Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 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, Executive Director of Finance and CFO. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to quarter 1 FY '27 earnings call of Torrent Pharma. Consolidated revenues were INR 4,921 crores, up by 55%, while operating EBITDA at INR 1,664 crores was up by 61%. Operating EBITDA for the quarter stood at 33.8%. The merger of JB with Torrent Pharma has been completed with effect from 8th of July, appointed date being 21st January 2026. During the quarter, the underlying JB business reported revenues of INR 1,201 crores, up by 10% Y-o-Y with operating EBITDA of INR 424 crores and EBITDA margin of 35.3%, registering an improvement of more than 6%. JB India branded business grew at 13% for the quarter. International business grew by 12%. Foreign base business revenue grew by 17% for the quarter. Operating EBITDA for the quarter was INR 1,240 crores, up 20%, with margins now at 33.3%. India business reported strong growth of 19%, while Brazil revenues grew up by 27%. On the generic business side, U.S. business grew by 36%, which includes certain onetime opportunities, while Germany revenues were up by 3%. Leverage, that is, net debt to EBITDA, stands at 2.07x considering underlying EBITDA of the combined company. I will now hand over the call to Aman for update on India business.

Thanks, Sudhir. I'll actually first start with JB. Following the operational reset executed in Q4, we have seen a healthy recovery in business performance during Q1 FY '27 with the India Rx business growing at 13% and the international business, including CDMO growing at 12%. The overall business integration is progressing well with policies and practices now largely aligned with that of the base business in all territories. With the completion of the merger process in July, we have now already initiated the next set of integration activities. While this will not have an impact anything close to what was seen in Q4, there could be a minor and transient impact in revenues in some territories until the integration is completed over the next 2 to 3 quarters. For instance, we have started merging certain brands and divisions in the India business from JB to Torrent post the merger. Usually, this process takes a few months to complete, after which the sales trajectory returns back to normal if executed well. In the international business, we are evaluating portfolio rationalization in certain territories of lower margin and lower priority products, similar conceptually to what we did with the India Trade Generics business in order to help enable further network optimization. We believe for the full year FY '27, double-digit revenue growth for JB's India Rx business should still be possible given the robust underlying trends seen in Q1 of an uninterrupted quarter, and the international business should also recover post the changes implemented. The JB CDMO business continues to do well, and there is no further integration involved here. Consequently, we believe that high single-digit to low double-digit constant currency growth for the full year should be possible. Overall, cost synergy realizations are tracking ahead of plan and the realization should further increase quarter-on-quarter from here, which should help offset any potential revenue weakness that we may see due to the explained reasons, and hence, there should not be any impact at the EBITDA level for the JB business for this year. Most importantly, I would like to highlight that we have not cut any essential costs whatsoever that can hinder business growth. Moving on to the Base business. Torrent's India base business revenues for Q1 were INR 2,157 crores, registering a growth of 19% versus the IPM growth of 12% as per the AIOCD PharmaTrac dataset. The high growth was delivered as a result of an overall increase in IPM growth, new launch performance and volume growth acceleration from field force expansion. The Curatio business continued its strong growth trajectory, growing at 34% in Q1, driven by OTC ad spends and field force expansion. We are undertaking further field force expansion in the Curatio business in this financial year, given the positive outcome. We are hopeful that the business should continue with a similar high growth trajectory for the rest of the year. On the chronic front, Torrent continues its market outperformance and has achieved a significant milestone in the cardiac segment as Torrent with JB now ranks first in the cardiac market. The cardiac market is the largest and amongst the fastest-growing markets in the IPM. Our combined field force strength at the end of Q1 was 9,400, with base business strength at 7,200 and JB strength at 2,200. The combined PCPM stands at just over INR 10 lakhs with scope for further improvement from here on as well. JB's field force attrition is now down to 16% in the month of June compared to nearly 30% pre-acquisition. On semaglutide, following the strong start, our semaglutide franchise in India recorded Q1 market share of 36% for the oral and injectable combined as per the PharmaTrac dataset. Even with one more competitor entering the oral market, we were able to hold on to 94% market share in the month of June. The recent unforeseen supply-related issue with our manufacturing partner for the injectable product is an unfortunate temporary setback. However, we have already secured an alternate supply source for the product and are hopeful that all Semalix SKUs should be back in the market by the end of August. While there will be loss of sales from these SKUs in July and most of August, we remain hopeful that we should be able to recover our market share quickly due to the early established brand equity. Further, this has no impact on our oral brands or the reusable SKU. With INR 50 crores of combined sales registered in Q1, we were well on track to achieve our INR 250 crore target for the year in absence of the supply issue. And while this setback will affect our near-term sales, we believe it should not materially derail the overall leadership trajectory of the brand for the rest of the year. We would, however, like to wait for one more quarter to provide a revised objective for the franchise after observing the recovery trajectory. Going forward, we expect our overall India Base business to continue outperforming the market growth. Our focus during FY '27 will be to continue improving our market share in focused therapies, improving field force productivity in the expanded divisions and continued scaling up of the Curatio business. I'll now hand over to Mr. Sanjay Gupta for update on the international business.

