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Earnings Call Analysis
Q2-2025 Analysis
Torrent Pharmaceuticals Ltd
In the second quarter of FY '25, Torrent Pharma reported impressive growth across several regions. The company generated revenues of INR 2,889 crores, an increase of 9% year-on-year, with operating EBITDA rising by 14% to INR 939 crores. Notably, the India business grew by 13%, Brazil by 17% (in constant currency), and Germany by 8%. Despite facing a temporary setback with insulin revenue due to facility maintenance, Torrent expects to recover this in Q4, indicating robust overall performance across its operations.
A planned maintenance shutdown in August significantly affected insulin revenues, resulting in an estimated shortfall of INR 40 crores for the quarter. However, management reassured investors that this will not affect the full-year revenues, as the disruption is temporary and production is expected to resume in December.
The cardiac segment, a cornerstone of the company’s portfolio, saw a 15% increase against a market growth of 12%. This was attributed to previous restructuring efforts and a strategic focus on expanding their chronic therapy offerings. Furthermore, the Consumer Health business is undergoing rapid expansion, with coverage increasing from 68,000 to 72,000 outlets, highlighting Torrent's commitment to boosting market presence and brand visibility in this segment.
In Brazil, Torrent's branded generics business achieved a 17% growth rate, far exceeding the market's 8%. The company launched a new product for ADHD during the quarter, targeting a sizable BLR 800 million market. In the U.S., revenues saw a 7% increase, and the management is cautiously optimistic about slow but steady growth in this challenging market, aided by FDA approvals that should enable new product launches in the upcoming period.
Torrent Pharma has provided a positive outlook for margin improvements, expecting an annual increase of 50 to 100 basis points over the next three years, driven by price increases and operational efficiencies. Current operating EBITDA margins stand at 32.5%, buoyed by a favorable shift toward branded products within the revenue mix. Management anticipates sustained gross margins around 75% as the branded mix remains strong.
Over the next few years, Torrent plans to allocate INR 250 to 300 crores annually for capital expenditures. Importantly, the company has successfully reduced gross debt from INR 3,900 crores to INR 3,000 crores, with projections to become net cash by FY '26, indicating strong financial health and management prudence.
Torrent maintains its R&D spend at about 5% of total revenue, strategically focusing efforts outside the U.S. towards markets such as Brazil, Mexico, and Germany due to prior challenges in U.S. operations. This approach aims at driving innovation while balancing investment with growth.
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Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Earnings Conference Call of Torrent Pharma. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sudhir Menon, Chief Financial Officer and Executive Director, Finance. Thank you, and over to you, sir.
Yes. Thank you. Good evening, and welcome to the second quarter earnings call for FY '25. We continue to see strong performance in our branded businesses, which accounted for 74% of the overall revenue this quarter. India business grew by 13% this quarter. Brazil grew by 17% in constant currency terms. And in terms of INR, it was 4% due to the currency depreciation. Germany grew at 8% in the quarter, and we continue to win additional tenders quarter-on-quarter. U.S. grew by 8% and was flat on a rolling quarter basis.
This quarter, insulin revenues were impacted due to the shutdown taken in the month of August for maintenance activities. The facility will be released for manufacturing in December. Shortfall is planned to be significantly recovered in quarter 4 of this year. And consequently, there will not be any impact on a full-year basis.
Broad financial highlights for the quarter. Revenues were at INR 2,889 crores, up by 9%, and operating EBITDA at INR 939 crores, up by 14%. The operating EBITDA margins for the quarter stood at 32.5%. This margin accounts for the cost of 300 reps, which we have added so far this year. Adjusted for insulin revenue impact this quarter, the underlying revenue growth is 10%, and operating EBITDA growth is 16%. Other income includes ForEx loss. Net debt-to-EBITDA stands less than 0.5x as at end of quarter 2.
I now hand over the call to Aman for India business.
