Fundamental Analysis of Torrent Pharmaceuticals: Investors eye for stocks that can give consistent returns over the years, steadily rising over time like Titan Co. or any of the big tech stocks. How about we introduce you to a new stock: Torrent Pharma, a leading drug maker that has risen consistently over time?
In this article, we perform a fundamental analysis of Torrent Pharmaceuticals to find out how it has generated impressive returns for its shareholders.
Fundamental Analysis of Torrent Pharmaceuticals
In this article, we shall perform a fundamental analysis of Torrent Pharmaceuticals. We’ll get ourselves acquainted with the history and business of the company, followed by an industry overview. In the process, we’ll also learn about the business segments and its product line.
Later, a few sections are devoted to revenue, return ratio, and debt analysis. A highlight of the pharma company’s R&D spending and a summary conclude the article at the end.
Company Overview
Torrent Pharmaceuticals is the flagship company of the gas-to-power conglomerate Torrent Group. It was incorporated as Trinity Laboratories 63 years ago in 1959. Over the years, the company has grown organically and inorganically to become a leading pharmaceutical player globally.
Torrent Pharma is counted as a leader in multiple therapeutic segments: cardiovascular (CV), central nervous system (CNS), gastrointestinal (GI), and women’s healthcare (WHC).
It has 7 manufacturing facilities with 90 MT of API production capacity. These sites produce a broad range of products including oral solids, topicals, human insulin, and synthetic API. Its manufacturing capacity stood at over 2,100 unit formulations as on March 31, 2022. As of the present date, it has an international footprint with a presence in over 40 countries.
Torrent Pharmaceuticals has 13,900+ employees out of which 790 are scientists. It spent Rs 516 crores on research and development in FY22. The pharma company filed 13 patents and had more than 120 projects under development.
We mentioned above that the company has an international presence. In the next two sections, we talk about its geographical presence and product line as part of our fundamental analysis of Torrent Pharmaceuticals.
Business Segments and Product Line
Performing a quick segment analysis, we see that India accounted for 55% of Torrent Pharma’s revenue in the recent fiscal. Additionally, 96.68% of non-current assets are based out of the nation. Thus, even though the company sells globally, its manufacturing base is in India.
The table below highlights geography-wise revenue share and non-current assets distribution for the financial year 2021-22.
| Geography | Revenue (%) | Non-current Assets (%) |
| India | 55.05% | 96.68% |
| USA | 12.54% | 0.93% |
| Germany | 11.36% | 1.17% |
| Brazil | 8.72% | 0.34% |
| Other countries | 12.33% | 0.88% |
In the Indian Pharmaceutical Market (IPM), 53% of the company’s revenue comes from chronic/sub-chronic drugs. This category makes up 74% of the total income of Torrent Pharma. This offers strong visibility and consistency to the sales of the drug maker.
The image below shows the product line of the company in IPM and globally.
Industry Overview
So far we have studied the business as part of our fundamental analysis of Torrent Pharmaceuticals. In this section, we acquaint ourselves with the pharma industry and its prospects.
The organized medicine market is projected to grow in the range of 3-6% compounded annually from $ 1.54 trillion in 2022 to $ 1.81 trillion in 2026. Growth will be partially offset by losses of exclusivity to the tune of $ 188 billion in brand losses.
Losses of exclusivity arise when pharmaceutical companies have to let go of their patented products. They release it in the marketplace when the patent expires, say 10-15 years after milking the gains (legal right to develop, sell, and market the drug) from a patent.
The graph below tells global pharma spending from 2020 to 2026 (projected).
Overall, the industry growth is expected to remain low. In developed economies, new treatment adoption remains the primary demand catalyst. As for the demand in emerging countries, a shift to the pre-Covid low-growth era is happening as volume declines are happening slowly. Despite this, emerging countries will still fetch their largest absolute growth.
Going forward, longer life expectancy, changing lifestyles, improving purchasing power, health insurance & infrastructure penetration, and digital analytics will be key growth drivers for the pharmaceutical industry.
The image below highlights pharma spending across countries in which Torrent Pharmaceuticals has a presence.
We can note that the medical spending in Brazil and India will rise faster than in the US and Germany. This bodes well for the stock as Torrent earns over half of its revenues from the nation.
Torrent Pharmaceuticals – Financials
Revenue and Net-profit Growth
The operating revenues of Torrent Pharmaceuticals have grown at a CAGR of 7.23% from Rs 6,002 crore in FY18 to Rs 8,508 crore in FY22. During the same period, its net profit grew inconsistently.
The company recognized an impairment provision of Rs 439 crore in FY22 on the account of discontinuing its liquid facility operations in the US. Heightened competition and incremental investments needed to bring products into the market didn’t justify the long-term business prospects.