Thank you, Aman. We will start with our branded generics market of Brazil. Based on internal sales, Q1 constant currency revenues were at BRL 147 million, registering a 3% year-on-year growth. IQVIA data show Q1 market growth at 4% with Torrent growing at 19%. This was aided by the strong performance of top brands and recent launches, primarily rosuvastatin and azithromycin. The generics division of Torrent Brazil is also contributing to strong growth and represents about 22% of sales in this quarter. During the quarter, we undertook a onetime channel inventory reduction in response to channel requests for extended credit period amid rising interest rate costs, which led to a primary sale which is inferior to the growth of our secondary sales. Secondary sales continue to reflect underlying demand momentum as reflected in the IQVIA data. In the U.S., we registered constant currency revenues of $44 million, up by 23%. Growth is coming from our new launches where we have achieved our target market share as well as certain onetime opportunities. In Germany, our business registered a constant currency revenue of EUR 29 million, down by 9%. The growth continued to be impacted by supply disruption at third-party suppliers and lower tender offtake during the quarter. With that, I would like to conclude the opening comments and open the call up for questions.

[Operator Instructions] The first question is from Kunal Dhamesha from Macquarie.

Congratulations on a good set of numbers. First one on the profitability of JB Pharma business, which is coming out to be exceptionally strong. So is it largely the function of the cost synergies that we were envisaging -- or there is some -- let's say, because the CDMO business is up meaningfully, there is some operating leverage also kicking in. And from a full year perspective, how should this 35% plus number look like for JB Pharma?

Yes, I would say the margin improvement is largely because of the cost synergies being implemented sooner than expected. Maybe a minor part of it could be because of the operating leverage, but it's largely because of the cost synergies. And sorry, for the rest of the year, I think margins from here because the steps that we took for the cost synergy realization, they were started in Q4, continued in Q1. So this is just the beginning of the realization that's happening. So I think every quarter, there should be some incremental improvement. I can't comment on how much because we're also reinvesting some part of it into the business in each territory. But certainly, the margin trajectory should improve from here.

Sure. And sir, then, our first year synergy target of INR 90 crores, it seems that we are well tracking ahead of this target, right? So would you like to update that target for us?

We can't share what the exact number may look like. But certainly, yes, it's going to be above INR 90 crores. It's definitely going to be above INR 100 crores. But because as we mentioned, there are going to be some changes further in some territories, we don't know what the top line impact is going to be. It's not going to be significant. But as a result, we'd rather refrain from giving that exact synergy number for the year. But certainly, yes, it's much higher than the INR 90 crores.

Sure. And second question on Brazil. We mentioned that there is some channel inventory correction. And I might have missed it. Have we shared what's the exact impact in this quarter? And do we expect that to come back in quarter 2? Like should we be back to the normalized growth rate in terms of constant currency in quarter 2?

Correct. So we expect the normalized growth rate to come back to, again, mid-teens level growth as reflected in the IQVIA data. And this impact, I mean, without the channel inventory correction, our constant currency sales would have grown by between 15% to 18%.

15% to 18%. Okay. So there is a meaningful impact. And lastly, any update on our semaglutide filing in Brazil?

Yes, it is still with the regulator. So the regulator has taken upon itself to expedite all semaglutide approvals, and we recently saw 5 approvals come the day before yesterday. So we are optimistic that the regulator will also consider our application favorably, but I don't have any precise guidance to give you.

So there's nothing pending from the regulator for us to kind of answer or anything?

No, it's an ongoing dialogue, but the regulator has all the options in front of them. So I don't want to tell you how many months it will take. But I would guess that it will take months and not years, but that's my perception rather than any definite comment from the regulator.

The next question is from Neha Manpuria from Bank of America.

Aman, I think you mentioned that as you integrate the portfolios of JB and Torrent, we could see some impact in, I think, the second and third quarter before they normalize. Could you give us some color in terms of what you're exactly mentioning here? I think you mentioned cardiac as being one of the areas. If you could just give us some color as to why we should see this impact during the integration process, please?

