ICICI Direct Bets On This Large Cap Pharma Stock, Suggests Buy For 17% Potential Gains

Updated: Thursday, September 29, 2022, 2:26 [IST]

Leading brokerage firm ICICI Direct in its recent report on Torrent Pharmaceuticals Ltd (Torrent Pharma). has rated the it "buy" with a target price of Rs 1730 apiece. Given the brokerage's predicted target price, investors who purchase the company's stocks at the current market price can expect 17% potential returns in 1 year. Torrent Pharma is a large-cap pharma company in India with a market capitalization of Rs 23,414.84 crore.

Incorporated in 1959, Torrent remains a key player in branded generics (~60% of sales) with a strong India franchise and growing export traction. Torrent is the eighth largest domestic player and is ranked in the top 10 for CVS, CNS, V&M, GI, and anti-diabetes therapies in India.

Stock Outlook & Returns

The Current Market Price (CMP) of Torrent Pharma is stood at Rs 1494.30 apiece on NSE. Its 52-week low is Rs 1,242.08 and the 52-week high is Rs 1,649.25, respectively.

Torrent Pharma stock in the past 1 month gave 3.46% negative return, whereas, in the past 3 months, it gave 3.64% positive return. Over the past 1 year, it gave 76.515% positive return, and in the past 3 years, around 76.51% return, respectively. Over the past 5 years, it gave 144.63% multibagger return to investors.

Event: Acquisition of Curatio Healthcare

1. The company is set to acquire 100% of Curatio Healthcare for Rs 2000 crore. The consideration includes Rs 115 crore of cash and cash equivalents in the acquired business indicating an enterprise value of Rs 1,885 crore.

2. Curatio has a strong presence in the cosmetic dermatology segment with a portfolio of over 50 brands, marketed in India. Top 10 brands of Curatio account for ~75% of total revenue. With this deal, Torrent Pharma will enter the league of top 10 players in the dermatology segment and will be the leader in the cosmetic dermatology space.

3. Curatio reported revenues of Rs 224 crore in FY22 and is expected to post Rs 275 crore revenue in FY23, thus valuing the deal at 8.4x and 6.9x FY22 and FY23E EV/sales, respectively.

ICICI Direct recommended buy for a target price of Rs 1,730

According to the brokerage firm, "Torrent's share price grew 1.8x over past three years. We maintain BUY rating on the stock despite the steep valuation of this deal due to 1) gap filling in dermatology with differentiated and growing portfolio and 2) track record of the company for faster integration and turnaround of acquired assets in the domestic space. Additionally, we expect near-term margin dilution in H2FY23 due to this deal to be largely offset by back-ended synergy and integration benefits."

Target Price and Valuation: Valued at Rs 1730 i.e. 37x P/E on FY24E EPS of Rs 46.7.

Key triggers for future price performance

1. Integration of Curatio's brands along with 600 MRs and 900 stockists for focused approach in cosmetic and paediatric dermatology.

2. In India, Torrent has expanded field strength by 300 to 4,200 MRs. Also, it forayed into the fast-growing trade generic segment for acute therapies.

3. Torrent has a good presence in Brazil and expects traction for new launches in branded space while Germany tender wins will be key in H2FY23.

4. Awaiting clearance for Dahej and Indrad facility from the USFDA. New launches are key to offsetting persisting price erosion in business.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.