Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '27 Earnings Conference Call of Torrent Pharma Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call 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 2 FY '27 earnings call of Torrent Pharma. Consolidated revenues for quarter 2 were INR 4,979 crores, up by 51%, while operating EBITDA at INR 1,666 crores, was up by 54%. Operating EBITDA margin for the quarter stood at 33.5%. During the quarter, R&D spend increased to 4.2% of the revenue compared to 3.5% in the previous quarter. As highlighted in the previous call, following the merger of [indiscernible] with Torrent Pharma with effect from 8 July, we had undertaken business level integration during this quarter. And as guided earlier, there was some transient impact from JB business top line performance during the quarter. During the quarter, the underlying JV business reported revenues of INR 1,086 crores which was largely flat year-on-year. JB India branded business grew at 7% for the quarter. International business were down by 7%. Torrent base business continued its strong growth momentum with revenues growing 18% for the quarter. The base India business with 20% growth continued to outperform IPM, while Brazil revenues were up 38%. On the generic side, U.S. delivered strong 24% growth, while Germany revenues were down by 7%. The overall leverage, that is net debt to EBITDA now stands at 1.8x. I'll now hand over the call to Aman for an update on India business.

Thanks, Sudhir. I'll first talk about the JV integration update. Post the completion of merger in July 2026, we had initiated the next stage of integration activities, which involves merging of divisions and field force in the India business. We believe this has been executed well and as per expectations. Despite the nature of integration activities, the India business of JV delivered robust underlying growth, which provides comfort in the long-term growth prospects of the business post recovery. JB's international operations saw an impact from, again, the integration around plant network optimization and alignment of manufacturing and policy control systems. . This led to postponement of deliveries in some -- in certain markets, and we see a gradual part of recovery in the subsequent quarters. We believe the impact is transient due to onetime nature of integration requirements, which were unavoidable, the objective here was to harmonize Torrent and JV systems, reduce redundancies and enable long-term utilization and gross margin efficiencies. On overall cost synergies, we are tracking well ahead of our plan, which can also be seen from the EBITDA margin during this quarter. Sequentially, the JV business EBITDA margins have improved despite the transient impact on sales. Moving on to the base business. Torrent India revenues for Q2 were INR 2,181 crores, registering a growth of 20% versus the IPM growth of 12% as per the pharma track data set. 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 ratio business continued its strong growth trajectory, growing at 34% in Q2 and also in H1, driven by OTC ad spends and field force expansion. We are hopeful that this business should continue with a similar high growth trajectory for the rest of the year. Our combined field force strength at the end of Q2 for Torrent plus JB, the combined entity is now 9,100 in the India business. On semaglutide, our India franchise recorded Q2 market share of 32% for the oral and injectable combined as per the pharma track data set. For the oral segment, we continue to maintain more than 90% share within the generic players. In the injectables semaglutide segment following the supply disruption we were able to onboard a new manufacturing partner and fully restored market supplies by September. Due to being out of the market for nearly 2 months, we did see some market share loss, minor market share loss in the injectable space. However, the September month relaunch and sales recovery provide confidence that a large part of this loss should be recovered in the coming months. Our focus during H2 FY '27, we will continue improving our market share in focused therapies, improving field force productivity in expanded divisions and continuing the scale up of the ratio business. I'll now hand over to Mr. Sanjay Gupta for the International business.

Thanks, Aman. We will start with the branded and generic market of Brazil. Based on internal sales achieved to constant currency revenues were at 26 million resisting a 21% year-on-year growth. IQ data shows Q2 market growth at 5.7%, with to growing at 26%. This is aided by the strong performance of our top brand, our recent launches as well as the strong growth in the Generics division. In Brazil Torrent has a rich pipeline of 53 molecules under [indiscernible], and we should be getting -- we expect approval in the next 2 years. . In the U.S., we registered constant currency revenues of $44 million, up by 13%. Growth is coming from our new launches where we have achieved or exceeded our target market share. In Germany, our business registered a constant currency revenue of EUR 26 million, down by 13%. The growth continues to be impacted by the loss of high-value tenders and disruption as third-party suppliers. With that, I would like to conclude the opening comments and open the call up for questions.

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

My first question is on JB, given the disruption of the impact on growth because of disruption, if you could give us some color in terms of how we should think about the recovery, both in the India business? And also, I think you mentioned some postponement of supplies in certain markets. would that take slightly longer to recover? Just wondering the flat growth that we have seen, should we continue to see similar trends in the near term or we start seeing improvement here?