Yes. Because if, say, a mid- to large-sized brand in JB has been built by JB field force and launched by JB over -- and kind of grown over the years. If you move that to a Torrent division with Torrent reps, the reps would not know all the territories and prescribers and so on immediately. So there's a very robust process that we follow for the brand transfer, which minimizes any such loss of knowledge transfer. But we've seen in all the past acquisitions that there is usually some kind of transition impact that comes across because of this reason. But it usually comes back to the normal growth trajectory very fast.

Okay. So our assumption is that by the end of this year, by fourth quarter, we should see normalization of any transition impact?

That's right. Since we got the merger approval in July, we implemented this immediately in July. We were expecting the merger to probably happen a bit later. So it would have happened a bit later. But it's a positive that it's happened right now. So we'd rather get this completed within this year itself.

Understood. And an extension of that, as you think about revenue synergies post this integration is done, et cetera, given that we're already guiding to low double-digit growth, could you throw some light on the likely revenue synergies that we can see as an integrated business in India? And what could be the areas that you could think about from a revenue synergy perspective?

Yes. We'd still like to mention that revenue synergies, we are only comfortable starting from next year because there's going to be all these changes happening this year. But we still continue to believe that there is a good potential for revenue synergies because of the cross-sell potential, the knowledge transfer and the combination of the field force together, all of that put together. It's certainly possible in the cardiac and gastro brands and segments. But we'd rather wait for the full integration to complete and then give a better sense on that.

Understood. And my last question is on the margins. Given that we have completed the merger nearly 6 months ahead of plan, Sudhir, is it fair to assume that the 3-year time line that we had and we are going ahead of plan from the cost synergies, the year 3 target can actually be achieved in year 2 itself? And I think manufacturing synergies were not included in this number. So could we quantify that if we have a handle on that?

No, I think manufacturing is being taken in the second phase, Neha. But yes, I mean, the 3-year picture, which we had given you earlier, the synergy realization could be much faster than that, given that we are 6 months ahead of the initially perceived merger. So things should speed up fast, Neha.

Okay. So it's fair to assume that the margin we were expecting for JB in year 3 is now possible in year 2 itself. Would that be a fair assumption?

I don't know. You'll have to wait for 1 or 2 quarters more for me to give you a better guidance. But the way things are moving on, it's looking positive for us, Neha.

The next question is from Damyanti Kerai from HSBC.

My first question is on semaglutide for India and Brazil market. So starting with Brazil, while you are waiting for ANVISA to come back on your filing, we are seeing like some players coming ahead of you. And we understand there are more filers for this product. So how do you see this opportunity, whether this will be still meaningful or it will be more competitive than what you initially anticipated?

So we are used to competitive launches in Brazil. So I mean, this is kind of a normal phenomenon. And we saw 5 approvals recently out of which 4 came out of a single company, right? So it's not very unusual. And so what I would say is that as long as we are not very far behind, we are confident that we'll be able to capture, let's say, a double-digit market share as we have done and demonstrated many times in the past. So I can only rely on my track record and my strength with the physician community for which I'm confident. But again, I don't know how many more approvals are coming, right? So I'm just pushing for my approval so that I can launch ASAP.

I'd just like to add that, yes, I mean, given our historical strength in Brazil and our position, especially in the chronic and cardiac and diabetes segment, we would have been keen to have the first-mover advantage. But unfortunately, that's lost. And we admit that's a bit of a miss from our side.

Sure. And in India business, while your supplier has run into some supply issue, and you mentioned this is all transient and everything should be back on track by August. But nonetheless, when we look at the broader markets, which are available through secondary data provider, it seems like the semaglutide market has plateaued now after initial ramp-up. So how do you see the overall market moving from here on after the initial big jump? I think there has been some signs of plateauing there.

So it's not surprising actually that this has happened. The first month, there was because of all the kind of intensity of promotion and the general awareness about semaglutide, probably there was a lot more trials that were happening at the prescription level, which probably would have led to some drop-offs, which is not unexpected in such a category being an injectable. The product also does come with its side effects. So unless you're really the right patient for the product, you're likely to discontinue the product as well. And of course, there could have been some element of overstocking that may have happened out of anticipation of the channel for higher demand. Honestly, it's not a concern from here going ahead. I think gradually, it should improve month-on-month from here is what we believe. We're already seeing that traction in the month of July as well in the market. And especially in our case, I think the oral has continued to do well, which probably means that the oral drop-offs are not as high as what we expected. So as long as we get the injectable back on time, I think we should be in a reasonably strong position as earlier.

