Torrent Pharma Ltd is the 8th largest Indian pharmaceutical company and among the leaders in Cardiovascular, Central nervous system, VMN and Gastrointestinal therapeutic segments.
Over the years, the management has managed to stay ahead of the curve through various acquisitions – Elder Pharma’s domestic portfolio of 30 brands in FY14, 2 brands from Novartis in FY18 which strengthened their domestic gynecology portfolio, manufacturing plants from Zyg Pharma and Glochem and lately the acquisition of Unichem’s branded business in India & Nepal. With the Unichem acquisition the company stands to benefit as it will acquire around 120 brands, a manufacturing plant in Sikkim and also 3000 employees. It will also enter into the OTC markets. Top five brands acquired from Unichem have grown 21% during Q3FY19.
In Q3 FY19, the company reported a robust top line growth of ~35% after adjusting for a onetime payment because of new product launches and incumbent players exiting the US markets. As of 9MFY19, margins have improved from 22% in FY18 to 26%+ while revenue has increased by ~37%. Total Filings and launches are 15 and 11 respectively as of 9MFY19. As per AIOCD data, the company has eight brands with Rs.100 crores plus sales as of Q3 FY18.
The company is expected to continue growing on the back of new product launches in USA, growth in domestic markets, better operational efficiency and further integration benefits of Unichem business. Although, there might be a drag on revenues due to frequent changes in regulations and pricing in the Brazilian markets. The company has been consistent in generating free cash flows and has a healthy dividend payout of 31.50%.
Torrent Pharma corrected from the highs of 1700 odd to 1155 levels. The zone was a confluence of the 38.2% fib retracement from the highs to the pivot point at 607 and the 50% fib retracement to the swing at 257. The stock made a time correction after hitting the fib level of 1155. It spent three years in the 1155 and 1700 levels.The break of the 1718 levels with a big bull candle was an indication that the stock was gathering momentum. The stock hit the fib confluence zone at 1857-1896 and then became sideways. The stock has now been above the breakout level of 1718 for good four months now. A close above 1897 levels will open the room to a strong upside in the counter. The Fibonacci extension form the pivot points on the charts is giving two confluence zones one at 1857-1897 where the stock is currently placed at and the other at 2850-2883. Therefore considering the breakout after three years one can target 2300 as the first target which is percentage terms is 20 and the confluence zone at 2851-2883 at 50 percent from the current level of 1891 will be the second target. The RSI is oscillating between 80 and 40 and that’s the bull zone of the RSI. The positive crossover of the moving averages and RSI above 65 is further indicating that the current move should be strong .Therefore the trend of the stock is very strong as far as price and momentum is considered and hence becomes a very good buy above the 1897 levels.