Thanks, Sudhir. India revenue at INR 1,632 crores registered a growth of 13%. As per the AIOCD secondary market data, the IPM growth for the quarter stands at 8%. Torrent's chronic business grew at 14% versus the IPM growth of 9%, driven by continued traction in our Cardiac divisions and/or any new launches.
The Cardiac business, which is our largest contributor, has grown by 15% during the quarter versus a market growth of 12% due to the restructuring that was undertaken last year along with divisional expansion.
We continue to see positive traction in our Consumer Health business. We have expanded our coverage to 72,000 outlets from 68,000 outlets in Q1. Our key brands, Shelcal-500 and Tedibar, in particular, continue to benefit from focused marketing campaigns across various channels, national and regional.
On a MAT basis, Torrent has 21 brands in the Top 500 of the IPMs with 13 brands more than INR 100 crores sales as of MAT March 2024. Field force strength at the end of the quarter stands at 6,000 compared to 5,700 in the previous quarter. We are encouraged by the performance in the recently expanded divisions and headquarters. This expansion is not only helping us gain regional market share in previously untapped areas, but will also provide a platform for new launches in the near future.
We expect the India business to continue outperforming the market growth. Our focus during the year will be on continuing to improve our market share in focused chronic therapies, new launches, improving field force productivity in the expanded divisions and regions and continuing the scale up of the Consumer Health business.
I'll now hand over to Mr. Sanjay Gupta for the International business.
Thanks, Aman. We'll start with our branded generics business of Brazil. Q2 constant currency revenue was at BRL 174 million, registering a 17% year-on-year growth. As per IQVIA, market growth was at 8% for Q2. Secondary sales for Torrent as per IQVIA also grew at 8%. During Q2, we launched lisdexamfetamine for ADHD. It's a BRL 800 million market, and we are 1 of the 2 branded generic players. Our goal is to make this into a large brand, which in Brazil would mean annual sales above BRL 75 million. We have a rich pipeline of 21 molecules filed and waiting ANVISA approval.
In Germany, our German business registered a constant currency revenue of EUR 31 million, up by 6%. During the quarter, we once again won incremental new tenders, which should start delivering incremental sales from Q1 of '25-'26. For the last 6 quarters, we have increased our overall value of wins in tenders.
Moving on to the U.S. We have registered constant currency revenues of USD 32 million, up by 7%. Sequentially, U.S. business has delivered stable revenues. During the quarter, the U.S. FDA has issued an EIR with a VAI classification for the manufacturing facility at Indrad, and the inspection has now been successfully closed by the U.S. FDA.
The FDA also inspected our manufacturing facility at Pithampur and issued a Form 483 with 1 observation. Torrent has responded to the FDA observation within the prescribed timeframe. I would like to conclude the comments here and open the call up for question and answer.
[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on the insulin front, this issue is more of a temporary thing and you think that this will get resolved soon or it might take longer?
No. So I think the plan is to release the manufacturing in the month of December. And then what we have said is quarter 4, whatever shortfall has happened for the 4 months would be recovered. So it's a temporary disruption. And, therefore, on a full-year basis, we should recover the revenue.
Understood. And, sir, if you could throw some light, let's say, in terms of this GLP-1 set of products as far as India markets, how are we preparing, let's say, to launch in the Indian market as and when sort of the regulatory approvals comes through? Will the manufacturing per se will be a constraint in terms of having this product available?
No, we are evaluating all options. It's early days right now, but we are certainly working on possibilities whenever the launch is possible.
But like just as a clarification, unlike, say, other products as far as domestic formulation market is concerned, outsourcing is not that difficult. But do you think such -- these products, particularly liraglutide, semaglutide will have the manufacturing constraint?
We are not manufacturing or planning to manufacture any GLP-1s at the moment if that's what you're referring to. This is a CMO business that we are -- the old business that we've had with Novo Nordisk for insulin, human insulin.