You mentioned INR 250 crore kind of number for yourself. But at the market level, how big can that be if we look at the current scenario?

I would say probably INR 700 crores, INR 800 crores type of market, maybe slightly bigger is what it looks like for the first year.

Sure. My last question is on India business. So 19% growth, and that has been a very strong trend. So first, if you can split across the growth drivers, volume, price and new launches? And specifically, how do you see the momentum continuing on the volume and new launches part given we are seeing higher than historical numbers there for the market in general?

Yes. So the PharmaTrac data shows 19% for the Base Torrent business as well for the quarter. The breakup of that is 5.1% volume, 7.7% price and around 6% new products. This is versus 2% volume of the market, 5.8% price of the market and 3.8% new product growth of the market. The IPM growth has picked up this quarter, and I mean, it's likely to continue for the rest of the year, but we can't say exactly what the market growth is going to be. So as long as this market growth continues, I think our trajectory should be similar -- I mean, assuming the semaglutide situation is back to the normal trajectory, then it could be similar.

Just a clarification. We understand the contribution on new product side has largely come from semaglutide, but the volume has also, I guess, grown very meaningfully for Torrent as well as for the IPM in general. So what could be leading to that?

It's difficult to pinpoint because it's just a one-quarter phenomenon. So if we wait a couple of more months or quarters, we can get a better sense. But certainly, there is a higher-than-expected uptick in the market volumes.

The next question is from Abdulkader Puranwala from ICICI Securities.

Sir, my first question is with regards to the semaglutide opportunity. So based on our experience in India and in Brazil, if you could help us understand that in your opinion, how much time would the generic players take to settle down on the market share? And whether in the next 3 to 4 months, what is the kind of competition intensity you see in India as well as in Brazil?

So just to clarify, we've not launched in Brazil. Obviously, we are tracking what's happening in Brazil, but we have not launched. So it's hard to comment. In India, again, we ourselves ended up facing an unforeseen situation. So it's still -- when the market forms, things are fairly unpredictable. But as long as the supply situation remains the same for us and the competition, there's no additional bottlenecks that come up. My sense is that the market share should not change materially from here.

Okay. Okay. Understood. And sir, for the Base business, would it be possible to share what would be your constant currency growth this quarter?

For which country?

For Torrent Pharma on a consol level, that is excluding JB, what would be your constant currency growth?

Abdul, we don't look at it from that perspective. But any specific geography you want, we can call that out.

You can see that in the press release.

Yes, yes. Sanjay has already called out. Because if you look at Brazil, Germany, U.S. put together and add India as well, that contributes almost 85% of our business. So that's the 3 geographies which Sanjay has indicated. I think that pretty much should give you the color.

Okay. Okay. And sir, anything on the margins we would like to call out in terms of your guidance for the full year? Are we reiterating or any color on margins for the full year?

So Abdul, as you know, July 8, the merger happened for us. And now there is a system integration, business integration, which has already been triggered. So I would like to wait for one more quarter till the combined entity settles before I can try and give you some guidance for the full year.

The next question is from Shyam Srinivasan from Goldman Sachs.

Just one again on the semaglutide opportunity in India. I'm not sure whether our earlier guidance was for an annualized INR 250 crores. Maybe I thought it was INR 200 crores. So is there an upgrade? That is one. And when I look at the split of oral versus injectable, has that changed from then, if I recollect, that number was 30% oral. Given how well you're doing on oral, has there been an upgrade there in terms of how you look at the relative between the 2 segments?

No, we had shared INR 200 crores to INR 250 crores last quarter. And what we had mentioned in the opening remarks was that given the trajectory in Q1 before the supply issues of INR 50 crores. And the expectation is that every quarter, it would gradually increase. And hence, it would have been very close to that INR 250 crore number. But given now that we're faced with the situation, that's definitely not going to be possible. But we would rather wait for another quarter to see how our relaunch of the lost SKUs, how quickly they can regain share and then we can get back with what the annual number could be.

That's helpful. And when we now use these other alternate API source from an injectable perspective, I presume, what is our current share? I think the combined share of 36% includes oral plus injectables. So I just want to understand how we are just faring on the injectable part in the presentation? And what gives us the confidence that with an alternate API, we'll be still able to maintain our share? Let's assume.

So the brand that is affected and specifically the SKUs that are affected was about 20% of the total monthly contribution. And API is not really the reason why, I mean, whether a brand can regain share or not. I think as long as the API is approved and kind of has gone through the whole trial with the company that's registered the product, it shouldn't really make a difference.