HDFC Securities has maintained 'Buy' on Torrent Pharmaceuticals with target price of Rs 574 as against current market price (CMP) of Rs 520 in its report.
Commenting on the investment rationale, the stock broker said, ''Post the recent stock price correction of 10%, TRP trades at an attractive valuation of 12.7x FY16E EPS. Given buoyant US revenues, steady domestic formulations segment, ROCE/ROE of >20%, we remain positive maintain Buy - target price Rs 574.
Torrent Pharma posted robust Q3FY14 (revenues/PAT were up 30/63% YoY) driven by strong US traction. We expect the traction in US to remain strong in coming quarters driven by new launches made in last three months as well as continuing lucrative opportunities like gCymbalta. Additionally TRP has launched two Telmisartan combination products (gMicardis HCT and gTwynsta) which will incrementally add to US traction in the coming few months. We expect TRP to post revenues of US$ 93/120/144 million in FY14E/15E/16E, CAGR of 31% over FY13-16E.
Torrent Pharma has been our preferred stock in the mid-cap Pharma space due to chronic tilted domestic portfolio, fast growing US segment (albeit on small base), consistent free cash flow generation (Rs 1 billion) and RoCE/RoE in excess of 20%. Lower growth in Brazil (5% growth) and higher gearing due to Elder acquisition remain a concern.
We expect TRP to post 21% CAGR in revenues; higher interest outgo however will restrict PAT CAGR at 14%. We continue to value TRP at 14x FY16E EPS of Rs 41, Maintain Buy with a TP of Rs 574.''
