Torrent Pharmaceuticals - cost management does the trick; result update Q3FY08; maintain Buy

Torrent Pharmaceuticals (TRP IN, INR 162, maintain Buy)

Torrent Pharmaceuticals’ (Torrent) Q3FY08 results were above our expectations, with 3.6% and 52.5% Y-o-Y growth in sales and EBITDA, respectively. The company reported net profit of INR 373 mn compared to a profit of INR 257 mn in the corresponding quarter of the previous year.

Cost management was the theme for the quarter, which helped offset the impact of a lower topline growth. Even though topline growth was lower-than-expected, the company managed to grow its EBITDA by 52.5% to ~INR 609 mn.

We believe the company’s EPS is likely to grow at a rate of ~24% over the next two years, driven by margin expansion from product rationalization, focus on a few markets, and efforts to improve net realizations in the domestic market. The stock price has corrected by ~ 14% in the previous quarter. At CMP of INR 162, the stock is trading at a PE of
11.1x and 9.6x on our FY08E and FY09E earnings, respectively. We maintain our ‘BUY’ recommendation on the stock