thanks chintan for putting up the details.
Good results as expected from torrent pharma. Abilify continues to be on a roll. The note about base business doing exceptionally well is heartening.
I think it would be prudent to wait for concall and then have any views. Till now the investment thesis based on Abilify opportunity has kept playing well.
Does anybody has concall details?
could not open that file ,could somebody who can please highlight the imp issues in the concall.invested.
Please find some conf call notes:
discl: invested
It is for last yearâs - Jan 29 2015.
Hi Chintan,
Both Alembic and Torrent seem to be doing well. I think market has its reservations about how things would look like in FY17 and beyond for both the companies especially Torrent since it has a relatively thin pipeline compared to Alembic.
However, there were quite a few things I liked about yesterdayâs concall:
US: Base business in US seem to be doing well with ramp up in market shares of gNexium and gDetrol. Although, the size of these molecules cannot be compared to gAbilify, they still are pretty good products. gAbilify continues to be a good product despite severe price erosion. Since currently, there are just 7 players in the market till date, it might continue to have a good impact on the results of Q4 and hopefully Q1 of next year. The company is confident of launching 8 - 10 products in the US next year and 1 - 2 out of it might be blockbuster molecules. This might help in restricting significant tapering off of the profits which are expected in FY17. In addition, although the company has just filed one ANDA in this fiscal till date and plans to file one more by end of the quarter, the management seems pretty confident of filing 15 - 20 ANDAs from next fiscal onwards (Q1 commentary and results will give us indication of that). This might include filings for dosage forms including derma and oncology. From the time of filings, they expect approvals in 12 - 18 months time. So, some of this filings will have impact on FY18 results. The capacity constraints the company is facing for its regulated markets is expected to be addressed from Dahej facility. Surprisingly, Dahej is yet to receive Establishment Inspection Report (EIR) from USFDA but has received approval from USFDA for one molecule. The company expects to manufacture 8 - 10 molecules for US facility from Dahej in FY17. The company has also started building its oncology block and work on the filings has also started. Although, the plant is expected to be ready only after two years, the company will go ahead with its oncology filings through custom manufacturing.
Domestic Business: The companyâs efforts for reducing bulk discounts and channel margins which had impact on the sales during Q2 and Q3 have been completed by end of Q3. The company expects to have a growth in domestic business in line with the industry growth in Q4 and hopefully surpass that from Q1FY17 onwards. These measures are expected to have a long term positive impact on the margins of the company. The company had launched biosimilar for Adalimumab, a therapy for the treatment of auto immune disorders like rheumatoid arthritis etc during Q3 in addition to one biosimilar launched in Q2. The pricing of the biosimilar will be one fifth of the innovatorâs price. The company has tie up for three biosimalars with Reliance Life Sciene and the third molecule is expected to be launched in next year.
Brazil and Germany Business: The company has taken various measures to minimize the impact of currency of the Brazilian business like retrenchment of employees, cutting dealer and trade margins etc. The per man per month productivity (PCPM) has improved from 50,000 real to 80,000 real currently. Also, the cut throat competition on pricing has reduced amongst the companies due to currency depreciation which has impacted most of them. The Germany business had supply issues due to capacity constraints which is expected to be addressed through Dahej plant.
Cash and liquid investments:: Despite Rs.407 crore of outflow through interim dividend payment, company should hold substantial cash on its balance sheet by end of March, 2016 (even after factoring in final dividend payment; company has stated dividend payout of 30% of profits). The company continues to scout for opportunities in domestic and US markets and looks at a payback period of 7 - 8 years while assessing them.
Hello Ankit,
Thanks for the diligent updates as usual.
As i could not participate in the concall, and with reference to our offline discussion (with @pikrohit) about GVK Biosciences black-listing of drugs off which Torrent had some molecules among them.
Would it be correct to infer that Torrent has not been materially impacted by this issue?
Regards.
Hi Vishnu,
Wasnt able to ask question to them during the concall and not much clarity about the impact of GVK Biosciences black-listing. May be we can drop them an email to get clarity on the issue.
Regards
Sure. Will do. Thanks again.
Here are my notes. Some of this is repetition
âAripiprazole is a very large product and Detrol, Nexium are just taking the initial steps in the launch cycle. So I wouldnât like to compare them among themselves. As Esomeprazole (nexium) is really right now totally dominated by the brand with 60% market share. So, you would see a gradual ramp up for all generics on Esomeprazole Most of the customers are keeping both brand and generics, so itâs very early days and tolterodine (detrol) is a much smaller market. So I wouldnât say that there is a comparable between the three products as of today.â
During the quarter, esomeprazole monthly market share is 4% and we expect that share to grow up as the existing customer shift from brands to generics.
