Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY '25 Earnings Conference Call of Torrent Pharma. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhir Menon, Executive Director, Finance and CFO. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to the fourth quarter earnings call for FY '25. We continue to see strong performance in our branded markets, which accounted for 73% of the overall revenue this quarter. India business growth for quarter 4 is 12%. Brazil, our constant currency growth for the quarter is 5%. There was a channel destocking in quarter 4 due to an expectation of low price increase for '25, '26, which has impacted sales for quarter 4. The Brazilian real depreciation for the quarter was 11%. On the generic side, the U.S. business grew at 15% and Germany grew at 2%. We continue to win incremental tenders in Germany, which should help us deliver high single-digit growth for the future quarters. Financial highlights for quarter 4. Revenues were INR 2,959 crores, up by 8% year-on-year. Operating EBITDA was INR 964 crores, up by 9% Y-o-Y. And operating EBITDA margin stands at 32.6%. There was a onetime impact during quarter 4 of INR 17 crores on gross margins. This was on account of inventory revaluation of an in-license product, which went off patent. Adjusted for the same, the underlying operating EBITDA growth for the quarter is 11%, with operating EBITDA margin at 33.1%. The overall leverage, which is net debt to EBITDA, now stands at 0.62. The Board has recommended a final dividend of INR 6 per equity share. I now hand over the call to Aman for India business.

Thanks, Sudhir. India revenue at INR 1,545 crores grew at 12%. As per the AIOCD secondary market data, the IPM growth for the quarter was 8%. Torrent's chronic business grew at 14% versus the IPM growth of 9%, driven by outperformance in cardiac, diabetes, gastro, CNS and dermatology divisions. Cardiac, which is our largest contributor, has grown by 15% during the quarter versus the market growth rate of 10%, due to the restructuring that was undertaken last year, along with divisional expansion. We continue to see positive traction in our Consumer Health business, particularly in the Curatio brands. On a MAT basis, Torrent has 21 brands in the top 500 of the IPM, with 14 brands more than INR 100 crores sales as of MAT March 2025. Field force strength at the end of the quarter stands at 6,400 compared to 6,200 in the previous quarter. We are encouraged by the performance in the recently expanded divisions and headquarters. We believe the expansion will help us provide a platform for new launches and also increase our territorial reach and help gain a regional market share in previously untapped areas. In the upcoming financial year, we expect the India business to continue outperforming the market growth. And our focus on -- during -- in the upcoming year will remain on improving market share in the expanded areas and headquarters and improving the new launch performance. I'll now hand over to Mr. Sanjay Gupta for the International business.

Thank you, Aman. We will start with our branded generics market of Brazil. As -- based on internal sales, Q4 constant currency revenue was BRL 234 million, registering a 5% year-on-year growth. As per IQVIA, market growth was 7% for Q4. Secondary, sales for Torrent as per IQVIA also grew by 13%. We filed a lot of products during Q4. And as of today, we have 63 molecules filed and waiting for ANVISA approval. Moving on to Germany, our German business has registered a constant currency revenue of EUR 31 million, up by 1%. During the quarter, we won incremental new tenders, which will start delivering incremental sales from Q3 of '25, '26. For the last quarters, in each quarter, we have increased overall our value of wins in tenders. In the U.S., we have registered constant currency revenues of 35 million, up by 10%. Growth is essentially coming from enhanced volume of purchases by customers under existing contracts. I would like to conclude here and open the call up for questions.

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

My first question is on the insulin business. So if you can share the revenues, have you seen improvement in 4Q? And in the backdrop of innovator deciding to discontinue sales, how should we think about the impact for fiscal '26, both on top line and margins?

Saion, quarter 4, we did INR 75 crores of insulin business. And -- what was your second question, Saion, if you could just repeat?

How this is going to shape up for next year?

It should more or less remain at the same level, which is a quarterly run rate of 75.

Okay. So the Novo's decision to discontinue doesn't impact your business?

No, it doesn't impact because we manufacture vials for them, and they have discontinued [ pens ], I would say.

Understood. And my second question was on semaglutide. Have we made the filings in Brazil? And do we expect to be there on day 1?

So I prefer not commenting about individual product strategies. We think we -- actually, we -- the approval for this product would not be so straightforward. So it's hard to predict as to when we would be on the market. So I would refrain from making predictions about Torrent and about our peers.

