Investors cheer Torrent Pharma's Q1 results but concerns linger

Unichem was Torrent Pharma’s fifth acquisition in India in the past four years. Torrent bought Unichem's domestic business, which comprises of over 120 brands including key drugs such as blood pressure and heart condition drug Losar and over the counter digestive drug Unizyme. It was acquired in November 2017 for Rs 3,600 crore by Torrent.

The business contributed over Rs 200 crore to Torrent’s Q1FY19 sales. The street was surprised by Unichem's contribution and faster-than-expacted turnaround. The Unichem portfolio grew 3 percent year-on-year and adjusted for GST was up 8-9 percent. Losartan, one of its key products, grew 12 percent while Unizyme, which was a Rs 60 crore brand in November 2017, grew at a rate of 25 percent. The margins of Unichem didn’t fail to surprise either. Credit Suisse says Unichem’s margins have already risen to as high as 27-28 percent vs 18 percent two quarters ago on the back of synergies and cost savings including field force rationalisation.

Torrent is now targeting a cash breakeven on Unichem by the end of FY19, less than two years since the acquisition. According to Credit Suisse, for a cash break-even scenario to be achieved, the margins have to rise to 32 percent.

The United States is the second largest market for the company and contributes about 16-18 percent to total sales. In Q1FY19, the US business grew 23 percent on year to Rs 334 crore, helped by the acquisition of US based Bio-pharma, a generic drug and over the counter drug manufacturer.

The company only managed to launch one product in Q1FY19 but guided that the launches will increase to 2-3 every quarter. The company's comments on price pressure in the US, however, seemed to make up for the slow launches, the company said it was seeing price pressure in mid single digits and had infact reverted to traditional levels

Other markets such as Germany, which accounts for 15 percent of overall sales, grew 17 percent in constant currency. The company launched 2 products in Germany and expects 12 launches in FY19. Brazilian sales were sluggish due to competition and rationalisation or discontinuation of products.

While the investors cheered the company's strong performance, its ability to recognise and eventually integrate acquisitions and largely unscathed regulatory track record, there are some lingering concerns including higher interest and depreciation costs that suppressed first-quarter profits.

Also, there are some concerns around Unichem acquisition such as the overlap of at least 30 percent of products and a shift of the market from key product Losartan to Telmisartan, which has better efficacy .