Yes. So on the India side, we had guided in the earlier quarter that this would be the kind of impact of the estimated -- it's been pretty much in line with how Q1 grew at 13%, Q2 is at 7%. So it's more or less still as expected, and we think this will recover gradually quarter-on-quarter from here. So if H1 is at 10% growth for the India Branded business, I would expect that should be perhaps higher than that. On the international front, yes, there are definitely some onetime challenges that we faced, and it was part of the integration that we had taken a call to take these decisions. These are all onetime in nature. So while the actions have been taken, the recovery may take slightly longer in the international business. But overall, we still feel that in H2, the overall JB growth should be double digit. While India would be higher than double digits, we believe the total JB business growth should recover to double-digit.

Okay. That's good to know. And my second question is, you mentioned cost synergies running ahead of expectations. I think our estimate was about INR 450 crores. It seems like pretty much half of that is already reflected in margins. Would that be a fair assumption? And given that, Sudhir, is there an upside to our cost synergy number that we are expecting over the next 3 years?

So Neha, I think you are right. When you say we are tracking higher than what we had initially guided. And possibly, when you say half of that seems to be getting realized in this year, I think -- it's fair to assume that. And having said that, we believe most of it could come through by the next year. .

And therefore, do you see upside from a 3-year perspective, can you -- some of the synergies that you were thinking probably will take up later probably on the revenue side, et cetera. Does that come forward or revenue synergies will still take some more time outside of the cost?

No, I would think we'll maintain the current synergy view on INR 450 crores. Perhaps next year, if there's a more concrete reason to believe there's further upside, we can comment, say, by Q1, Q2 next year. and revenue synergies will continue to be -- or rather, we believe they should be on track for next year as well on the India business first and followed by the international. .

Next question is from the line of Damayanti Kerai from HSBC.

My question is again on JB. So you mentioned sequence despite the transient impact on the business, it reported higher EBITDA margin. So just wanted to understand what has led that sequential improvement, whether it was more on, say, the gross margin part? Or it was more on rationalization of other operating expenses? And how should we look at the JB EBITDA margin in the coming quarters? Yes, that's my first question.

I would say a large part of it was driven from the femforce merger that has taken place. So the savings are realized now, though the actions were taken from Jan. And of course, after the merger, also they were further substates. So it's largely driven from the India field force divisional merger that has been kind of implemented. And also, there has been further improvement in procurement savings as well. So -- but that's a small part of it, overall sequential improvement. So from Q1 to Q2, the biggest component is the field force savings.

Got it. And how should we read the margin projected for JB in second half of this year?

I would say it should continue gradual improvement as well from here as well, difficult to give an exact number. But directionally, it's already improved substantially from Q4 last year to Q1 and now from Q1 to Q2, it's been more gradual. So I would expect quarter-on-quarter this same run rate of improvement can continue maybe for the next 2, 3 quarters. .

Sure. My second question is clarity on your MRR headcount after the merger. So you mentioned 9,100. So whether it is the level which we are looking to maintain or there is some new room to optimize this number further. Where do you like to have your MR count in optimum situation?

Yes. This year, it will be maintained. So by the end of this financial year, we don't expect any change. We will review this maybe in a couple of months. We expect potentially some expansion may be required in the base business, so say maybe by 500 MRs or so. but we're not fully certain on what the next year's picture looks like, but it could be, say, something between 9.500 to 9,600.

Got it. and my last, last question is on your like overall guidance, which you mentioned, 33.5% kind of number we are doing. And should we assume that there is more room to improve from current level? Or if it more steady considering all the synergies [indiscernible] will come from the merger?

So I think there should be a gradual increase in the EBITDA margin. But I think we are not guiding on the number. Maybe we feel it should be higher than 33.5%.

Next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital.

The first one on the JB EBITDA margin, which we set up said that there will be continued improvement from here as well. for the next 2, 3 quarters. So once that is it be fair to see that JB's India business profitability would be very similar to Torrent's India business?

Yes, that would be fair to assume. Torrent's India-based business versus JB based business, right? Yes, that's correct.

Sure, sure. And on JB EBITDA margin this quarter, could you quantify the improvement on a sequential basis?

So that's something that we are not guiding for.

Okay. So would it be the meaningful 100 basis point plus?

I think there's which again is 1 data point we can give you, right? I mean when we have stated the expenditures versus quarter 1 has gone up by 7%. The margin was 33.8% and the term 33.5% That's 1 data point which I would like to give you. Having said the increase in R&D, which has come in quarter 2, we believe it will continue for the rest of the quarter.