Nexium is a very competitive product, so we havenât seen any incremental pricing pressure after Dr. Reddys has come back and I actually - I donât know if they come back fully or only with limited quantities, but essentially the impact has not been felt. On tolterodine, itâs essentially pre-player market, so hence the prices prevailing in the market are more, I would say in line with that kind of market. IMS showed Detrol market share of 10%
Domestic market
Growth of 7% in Q3 does not reflect the complete underlying picture as growth was higher towards second half of the quarter. Moreover, benefit in margin is much higher than the temporary top line loss. Domestic market will show market beating growth after Q1FY17. Rationalized field force. PCPM has grown to INR 5 lakhs plus based on internal sales versus last year INR 3.8 lakhs.
Shelcal and Chymoral continue to outperform the market consistently and the growth drivers for Shelcal will remain higher penetration in two key segments like Gynaec, Ortho, CPs and in case of Chymoral it would be ?? where there is a huge untapped potential. Shelcal-CT also has entered the list of top 500 brands for the industry in December 2015, which is one of the recent extension launches of Shelcal.
Brazil impact- They are 100% hedged for the credit period of 270 days. The high currency depreciation has not walked into P&L. Management is long term bullish on Brazil. Its a huge market and they are positioning themselves right to reap the benefits in coming years. âWe as a pharma company are in the right spot in a tough marketâ. "so my PCPM in Brazil right now is R$80,000. About two years ago, it used to be R$50,000. So those R$30,000 put up additional sales per month per head. It really contributes to the companyâs bottom line. Weâve also kind of reduced the distributor margins, the trade margins and asking them to share the effort in these times and what weâve also done is streamline the logistics and brought some activities in-house. So we essentially tried to cut costs to the bone during the three or four years, which will be tough for Brazil, because there it will be a much better position when the economy comes back. And the forecast I am seeing is that 2017 might be a zero year, but 2018 onwards the company should start growing again. so I donât think that dark clouds will last"
US, Brazil and Germany are prioritized for allocation manufacturing capacity. Other markets were not doing well because of lack of capacity. Going fwd, UK, romania will gain momentum.
Third biosimilar of Reliance Life Sciences will be launched in FY17. Looking at larger strategic partnership with Reliance Life Sciences as they dont have sales organization.
@crazymama @ankitgupta I could only attend half of the concall so didnt ask questions either.
My reflections
Torrent continues to execute beautifully. I was expecting that markets will reward the result and dividend but the price didnt move. Now my feeling is that we may have to wait a bit longer and the maybe the markets want to look at Q1FY17 results on high base of AbilifyâŚunless an institutional buyer comes in and takes prices higher.
Consensus looks like FY 17 will be a bad year but domestic market growth will kick in. Brazil will also improve IMO.
Torrent remains a good bet at these prices.
thanks for concall notes. most of the things are covered by the guys who put up the notes.
I like the candidness of management in answering questions. No evasions while answering.
Surprising to hear that they got a product approval from dahej before getting EIR report.
About price not moving inspite of good results, I feel part of it is to do with the overall jittery markets plus a slew of negative or negatively projected news for the sector. The most recent one being the scare about API being sourced only from US. Basically its only for US govt supplied medicines which have little impact on companies we look at but markets run on emotions in the shorter run. Thankfully, as Lynch says, over longer run, the earnings is all that matters.
Torrent also seems to be overowned by institutions and even retail investors. So for institutional guys who have redemption pressures, its an easy exit decision bcos they wont be booking too much by way of loss. In fact its about booking profits and hence easy to explain to their superiors or to whoever they are answerable to.
Broad picture of the company to me looks to be encouraging. The single most important part for me is their execution part. Making best use of an unexpected opportunity says volumes about management.
One of the major conf. call take away for me was 12 to 18 months product approval time line. One of question I had was, what is management planning to do till next round of ANDA approvals arrive which are filed in FY17. Currently, With 16 pending and 1 more to be filed in Q4, I think it will keep the ball rolling for FY17 and FY18.
For FY17 and FY18, I think US business has enough fuel to maintain momentum esp. with few big molecules up for approval. As management indicated they couldnât focus on all the products and had to go for high margin ones due to capacity constraint. Dahej will help them grab some market share for all the introduced products in US and also improve Europe business. With India business also showing some improvement, my comfort level has gone up.