Understood. But what about India? Are we ready for day 1 launch in India?

Yes. India, first wave is looking likely at the moment for both the injectable and the oral.

And oral also, you expect to launch in March next year or it will be sometime later?

So the exact date is not certain, but it would most likely be in the first wave of any generic launch.

The next question is from the line of Damayanti Kerai from HSBC.

My question is on Brazil segment. So in view of this channel destocking, how should we look at the segment growth for FY '26? And I think the currency issues remain. So overall, what kind of impact we can see on the overall EBITDA margin?

So I'll speak about the top line in local currency, and maybe Sudhir will answer the question on the currency and the EBITDA margin impact. So on a like-to-like on a constant currency basis, we expect the business to grow in double digit, so in the range of 10% to 12%, in line -- a few percentage points higher than the market. So the last 2 years, we've seen the market grow at about 9%. So we expect to be higher than that by 2 to 3 percentage points. Sudhir?

Yes. And Damayanti, I think if you look at quarter 4, the BRL has appreciated by 5%. So quarter 3, the depreciation was 17%; quarter 4, it has come down to 11%. We should see some improvements happening for the next year. Having said that, Brazil contributing only 10% of my overall revenue, the impact is not that significant on the bottom line. There will be some impact, but it's not significant.

Okay. That's good to hear. My second question on India business. So again, if you can bifurcate growth between volume, price and new launches. And you have been maintaining obviously above-market growth consistently. But at current level, do you have like more visibility on, say, more synergies from Curatio? Or what will be sustaining this above-market growth for India in coming quarters? And just I think on the operating margin part, should we assume 32% EBITDA margin is something which you will sustain in near term?

So the breakup of India business, our reported growth is 12%, and the reflection in AIOCD for the quarter is 14%. The breakup of that 14% is 4% volume against 0.2% of the market, 7.4% price versus 5.3% price growth of the market and 2.3% new products versus 2.3% of the market new products. In terms of Curatio, I think, yes, the revenue growth has been quite accelerated, I would say, over the last couple of quarters. This full year, I think the Curatio portfolio has grown around 18% or 19%. It's become, I would say, relatively sizable in the total India business now. And we believe that the upcoming year at least, our ambition is that the growth should be potentially higher than the previous year as well. We're seeing pretty good traction in all the investments that have been made. And the territorial expansion where there was not enough presence before, They're all giving us pretty good results, and we continue to reinvest in those brands, in those divisions. So overall, I think Curatio portfolio should continue accelerating the overall India business growth profile as well.

And Damayanti, on the margin story, I think we'll wait for quarter 1. And then probably directionally, we can guide you.

Okay. Okay. And just a clarification on Curatio, as Aman mentioned, you still see a lot of room to even expand from hereon, and that should be one of the key drivers in drivers for India business in the coming quarters?

That's right. That's right.

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

My first question is on the U.S. business. Sanjay, on the -- you mentioned that the growth so far has come from volume growth in existing contracts. When should we start seeing traction in new launches now that the facility is cleared? And should we assume a step-up in U.S. in fiscal '26?

So I think it will be -- we have launches from the product that we filed a few years ago. So there would be, let's say, close to 5 to 10 launches each year. But the value of those launches is a little bit not so high because of the delay that we've had in getting approvals for the ANDAs. But as we ramp up launches of new ANDAs, which were filed in the last 2 years, you would see that. So I would expect not much impact this year, more impact next year and even higher impact in the year afterwards.

Okay. So FY '27 is probably when you'd see a better traction?

Correct.

Understood. And then my second question, Sudhir, usually, we mention that we should be able to grow margins by 75 to 100 basis points of -- historically. Any reason for reserving the guidance this time around, given that U.S. would improve, you're talking about double-digit growth in Brazil and India continues to do well?

No, nothing of that sort, Neha. Usually, end of quarter 4, I try and avoid giving any guidance. And then quarter -- based on quarter 1 results, it's more clearer where we are heading for. But you're right, actually, given the branded business contribution which we have and that 2 or 3 levers playing out every year for us, there needs to be an improvement coming in. The only additional thing I would like to guide you is that there's some increase which we believe will happen on the R&D side, not significant, but against 5, maybe moving towards 5.4 kind of a number. So that's something additionally, which will play out next year. And therefore, my comment that let's wait for quarter 1, so that directionally, I can tell you for the full year what kind of EBITDA margin improvement can happen.