Additionally, it incurred a higher deferred tax charge as the pharma company shifted to a newer tax regime in the current fiscal. Together these two line items decreased overall net profit in FY22 to Rs 777 crore.
Similarly, FY19 saw an impairment of intangibles and product recall expenses totaling Rs 357. Torrent’s products had to be called back because they had carcinogenic properties.
The table below presents operating revenue and net profit figures for the last five financial years.
| Fiscal Year | Operating Revenue (Rs Cr) | Net-Profit (Rs Cr) |
| 2022 | 8,508 | 777 |
| 2021 | 8,005 | 1,252 |
| 2020 | 7,939 | 1,025 |
| 2019 | 7,673 | 436 |
| 2018 | 6,002 | 678 |
Margins: Operating Profit and Net Profit
Taking forward our fundamental analysis of Torrent Pharmaceuticals, we note that the net profit margin was significantly lower in FY22 and FY19. It was for the same reasons highlighted in the section on revenue and profitability analysis above.
Overall, the operating margin has improved in the previous five fiscal years. The management has a responsibility to deliver a higher net profit margin in the coming year as we set aside tax regime change and impairment loss as a one-time event.
| Fiscal Year | OPM (%) | NPM (%) |
| 2022 | 31 | 14 |
| 2021 | 32 | 16 |
| 2020 | 29 | 13 |
| 2019 | 26 | 6 |
| 2018 | 28 | 11 |
In the next section, we look at the two return ratios of Torrent Pharma: return on capital employed (RoCE) and return on equity (RoE).
Return Ratios: RoCE & RoE
From the figures below, we can see that both RoCE and RoE/RoNW suffered significantly in FY19. Since then, there has been a rapid recovery in the business. The return on equity declined again in the previous fiscal for the reasons cited above.
| Fiscal Year | RoE or RoNW (%) | RoCE (%) |
| 2022 | 18 | 21 |
| 2021 | 21 | 19 |
| 2020 | 21 | 17 |
| 2019 | 9 | 14 |
| 2018 | 15 | 13 |
Torrent Pharmaceuticals offers high return ratios. This is a plus point for the investors as it helps to counter slower revenue growth.
Debt/Equity & Interest Coverage
Talking about the leverage ratios of the pharma stock, Torrent has reduced its debt over time. For the financial year that ended March 31, 2022, its debt-to-equity ratio stood at 0.52 and interest coverage ratio at the high of 9.03 times.
The table below presents the debt/equity ratio and interest coverage ratio of Torrent Pharmaceutical for the last five years.
| Fiscal Year | Debt/Equity | Interest Coverage |
| 2022 | 0.52 | 9.03 |
| 2021 | 0.71 | 6.21 |
| 2020 | 0.98 | 4.73 |
| 2019 | 1.08 | 3.51 |
| 2018 | 1.05 | 4.05 |
Research and Development Expenses
Studying expenditure on research and development is an important leg for performing a fundamental analysis of Torrent Pharmaceuticals. The figures presented below have been taken from the annual reports of the company for the last fiscal years.
The management deployed higher funds towards research and development in the recent fiscal. This translates into growth opportunities for the company in the long term.
| Fiscal Year | R&D Expense | % of Turnover |
| 2022 | 430 | 6.45 |
| 2021 | 371 | 5.86 |
| 2020 | 381 | 6.32 |
| 2019 | 398 | 7.16 |
| 2018 | 369 | 8.92 |
In addition to this, the drug maker is progressing well in its efforts to strategically diversify into different dosage forms. It is setting up a greenfield production facility at Bileshwarpura, Gujarat for oral oncology products. The management hopes to file for multiple complex generic oncology products in advanced markets such as the US, Europe, and Brazil in the near future.
Fundamental Analysis Of Torrent Pharmaceuticals – Key Metrics
We are now almost at the end of our fundamental analysis of Torrent Pharmaceuticals. Let us take a quick look at the key metrics of the stock.
| CMP | ₹1,635 | Market Cap (Cr.) | ₹55,500 |
| EPS | ₹23.60 | Stock P/E | 46.20 |
| RoCE | 21% | RoE | 18.0% |
| Face Value | ₹5.0 | Book Value | ₹180.00 |
| Promoter Holding | 71.2% | Price to Book Value | 9.11 |
| Debt to Equity | 0.52 | Dividend Yield | 0.25% |
| Net Profit Margin | 14% | Operating Profit Margin | 31% |
In Conclusion
We can say from our fundamental analysis of Torrent Pharmaceuticals that it has been a bittersweet journey for the company. However, to its investors, the pharma stock has delivered impressive results of 20.55% compounded every year for the last five years. Going forward, a steady increase in operating revenue and net profit is expected from the company.
In your opinion, will Torrent Pharma be able to avoid any exception loss hits in the future? It is very important that its bottom line doesn’t take any more hits. What do you think of the stock? How about you let us know in the comments below?
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