth is 9%. Sequentially, U.S. business delivered stable revenue, backed by new contracts. During the quarter, U.S. FDA inspected our manufacturing facility at Indrad. And at the end of the inspection, we got a Form 483 with 5 observations. Torrent has responded to the U.S. FDA within the stipulated time, and we expect to hear back from the FDA in the next 90 days. I would like to conclude by stating that our focus will remain on deepening our presence in the branded generic markets of Brazil, Mexico, et cetera, while continuing to grow in Germany and returning to profitable growth in the U.S. Yousuf, we can open the call to questions now, please.

[Operator Instructions] First question is from the line of Neha Manpuria from Bank of America.

Aman, my first question is on the India business. We saw 15% growth in this quarter, which seems pretty strong, given we already have Curatio in the base. Could you give us some color on how we should assume growth for the India business? Is this growth rate stable? And also, any color that you can give us on the Curatio asset that now it has been fully integrated, what's the traction that we are seeing there?

Yes. So the breakup of the 15% growth roughly based on the AIOCD data for the quarter is 2.5% volume, 8.5% price and 4% new products. This is all fully organic driven because Curatio is in the base. The Curatio business grew at 19% during the quarter. So it's seeing continued high-growth traction in almost all the top brands. In terms of margins of the Curatio business, also, we see consistent improvement now quarter-on-quarter. So in terms of acquisition integration, I believe we are on track or even slightly ahead of where we anticipate it to be as the growth momentum should continue. Going ahead, depending on how the market growth plays out, 15% was a Q1 growth, but I think somewhere between 13% or low-teens growth for the rest of the year should be doable.

Understood. That's helpful. And Sudhir, on the margins, gross margin expansion, again this quarter, was pretty significant, if I look at it from a quarter-to-quarter, year-on-year perspective. How much of this is sustainable? Is that -- is this the level we should be able to maintain? I understand there's some mix benefit because of higher India growth this quarter. And also, if you could give us some color on what the INR 20 crore one-off was related to?

Yes. So I think from a gross margin perspective, Neha, last year, if you look quarter-on-quarter, it was between 74.5 to 75, which I believe is something which should be sustainable. So 75 should definitely be sustainable, right? The additional 0.7 which we got in this quarter, probably because India has done much better and the branded segments have done better than the generic segment, possibly attributable to that. But I think definitely, 75 is something that should be possible for the full year, is what I believe. The INR 20 crores one-off expenses pertains to one of the potential international opportunities, which we were evaluating and finally didn't materialize,actually. So that's the expenses which [ pertains to quarter 1 ].

Okay. Got it. And sorry, if I may squeeze in one more. I know I might sound like a broken tape here, Sudhir. But, capital allocation, how should we think about it?

I think the way you should look it, Neha, is that FY '26, I think I should be net cash, right? And therefore, whatever EBITDA generation or cash flow generation is happening, that would await capital allocation to be done, right? And I think acquisitions have been an integral part of our growth story. And that's something which we will continue to pursue as long as we believe that it's going to create a long-term shareholder value.

And given that you mentioned we -- there was an international opportunity that we were pursuing, it's fair to assume that we are also open looking at larger deals outside of India? And which focus markets would these be in then?

Yes. I mean, if it's a good asset, Neha, definitely, yes. But provided everything fits into the international framework which we follow, right, in terms of creating value.

[Operator Instructions] Next question is from the line of Damayanti Kerai from HSBC.

My first question is on the U.S. business. So quarter-on-quarter, it's broadly stable. So just wanted to understand how supplies from Dahej plant is picking up? Because Indrad is yet to clear. So I assume when we got clearance for Dahej, there was expectation of better pickup to happen here. So some color on the U.S. business, please.

Correct. So -- and I see the supplies from both Indrad and Dahej have been stable, right, because our current business was not impacted by any of the FDA actions. So what we are seeing now is a lot of [ site ] transfers are getting approved from Dahej. So gradually, the products which we were made at Indrad are now being made at Dahej. So the volumes have remained about 4 billion pills a year. And the mix is changing with Indrad coming down and Dahej ramping up appropriately.