Sure, sure. Sure. And lastly, on the synergies part. Let's say, cost synergies or initial guidance will be realized by FY '28 is what my understanding is what you commented, if I'm wrong, please correct me. But without quantifying beyond the, let's say, next year, what are some of the levers that you would have identified, which is not part of your INR 450 crores guidance? And secondly, you suggested the revenue synergies part for the next year. So if you could quantify the impact of the revenue synergies and some of the business?

So nothing incrementally new in terms of buckets that have been identified for cost synergies, perhaps it's more of a quantum of costs that were estimated before and after where there may be some variation. So that's where we feel it's still premature to comment whether there's any higher scope of cost synergies compared to the INR 450 crores number. But directionally, yes, it's been -- we've been able to achieve that much faster. Instead of 3 years, I think we should be able to get there in 2 years' time. And any upside to that, I think we'd wait for at least a couple more quarters. . On the revenue synergy side, again, the same view, we believe that the India business once now the large part of the integration is done. So the revenue synergies should start gradually coming through from cross-selling from new territories where JB brands are added to Torrent divisions and so on. These things normally take 6 to 12 months depending on the brand and the competitive intensity. So I think next year should see a reasonable improvement in the top line growth through revenue synergies. Difficult to quantify this deal. But if things go as per plan and as we expect them, then I think gradually year-on-year, there should be acceleration in top line growth in the India business. And on the international side, it will be a slightly longer journey for that to get achieved because product filing takes slightly longer in most markets that we are looking at. So if, say, we're looking at JB territories to add some existing products that we have, those would take 2 to 3 years to materialize. So that's why the time lines will be longer.

That's extremely helpful. All the best. .

[Operator Instructions] We will take our next question from the line of Bino from Elara Capital.

Deal that JB chem has done with Novartis on the ophthalmology franchise which was done, I think, about a couple of years back...

I'm so sorry to interrupt, Mr. Bino can you repeat your question, please?

Hello? can you hear me well now? .

Yes, we can hear you.

Just a question on your ophthalmology portfolio deal that JB chem has done with Novate a couple of years back. Is there any risk to that deal given the changes happening in Novartis India?

No. The contract is quite been clear. So I doubt there will be that possibility.

Okay. And if I remember correctly, there is a second tranche payment of about INR 950 crores, INR 960 crores that is pending. Would that be due anytime soon?

That would be in December of this year, yes, that's right. .

Next question is from the line of [indiscernible] from Dan Capital.

On the increased R&D spend, any -- and you said this is going to be sustainable from here on at these levels. So any new avenues where we say looking to get larger amounts than before from a clarity perspective?

No, this is in line with what we had shared earlier that we are looking at increasing our filings in the U.S., which are very low single digits right now to maybe high single digits for some years to kind of recover some of the lost time in the last couple of years due to our operational issues. So in that sense, it's more of a temporary spend that would be required for a couple of years, 2 to 3 years. But in percentage spend right now this quarter is about 4.2% of revenues. We believe that the range should not exceed, say, between 4% to 4.5% even in the following year.

Got it. And then secondly, on the export business, our business has done well. Germany still struggled. Any more color that you want to provide us in terms of the outlook for these 2 markets?

So Brazil, we are optimistic and we continue to grow double-digit mid-teens in that range. because we have strong momentum from our new launches as well as from our other businesses. So we have 4 business units in Brazil, cardio and diabetes, CNS, generics and nonretail. So all on business units seem to be doing well. So again, a high level of [ opportunities ] on Brazil. On Germany, I would say that Idea is struggling because there's been quite a lot of factors which have impacted us from supply-related issues to government mandated price decreases which have similarly impacted our long-term. So I really cannot give guidance today. In this case, I would say, slight decline in the coming quarters. and eventually some stability after maybe 3 or 4 quarters.

And on the other markets, the market or the non-Brazilian branded market we have any broad color on how last 3, 4 quarters, any meaningful changes in the size scale of business and business?

Yes. So the rest of the world markets for us are examples are Philippines, Mexico, Russia, South Africa now. All these markets are growing high single digits or double digits. So we have I mean underlying business is pretty strong in ROW market. So let's say, conservatively, you can take 6% to 9% growth, not JB total. .

And then lastly, on any color on the GLP on the summer launches in Brazil? I mean, where are we in terms of what the time line or outlook on approvals and launches?