Got it, sir. Got it. No, I meant to say as and when we launch, will not having a manufacturing facility own or maybe outsourcing, will that be a constraint even if the demand is there? So that was the thought process.
No, don't think so, but again, early days. We don't have any specific updates as of now.
[Operator Instructions] The next question comes from the line of Damayanti Kerai from HSBC.
My first question is on gross margin. So we continue to see, I guess, positive surprise on gross margin. So if you can comment what is leading to consistent improvement in gross margins? And what kind of further levers are available from here on? And where do you see this margin settling in?
So, Damayanti, if you look at last year full year, the gross margins were maintained at 75%. And quarter 1 of this year, we were a little higher, 75.7%. And this quarter, it's even higher, and that's because the branded mix in the overall revenue base is higher compared to last year as well as quarter 1. And that has pushed up the gross margins for quarter 2. So it's basically a function, I would say, of the branded mix in the overall revenue base. But looking to the last year's base of 75% and quarter 1 base of 75.7%, I think that should hold.
So you're saying current levels can be sustained or like can this further improve?
Yes. As of now, it looks so because the branded mix will not be changing substantially, I would say, at least for the next quarter.
Okay. My second question is on your efforts or initiatives towards the Consumer Health business. So if you can share like what kind of incremental initiatives are ongoing and what kind of spend you are incurring to really step up the consumer business in India?
So spends are two-pronged. One is on the ground through the retail activation and our field force. We keep increasing the number of covered retailers across the country. That helps drive greater coverage and visibility.
And second is on the advertising, which is both traditional media and digital. Depending on the quarter and seasonality and offtake, the spends keep varying from quarter to quarter, but we can indicate that our spends this year so far have been higher than last year because we do see that the consistency of the advertising is helping further sales traction, especially in Shelcal-500 and Tedibar.
Okay, sir. Very broadly, what percentage of sales is currently going towards the A&P for consumer business?
No, it's -- Damayanti, it's difficult to segregate and tell you the revenue numbers because these products are already there in the -- on the prescription platform, so we know what we are spending. The only thing what we monitor is that wherever we are doing these programs, what has been the growth, historical growth in these pockets versus the pockets where we are not doing these programs? And we see a good positive outcome happening because of CHC programs, which are carried on.
Okay. My last question is on the U.S. business. So I guess we continue to see a very gradual step up there despite now all the plants -- all the key plants being cleared by the U.S. FDA. So how do you see U.S. sales moving up from here on, and if you can also update in terms of the launches which you are planning for next 2 years or so?
So U.S., we don't expect a ramp up in the short term because most of our filed ANDAs are, let's say, very old, right, because of the lapse of time since the plants got into trouble. We expect a low single-digit approval of newer ANDAs, and it could largely compensate for the price erosions and things of that sort. So I don't expect the U.S. to ramp up anywhere very fast in the next 2 years. So it'll be a slow ramp up, unless we get lucky with one of the other opportunities. So we do have a few which might be a unique product, but we cannot predict because it depends upon the number of competitors that show up and if we get CGT or not. So I would generally guide towards stable to slightly increasing revenues, but nothing more than that.
[Operator Instructions] We have the next question from the line of Amey Chalke from JM Financial.
First question on the India business. So in India business, we have been growing well for the last few years. We have gained market share in value, which we could see the data provided by AIOCD. However, is it possible for us to give some clarity on the prescription market share again in our top 10 to 15 products over the last 1 or 2 years? How has been the trend there in some of our key products?
Prescription share has also gained. I don't remember the exact numbers off hand, but most of our focused brands in our chronic divisions and sub-chronic divisions have gained a higher market share compared to the relative market -- the covered market. So obviously, the prescription growth has to be followed by the market share growth; otherwise, it's not possible.
Got it. And the second question I have, is it possible to provide the margin drivers for next 3 years? So far, we have -- like we have reached around 32% plus now. So going ahead, what will be the key drivers from here? Is there any geography where you think if the ramp-up happens the margins could improve? Or anything -- any margin drivers you could highlight, please?