So are we expecting like run rate to pick up slightly better than what is the trend in the last 2 quarters or so?

No, that will depend upon new approvals, right? So we are expecting some new approvals to start coming in, hopefully, also from Indrad. We have some good filings from Indrad, which are still left in our portfolio. So as soon as the approvals start coming in, that will lead to a change in the base of business. It's not really linked to supply -- we don't have supply constraints in terms of capacity constraints.

Sure. And you mentioned one of the objectives for this year is to grow profitability of U.S. business. So right now, it's profitable or like it's a loss-making segment?

I'll let Sudhir answer that. Sudhir?

Can you repeat the question, Damayanti?

I was asking one of the objectives, which you mentioned in your opening remarks, is improving profitability of the U.S. business. So currently, I just want to understand whether it's profitable or it's a loss-making segment.

So pre-R&D expenses, we have breakeven -- kind of a breakeven for the U.S. business. And that's what Sanjay was implying that we want to move towards a profitable path, as far as U.S. is concerned, post-R&D.

Sure. And my second question on India business. So on the Consumer Health segment, if you can just talk about the progress in key brands. And what kind of marketing and promotional expenses you intend to incur for the brands there?

So the key brand, which is Shelcal-500, has grown at 17% for the quarter. And again, this may not entirely reflect in the external data sets, given that it has a different set of [ stocks ]. So this is the internal number of the Consumer plus Rx growth of the brand. We think high-teens growth looks sustainable in the next few quarters. We are continuing our base level of advertising spends and retail activation. The overall spends this year in Consumer are slightly higher than last year. So I think -- but what's there in this quarter should remain similar in the upcoming quarters in terms of percentage of spends.

Okay. So A&P will broadly remain at the current quarter level, going ahead? And then, you intend to go like top line by better engagement, et cetera?

That's right. Broadly similar. Based on seasonality for some products, there may be some higher spends by INR 5 crores to INR 7 crores in a quarter, for example, but that shouldn't be too material. Broadly, what's captured right now is the rest of the year A&P spends.

Okay. And Consumer is what percentage of India business right now, in terms of value contribution?

So we had mentioned last time also that we don't look at this separately in terms of contribution to sales because it's part of the Rx business and Consumer. So we look at the spends separately, but the overall top line is seen as one business together. This is essentially capturing Shelcal, Tedibar, Ahaglow and Unienzyme, which are the 4 key brands. Shelcal-500 is somewhere in the vicinity of INR 300 crores, Unienzyme is about INR 150 crores. Tedibar is close to INR 140 crores, INR 150 crores. And Ahaglow is about INR 80-odd crores. This is the kind of broad base that we have. We are looking at maybe adding one more product towards the end of the year as well to this.

[Operator Instructions] Next question is from the line of Tushar M. from Motilal Oswal.

Am I audible? Sir, just on the Germany business, if you could -- while already highlighted in the comments that you would pick up in the coming quarters. But broadly, what kind of sort of growth for FY '25 one should think about for Germany business?

So Germany is, usually, in the range of mid- to high single digits. So if we keep winning tenders, it will be towards the high single-digit growth rate.

And also on Brazil, while I missed the opening remarks, wherein the floods have impacted, say, Q1. But let's say, on a full-year basis, how to think about the growth, given that we have a good number of launches plus an interesting launch, in 2Q of FY '25?

So Brazil, in previous calls also, we've highlighted that the long-term trend is similar to what we see in IQVIA. So if [ timely ] sales tend to be lumpy, depending upon issues that crop up from time to time, channel inventory, et cetera, but over a period of 2, 3, 4 quarters, we've seen that Brazil has always grown in line with IQVIA trends. And currently, IQVIA is showing us MAT and a quarter growth of about 12% for Torrent. So I would say that this is a good indicator of where we are with our business currently. So I would say between 12%, 13% is the underlying growth rate for our Brazilian business.