For FY19, with 15 to 20 ANDAs filed in FY17, there should be enough approvals to kick start next round of US growth.
I hope management continues the same level and execution.
Disc: Invested.
Torrent gets tentative approval for gAzor (AMLODIPINE;OLMESARTAN MEDOXOMIL; USD 166 million in CY2014; innovator - Daicha Sankyo; Patent Expiry - October 25, 2016). Link for the approval - http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.DrugDetails. It is the second tentative approval for the generic after Macleods Pharma for the molecule. It seems to be a relatively small molecule. Lot of molecules of Amoldipine family have patent expiry in FY17 like gExforge, gExforge HCT etc.
Sales cagr 3 Years:19.95%,TTM:32.89%
Profit cagr 3 Years:31.09%, TTM:88.44%
ROE 3 Years:35.92%, TTM:33.67%
There is a sharp jump in sales, margin & profit for torrent pharma. With a standalone PE of 15 and consolidated PE of 18, it looks like a value buy.
anupam,
I see in a lot of your posts that you tend to rely a lot on data and then prounounce your judgement. While that could be one of the approaches to investing, I feel its a very crude way to look at things. If only investing were that simple.
Basically what one needs to do is to try and look into the future and make an educated guess which could have some logic and which could reach close to an approximate value of future earnings. And that would need for you to take into account the quality of business, management, sectoral prospects or in case of companies getting windfalls (like torrent and alembic), it becomes much more important to look at various aspects of the company itself and try to estimate what future earnings could be.
Both alembic and torrent are extensively covered by brokerages and most of them have similar kind of projections but different kind of recommendations. That should tell us something about the thought process of different people.
Hitesh - correct observation and nicely put across. I am working towards what you have rightly pointed out.I have started investing 3 months back. My 1st objective is NO to trading. 2nd is fundamental analysisâŚcurrently doing. 3rd will be valuation, 4th will be future predication and 5th capital allocation and portfolio management. However while I make a slow and steady transition, I for sure will be inclined on data based analysis. Even if qualitative futuristic predication needs to be made , I will design some data based model for the same 
Hi Anupam,
We are almost on the same boat, just that I have twice more experience as you that is 6 months! 
Regarding your aim to construct data based model, I was also thinking about the same taking into consideration what Hitesh Ji mentioned about the sectoral aspects, windfalls and management quality.
I have been looking at the stocks like balls suspended in a moving vertical channel of liquid (market) up at a constant rate (market cagr). The balls having a relatively lighter densities (better companies) would try to move up faster relative to the liquid and vice versa. Then there would be random shocks to the vertical channel from time to time (like windfalls). The fragile balls will break in such randomness whereas the antifragile balls (maybe Alembic and torrent in this case) would gain and move up faster from such randomness. It is this relative density and the ability to make use of the random shocks which makes some companies awesome.
Another thing I have been working on is to analyze how differently companies from a same sector move. For example, if sun pharma moves up x times in next 7-8 years, would companies like alembic and torrent have the capacity to move 2.5x-4x relative to it?
disc: invested in torrent and alembic.
I agree with your emphasis on data analysis - which is largely based on past 5-10 years data, rather than fully relying on future outlook and earnings projections.
The book - âIntelligent Investorâ at various places gives importance to current and past P/E, P/B, EV/EBITDA multiples and historic valuations and suggests to derive âmargin of safetyâ based on that. While this approach looks good for value investing and some people believe that it is not for Growth investing, in my opinion, Only value investing works in long term. Since we can not accurately predict future earnings, we have to reply on current valuations more, while buying the stock. I have used value investing more successfully than growth investing in past 4-5 years and have managed to generate close to 20% CAGR or even more till Dec 2015.
Your analysis is much more deeper than most of the other investors and thought of adding my opinion.
Coming back to valuations of Torrent Pharma, I would like to buy more closer to P/E of <= 14 levels, thought I have bought at P/E of 17-18. Due to its uncertain revenue stream in FY16-17, I would be more cautious at current levels. It is becoming closer to a value buy now in my humble opinion and any further correction of 5-10% would make it a value buy.
@hitesh2710 hitesh bhai , y is torrent discounted so much by the mkt? ur thoughts ⌠i think its available 10 times fy16 earning ⌠i dont know much abt pharma ⌠trying to learn âŚ