The next question is from the line of Tushar Manudhane from Motilal Oswal.

Sir, just with respect to this semaglutide business prospects, I would like to understand that in terms of like many companies are gearing up for, let's say, launching in first wave. From availability of a product perspective, from a manufacturing perspective, you think it's a constraint? Or we got to tie up with specific select companies or there are multiple suppliers available for this product?

No. As far as we are concerned, we have secured supply for the launch. For the injectable, as mentioned, it's a partnered product. And the in-house -- I mean the oral product, they will be in-house developed, where we have adequate capacity. So we don't see any constraint.

And even for selecting a partner like as far as Torrent's tie-up is concerned, just to understand, were there multiple suppliers or vendors available and so choosing a partner? Or the number of partners related to other products, let's say, when you sort of think about launching in India market, this had a limited number of suppliers?

So the best way to judge this is by looking at how many companies are working on the clinical trial of the product, which is publicly available information. Now judging by that number, it's looking like there will be multiple players coming into the market for sure. Its just a question of when that trial is completed and when their entry into the market is approved. So depending on whoever is the first wave, that could depend -- I mean that could define a lot of the market share trajectory for most of the companies.

Understood, sir. And like further addition of MRs in FY '26, if you could guide for that number as well?

Yes. So we closed this year at 6,400. Additional expansion is already underway. So maybe by the end of Q1, we should have 200 to 300 more. And potentially for the end of the year, we may be between 6,800 to 6,900.

[Operator Instructions] The next question is from the line of Bino from Elara Capital.

There is this product [ carbamazepine ] in the U.S., I believe you're a first-to-file exclusivity holder shared, and have a settlement with the innovator. One of your competitors have already launched the product. May I know if you have launched as well?

Yes. We've launched a product and we have north of 20% market share in this product. But the generic pricing on this is not a very attractive price.

Got it. And did you launch it in Q4 or Q1 now?

We launch it on day 1, which was in Q4.

Okay. Got it. And second, I saw that you have taken an enabling resolution for rate of funds. Is that anything particular in mind?

No, there's nothing specific in mind. We do this every year. And this is a practice which we've been continuing, I think probably since last -- more than 5 years, I would say. It's only an [indiscernible] resolution, nothing specific.

The next question is from the line of Vivek Agrawal from Citigroup.

So my question is related to Brazil. If you can help us understand, sir, how many MRs or the sales force that we have at this point of time? Have you increased the number of people on ground in the last few years? And how to look, let's say, over the next 2, 3 years as far as the number of people?

Correct. So we have about 330 MRs in Brazil. And so essentially, we have added -- we had 2 teams, one team in cardio and one team in CNS. And over the last 2 years, we've added an additional team in CNS. So now we have 2 teams doing that. Our plans for the future, right now, we don't have any plans in the short run for this year. And we'll see how the business develops, how the new products perform, and then we'll take a call. But we'll give some guidance when it comes, right? So in the future, when we are ready to add. Unlike India, like we are not that mature to add people today. We don't have plans.

Understood. And if we look at the MR productivity, right, so I don't have any clarity how the -- what kind of the product that is there in Brazil. So if you can help us understand, basically, how far you are from a normalized level of productivity in Brazil? Or is it, for example, the productivity is already optimal? How you think from that perspective?

At present, because of the recent addition of these 120 people, our productivity is below where it was before. So it's roughly BRL 200,000 per month.

Understood. And again, actually, the question is on MR, but it's from India, rights? You are saying that in this particular year, you expect to be at around 600 to 700 MR. So any particular segment where you are adding? Or is that going to be across the board?

No, it will be across a few divisions and maybe 2 different therapy areas. We're looking at maybe 400 to 500 new addition -- new MR additions this year.

And just last question, if I can squeeze in. As far as the Curatio is concerned, right, this year, the growth was quite decent and 18%, 19% kind of growth. So how far -- at what level as far as the margins are for this particular business? And do you still expect that the margins can improve from hereon in the [indiscernible]?

Yes because currently, we are still reinvesting in that business. And I would say, a reasonable kind of margin is being reinvested in the platform. Maybe next 1, 2 years, that may be required. And then over time, it should start tapering down, and that's when the margin would further likely expand. It's already come up quite a lot from the pre-acquisition level, but there is certainly scope to increase significantly from here as well.