[Operator Instructions] Next question is from the line of Saion Mukherjee from Nomura Securities.

Just one question on the acquisition. So if you're looking at international markets, are this -- are you interested in new markets? Are you looking at branded piece like what yo have in Brazil? Or you would be interested in generics and some sort of technology acquisition? What are the areas that would interest you at this point?

In branded, definitely, yes, right? I mean -- but we're not restricting looking at assets with only branded focus. If there are some good assets, which are even in the generic segment, it's something which we would look at and then decide whether we want to go that way or not. But branded, definitely, is the priority.

Okay. And would that be in the markets you already have presence, like Brazil, Mexico? Or you could look at completely new markets, where you would sort of set your base?

Yes, I mean a combination of both, right? I mean, new market, definitely, yes. And even within the existing market, if there are entry possibilities in terms of the other therapies where I'm not present, that's something which is also open to [ perceive ].

Okay. The next question would be to Sanjay. Sanjay, I mean, I think a few quarters back, you mentioned U.S. business, once the facilities are cleared, ramping up to 250 million or 200 million kind of an annualized revenue in 2 years or so. How do you assess that at this point? Do you think that's still achievable?

So honestly, it depends upon the ANDA approvals that we get, right? So far, we've seen the first wave of approvals from the [indiscernible] come in, but they have been more on the site transfer approval rather than new ANDA approvals. So I think I was expecting about 7 to 8 approvals this year, most of them in the next 3 quarters. So depending upon how it goes, we have a couple of expectation as for a couple of oncology approvals, some approvals, which could have an upside in terms of lesser competition. So that will drive the sales growth. So I would still expect between 5 to 10 approvals this year that would propel us forward. And next year onwards, it should be a higher rate.

And the limited competition opportunities you expect in this fiscal or next fiscal?

I would expect in this fiscal. But again, you don't have it until you have it, right? So there are other people also trying for the similar opportunities. So we'll see who comes out ahead.

Okay. Good. And just one last question. Can you share your R&D number? And also, what's the expectation? Or what is it that you are factoring in as a full-year spend?

So currently -- so it's around 5%. And I don't think it's going to be materially different for the full year. So I think 5% is a number for this year.

[Operator Instructions] Next question is from the line of Sumit Gupta from Centrum Broking.

Sir, in the domestic market, what is the MR count currently? And by FY '25, how much do you plan to take it to?

The MR number in Q1 was 5,700. And we had mentioned last quarter that we expect maybe 300 to 400 reps addition by the end of the year.

And sir, second question is on the tax rate. So you still maintain 25% tax rate for the FY '25?

No, FY '25 should be around 30%, the same as quarter 1. And maybe from second year -- I mean, from next year, I should start getting into the new tax regime from India perspective. So overall tax could be around 26%, 27%.

[Operator Instructions] Next question is from the line of Vibha Ravi from Citeline.

Am I audible? So I just wanted to know what is the acquisition strategy going to be going forward? Whether the company will be looking at brands via slump sale? Or is it also looking at stake acquisitions from, say, promoters or from [ PE ] firms?

I think it's a very complex question. I think all along what we've done, the acquisitions which we have done are either a business transfer through slump sale and company acquisition, which was the recent one, right, Curatio, which we did. So all combinations are open, I would say. I think thinking would be more in getting 100% stake or whatever we plan to acquire.

Next question is from the line of Bansi Desai from JPMorgan.

My first question is on Indrad. We did see observations, and a couple of them were repeat in nature. So how should we think of resolution time frame for this particular plant of ours?

We would expect a response in the October time frame from the FDA. And we think there's a high likelihood that the FDA would approve the plan and the plan would be VAI or NAI. But we'll still like to wait and see because there were 5 observations, and so we cannot be sure that will be 100%.