No. So I think, Amey, 2, 3 things, right? I mean -- so I think as far as branded businesses are concerned, some amount of reinvestment keeps on happening every year. And that's something which I said in the opening call where the quarter 2 P&L has already absorbed the full cost of 300 medical reps, which we have added this year, right? So to that extent, the reinvestment from margins will keep on happening. But in spite of that, I think the general guidance, which I have been giving is that we should see anywhere between a 50 basis point to 100 basis point improvement happening every year.
At least the way I look at for the next 3 years, as of today, I don't see some major investments happening in the branded business. As far as Germany is concerned, Germany is good, I would say, in terms of winning tenders, and there's a good amount of visibility for the next 2 years. So I don't see any additional incremental spend happening in Germany as well.
U.S., as Sanjay talked about, right, I mean, it's a slow ramp up, which would happen over the next 2, 3 years, which is only going to be positive on the overall performance of the company. So nothing negative from there as well. So basically, if you see -- yes.
The investment pace is coming down, so that's why the operating leverage will play out, and that's how the 50 to 100 bps margin improvement will happen.
So there are 2 inherent levers which we've always talked about. So one is branded businesses price increases, which we take every year. That's one lever. And the second is the operating leverage, which plays out every year for us.
Okay. And the third question I have is on the R&D spend. We have been doing 5% of our R&D -- 5% of our topline on the R&D. Is it possible to give clarity on what areas we have been spending? Because this has been quite consistent even during the time of when we had issues with the U.S.
Correct. When we had issues with the U.S., what we did is we actually diverted a decent piece of the R&D budget toward the markets of Brazil, Mexico and Germany. And so we maintained the R&D spend. And we cut down the part of the R&D devoted towards the U.S. So hence, we don't intend, at least as of today, to substantially change the ratio of R&D to sales.
Yes. Amey, 2, 3 things, actually. So in terms of absolute value, if you see the R&D spend has been going up. On the other hand, the branded businesses share has been going up, right? I mean, for example, Curatio acquisition, which we did in 2022, increases the revenue base, and therefore, as a percentage to revenue, it's around 5%, okay?
If you look at an absolute value, it's been going up, okay? The only thing which is why it is not going up on a relative basis is that the spend on the U.S., we had lowered, right, because of the internal issues, which we've had. So I don't see a substantial increase in R&D at least over the next 1 year. But if everything is starting to go right for U.S., we'll see how to incrementally allocate R&D for U.S.
Sure. And in terms of formulation, what all types of products are we putting the spend on like in terms of injectables or anything else which we are trying at this point?
I think most of the R&D spend, which is done in-house is on oral solids. The other types of platforms are partnered.
Inside oral solids are oncology, dermatology and classical oral solids.
The next question is from the line of Bino Pathiparampil from Elara Capital.
Could you please explain this insulin issue in a bit detail what exactly happened and how it will get...
Yes. So as I said, right, I mean, there's a shutdown taken for some upgradation and maintenance activities. This was something which was scheduled earlier, right? And what we said is it's getting released in December, and we should recover the shortfall in quarter 4, most of it.
Okay. So it was just a shutdown for a plant upgrade, that's it.
Yes, yes, upgrade and maintenance activities, right? I mean, it happens once in 2 years or 3 years.
The next question is from the line of Sumit Gupta from Centrum.
Sir, I have 3 questions. First, on the India side. So now that 300 MRs are added, so what's the plan ahead? Do you plan to add more towards this? And what kind of MR productivity can we see over the next 2 to 3 years?
So 300 have been added this quarter compared to 5,700 previous quarter, which is what we had also shared last time. I think given how we are encouraged by the performance, we will be looking to add incrementally from here. So maybe 100, 200 more end of this financial year and potentially a similar number next year.