Understood. And sir, when you talk about 6,800 to 6,900 MRs, does that include Curatio or...

Yes. That includes about 600 to 650 MRs in Curatio as well.

The next question is from the line of Dheeresh Pathak from White Oak.

The comment that you made, looks like R&D spend is going to be up like 20% or so this year. So where are you investing in R&D this year?

So there's a few territories, which are seeing an increase, including India. India, we're adding complex products, which require higher investments than the usual approvals that we have seen in the past, so that's one lever, and a few products in Brazil and some of the other territories where Sanjay can add as well.

So we've started adding complex products in the U.S., the kinds that need between $5 million to $10 million, as against what we had before, which were oral solids with -- where the range is typically $2 million per product. So there's an aspiration to go into more complex products in the U.S., which are a little bit more expensive as they require clinical trials.

Bulk of the increase is attributed to U.S in FY '26?

So it's more branded segments versus U.S., I would say.

India, Brazil, mainly a large part of it actually.

[Operator Instructions] The next question is from the line of Shrikant from Nuvama.

Two questions. First is on the domestic MR expansion. Which specific therapies have we added these MRs in last year?

So last year, we shared that we had -- most of the expansion was done in the chronic therapies and in sub-chronic, which would include gastro. And the upcoming year expansion would be within chronic as well.

Okay. And the second question is on semaglutide market in the Brazil. So can you please elaborate more the market dynamics there in terms of the current market size and the kind of competition you expect and the kind of volumes that are there?

Yes. So currently, the product has been in short supply. So the market size is -- it's kind of hard to turn down. It'd be north of $500 million, but the exact size is hard to gauge.

Okay. And once the product goes off patent, what sort of competition do you think will enter there?

So there would be, I would say, between 5 to 10 filers, but then approvals are not straightforward. So we've seen that the filers are there even in more advanced markets like the U.S., but the approvals are much lesser.

Okay. And how should we think about the price erosion once it goes off patent?

It will depend upon the number of competitors, honestly. So I think we'll wait for that comment.

The next question is from the line of Rahul Jeewani from IIFL Securities.

Yes. Sudhir, you had earlier pointed out that the insulin CMO sales, which we had lost in 2Q and 3Q, would get recouped in fourth quarter, but that doesn't seem to have played out. So do you think that, that business has got lost and hence, you are pointing to this insulin CMO sales sustaining only at INR 75 crores per quarter kind of a number going forward?

No, I think the there was some amount of destocking, which was done by the principal. And therefore, quarter 4 sales at 75, You're right. I mean, the sales should have been higher. Our expectation is some catch-up would happen in quarter 1 and quarter 2, what was not there in quarter 4. But broadly, I indicated, yes, I mean, the same run rate should minimum get maintained for the current year as well. But there should be some catch-up, which is happening in quarter -- 1 quarter.

We have guided to almost INR 120 crore of sales getting recouped in quarter 4. So do you think that the same quantum will get recouped in Q1 and Q2 or the numbers could be lower now because of, let's say, whatever dynamics are playing out in the insulin market?

Rahul, I have actually not taken stock of what's happening for quarter 1. Maybe once we have quarter 1, I can give you directionally what kind of incremental sales will happen in insulin business.

The next question is from the line of Charul Agrawal from Bank of America.

I wanted to understand more about the Consumer Health segment. How are you thinking in terms of increasing the expense from there, basis the kind of traction that you're seeing?

Yes. So we have maintained the same number of brands that are on the platform, which right now, it's mainly 4 in a meaningful way. We continue to invest in these 4 brands. We are seeing pretty good traction across all of them in relation to the spend that's being done. I would say, out of the 4, maybe 2 brands are taking up, say, 50% to 60% of the spend or rather 60% to 70% actually, and the other two are about 30%. So overall, relative to the investments being made and the size of the relative brands, they're all seeing pretty good acceleration. The two main arrowheads being Shelcal and Tedibar.

Okay. So do we expect this spend to be at a similar level? Or can it go up significantly from here?

From the previous year's base, it would increase slightly. Not anything major, but there will be, say, a high single-digit increase.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one on the U.S. business, [ $150 million ] revenue annually, I missed if you could double click on the [ traction ] part. I thought you said fiscal '27 is going to see a much larger traction than '26. So I was a little surprised. I thought we have an imminent launch coming up for [ Entresto ] and other products. So just curious to know, why the traction comes next year, not this year?

