Buy Torrent Pharmaceuticals, target Rs 1,870: Reliance Securities

Reliance Securities has a buy call on Torrent Pharmaceuticals with a target price of Rs 1870.

The current market price of Torrent Pharmaceuticals is Rs 1,627.45.

Time period given by the brokerage is one year when Torrent Pharmaceuticals price can reach the defined target.


Outlook & Valuation by Reliance Securities:
With robust 1QFY19 and strong growth outlook for domestic business, we increase our sales/EBITDA estimates by 4.6 per cent/4.2 per cent and 11.3 per cent/7.0 per cent for FY19E and FY20E, respectively.

Looking ahead, we expect TRP’s sales/EBITDA/PAT to clock 23 per cent/32 per cent/23 per cent CAGR through FY18-20E, while EBITDA margin is expected to improve by 365bps to 26.1 per cent.

TRP acquired Unichem domestic and Nepal business for Rs 36bn (Nov-17).

The deal is to be funded through 70-75 per cent debt (USD denominated debt not feasible due to regulatory issues).

We expect higher interest cost and depreciation/ amortisation charges to suppress TRP’s earnings by 30.2 per cent and 26.2 per cent for FY19E and FY20E, respectively.

We believe it is appropriate to value TRP on EV/EBITDA multiple (generates 60 per cent of its EBITDA from domestic business). Currently, the stock is trading at 16.4x and 13.7x of FY19E and FY20E EV/EBITDA, respectively while last three year 1YF mean EV/EBITDA is at 15.3x.

We maintain our BUY recommendation on the stock with a revised Target Price of Rs1,870 (from Rs1,630 earlier), valuing at 15x FY20E EV/EBITDA (FY19E/FY20E average EBITDA).