Okay. And the kind of MR productivity that we can target is?
More or less should touch -- I mean, anyway, currently, it's around 9 lakhs, if I'm not wrong, between 8.5 lakhs to 9 lakhs. Within the next 18 months, possibly should be between 9.5 lakhs to 10 lakhs. It's a broad range.
Okay. And sir, second question on the U.S. sales. So like what is the profitability -- like is the U.S. business profitable post-R&D?
So we don't disclose profitability by factory. What we've said is that the U.S. is at a breakeven pre-R&D.
Right. Okay. So like post-R&D, like what -- by when can we expect the profitability to break even?
So the expectation is at least over the next 3 years, we want to make it a profitable business.
Understood. And sir, last question is on the CapEx. So how much of CapEx we plan to incur over the next 2 to 3 years?
Around INR 250 crores to INR 300 crores per annum.
[Operator Instructions] The next question comes from the line of Saion Mukherjee from Nomura.
Just 1 question. The insulin, can you share what's the revenue on an annual basis? And is it fair to assume there was no revenue this quarter?
Yes. So ideally, per quarter revenue ranges between INR 75 crores to INR 80 crores. And this quarter, there's a shortfall of almost INR 40 crores.
Okay. And just 1 last question on Brazil. You had good growth. But if I look at the first half, I think the growth is around 12-odd percent. Is that the right thing to look at? Because I understand there was some disruption in Q1 and the spillover of sales, et cetera. So just want to understand the underlying trajectory because you mentioned IQVIA is indicating an 8% growth.
Correct. I would say that it's somewhere between 8% and 12%, but closer to 12%.
[Operator Instructions] The next question is from the line of Alok Dalal from Jefferies India Private Limited.
Aman, can you provide a split of volume price and new products for India?
Yes. So as per the AIOCD data set, our growth for the quarter is 12%. Breakup of that is 1% of volume versus 0.2% of the market, 8% price versus 5.5% for the market and 3% new products versus 2.4% of the market.
Okay. And Sanjay bhai, what will be the guidance for Brazil for the full year? You expect crude to remain in this range only.
Correct. So I would stick with the double-digit topline growth. I mean in Brazil, traditionally, historically, the second half is a little better in the invoice sales. That's just the way the wholesalers work. It's not -- so yes, I think the market should continue to be 8%, 9%, and we should be higher than the market growth here.
Okay. And what is the plan for new launches in Brazil?
We have an aggressive plan. So we have 3 teams in Brazil, 2 CNS teams and 1 CNT team. And then, on top of it, we have a generics division. So ideally, we'd like to launch at least 1 to 2 products a year for each division. And for generics, about at least 5 products a year [indiscernible].
[Operator Instructions] We have the next question from the line of Damayanti Kerai from HSBC.
Coming back on India, so I guess, we continue to see very muted contribution from the volume expansion, low single digits. So what is the outlook here? Should we assume, going ahead, also volume contribution will remain muted in low single digits and majority will be contributed by price and relaunches? How do you see like volume moving up in the market, the broader markets?
So compared to the AIOCD data, our reported growth is higher by, I think, about 1%. So that we attribute to volume. And we have to look at it from a combination of volume and new products growth because in our case, it's some of our mature products, which are now being -- the share is now shifting to the newer products. So once the new product growth normalizes into volume growth, it should all be volume. So if we look at right now, the breakup is about 4% between new products and volume. So our estimate is somewhere around 3% is what the volume growth should be, and that should continue.
Okay. Understood. But what are your thoughts, like in the India market, obviously, we are seeing this low contribution overall for last couple of quarters. So what is attributing mainly for this kind of muted, I guess, contribution from the volume?
No, we still believe that the market growth cannot be as low as 8%, and volume growth cannot be this slow because we simply cannot grow volumes at that rate as we are reporting if the market growth was that slow. So our estimate of the market growth is higher than what's in the data sets by at least maybe 2%.