So [ Entresto ] has been an interesting journey, actually, no pun intended. So basically, we've seen that there has been a kind of delay in the launch of generics on this product. We were anticipating the first generic 4, 5 months ago. And at present, we are anticipating a generic in the course of quarter -- July, August time frame. And then we expect multiple entrants at the same time or in a short window. So I don't think the opportunity is as big for the generic industry as it was a few months ago. We have approvals on this product. And now we would be launching as soon as possible and as soon as our settlement agreement allows us in line with the terms in that agreement. So -- but it's not -- it's going to be a multiplayer opportunity whenever it happens.

Yes. But the date is [ 15 July ], right? That's when the pediatric [indiscernible] end?

Correct. Right.

And you expect multiple players there?

You can see all the approvals on the FDA's website.

Fair enough. Fair enough. So in the sense, we did 1% growth for U.S. this year. So in fiscal '25, what's the likely guidance then for '26?

So it's -- I mean, my goal right now is to -- so I have a few opportunities to launch products. So I would say, in the coming year, I would expect to launch about between, say, 7, 8 products in some of them. So we just launched that [ ST carbamazepine ]. We just launched esomeprazole granules. So we've launched -- we've launched another one, which Is [ diclofenac ]. So we are launching -- these are smaller products, but I think in the end, if we have 7 to 8 launches, it would add up to a meaningful figure, which will help us and compensate for the price erosion as well as other things that happen in the U.S. market in terms of share loss or new competitors or things of that sort. So I would say that for the next 12 months, my goal would be some growth in the right direction without trying to quantify it.

Understood. Helpful. If I look at the balance sheet, Sudhir you just -- I think you said 0.6 net debt to EBITDA. Sorry if I got the number around. So what are the usages of cash as we look in fiscal '26, what we generate?

So I think the priority is to repay and bring down the debt, right, which I think maybe by first half of FY '27 or maybe quarter 3 of FY '27, I should be able to prepay everything and should get into net cash. So at least for FY '26, the goal is to use whatever cash flows or excess cash which is available to prepay or repay the debt, which I have on my balance sheet.

The next question is from the line of Dheeresh Pathak from WhiteOak.

Yes. So I missed that comment on Brazil that you're making. So sema, you said the market is 500 million. And do we have a filing? And when do we expect market formation?

So let me clarify. So the market was about 0.5 billion at the end of 2023. And then at the end of 2024, the [indiscernible] launched Wegovy and the market was about BRL 880 million. I'm talking real. Currently, we expect the market -- we don't have data, analyze data, but I would expect by the end of 2025, the market to be about BRL 1 billion. And that's where I would expect it to be at the end of this year, just extrapolating on the current size and the current trend that I'm seeing. We have access to the product in Brazil. So we have signed up with a partner who has the dossier, and we would be expecting an approval. But it's highly uncertain. People who have filed long ago in the U.S. or in Brazil have still not received approvals. So I don't know. It's not a straightforward product which would get approval like on day 1 of patent expiry. Hence, our reluctance to make predictions on the timing of launch on the way it would go from.

When is the market formation expected? And are we expecting to be in wave 1 or subsequent?

So my current expectation is wave 1. The only thing which I cannot tell you is how wide is the wave. Like -- so technically, it starts in 2026, right? And we would expect at least one player. So there is one company which is, I would expect, one very large Brazilian company, which has its own product, so -- and which has also filed in the U.S. So I would expect them to be close to the date of patent expiry. But it's up in the air as far as everybody else is concerned.

Would you have a sense of the market in terms of volumes? You gave me a value, BRL 1 billion. But we have within volume, like how many pens or auto-injectors or how many patients you think are there?

No, I don't actually have that data with me. So I've been monitoring the value growth. And obviously, the values correspond to it because the price is not -- prices have not evolved a whole lot in the last 2, 3 years. But yes, we can provide you with that data, if you're interested. Our Investor Relations group is happy to provide that.

As there are no further questions, I would now like to hand the conference over to Mr. Sanjay Gupta for his closing comments.

Thank you very much for your interest in Torrent. We conclude today's call here. And we hope to speak to you soon. Thank you. Bye-bye.

On behalf of Torrent Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.