[Operator Instructions] The next question is from the line of Rahul Jeewani from IIFL Securities.
Can you quantify the quantum of ForEx losses, which is sitting in other income for this quarter?
Yes, it's around INR 22 crores, Rahul.
Sure, sir. And, sir, on the debt position, at least if I see the IH numbers, our net debt is largely flat versus FY '24. So what kind of repayment have we seen in IH?
So if I correctly remember, Rahul, the gross debt was roughly INR 3,900 crores as at March '24, which has come down to INR 3,000 crores. So the gross debt is INR 3,000 crores. On a net debt basis, it's become INR 1,800 crores. So we've repaid actually INR 900 crores in H1.
[Operator Instructions] We have the next question from the line of Rashmi Shetty from Dolat Capital.
Just a follow-up on gross debt, INR 900 crores we have paid in -- repaid in H1. Any more quantum repayment expected in H2?
Yes, yes. I think we should be repaying around INR 500 crores to INR 600 crores at least.
Okay. And what about FY '26, similar annual number?
Yes, I think FY '26, we should be net cash.
Okay. And just 1 on U.S. business. With the Indrad also now coming out and receiving the EIR, how many new launches are planned at the company level from the facilities as well as your partner products put together?
So it would be a single-digit number of launches.
Single digit. And this would be high single-digit launches?
I actually cannot say because we've got the EIR, but it takes several months post-EIR for the FDA to approve the product. So we have -- we think at least mid-single digits should get approved in a 12-month period post-EIR.
Understood. And -- but otherwise, this base case of $42 million quarterly run rate, it would be maintained in the subsequent quarters also?
Yes. Our endeavor is to maintain and to enhance those new products.
We have the next question from the line of Anubhav Agarwal from UBS.
Just checking am I audible properly.
You are audible, sir. You may proceed.
Just 1 question from me on the India business. So the expansion of field force by, let's say, high single-digit percentage on an annual level, what is the primary dominant factor there? For example, are you increasing your doctor coverage here predominantly? Or this is largely for the new launches in the same divisions? Or are you increasing more divisions?
It's a combination of all 3; more divisions, more coverage, more territorial reach, all 3 together. And we have seen pretty good results in the expansion done in the last 18 months as a result. So wherever we see, whichever divisions or brands are yielding results within a certain period of time, we decided to take further expansion actions if required as well.
But on the first point on the doctor coverage, do you think that there is a potential to cover significant more number of doctors that you're covering right now, and therefore, the field force for you instead of -- is there a merit first of all instead of growing the field force by 7%, 8% versus growing at 12%, 13% or thereabout, for example, and covering more doctors and taking more market share from the smaller companies?
Yes, because we are just not adequately present in some non-metro towns where we believe that there is a justifiable reason for us to enter.
Aman, can you give us an example just to understand a little better, for example, when you say non-metro towns, for example. I mean, let's take -- I'm in Mumbai, so just take an example, Nashik, for example, would you quote Nashik as one of that example then?
If I look at Ahmedabad, for example, the nearby towns would have been covered from Ahmedabad historically, and that kind of compromises your frequency of coverage and total kind of extent of coverage. But if you have a full base in a nearby town, which now has adequate population -- I mean, population was never a concern, adequate doctor presence, that's where you can increase. And it justifies the need for your presence full time in that regional headquarter. And that is where we are seeing that. That addition is really helping some of the chronic divisions, the sub-chronic divisions, particularly in gastro, where we are seeing a significant uptick.
[Operator Instructions] We have no further questions at this point. Ladies and gentlemen, I would now like to hand the conference over to Mr. Sanjay Gupta, Executive Director of International Business, for closing comments. Over to you, sir.
Thank you. I would like to thank you for your participation today. We continue to remain focused to grow the company in our branded generic market and to remediate and start growth in the U.S. market as soon as possible. Thank you.
On behalf of Torrent Pharma, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.