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“Torrent Pharmaceuticals Limited

Conference Call”

July 31, 2014














Page 1 of 23 Torrent Pharmaceuticals Limited July 31, 2014 Moderator: Ladies and gentlemen, good day and welcome to the Torrent Pharmaceuticals Limited Q1 FY 2015 earnings conference call, hosted by Edelweiss Securities Limited. As a reminder all participants’ lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal for an operator by pressing “*” and then “0” on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anshuman Gupta of Edelweiss Securities. Thank you and over to you Mr. Gupta!

Anshuman Gupta: Thanks Karuna. Good morning to all of you. On behalf of Edelweiss I welcome you all on Torrent Pharma Q1 first quarter 2015 earnings call. I am Anshuman Gupta and I lead the Pharma and Healthcare Research at Edelweiss. We have the Torrent Pharma management team with us, Mr. Ashok Modi, Executive Director, Mr. Sanjay Gupta, Executive Director for the International Business, Mr. Ruchir Modi, Chief Marketing Officer, and Mr. Sudhir Menon, General Manager, Finance and Mr. Rishi Shah, AGM, Finance. I would like to hand over the conference to Mr. Ashok Modi for opening remarks. Over to you Sir!

Ashok Modi: Good morning everybody. I am Ashok Modi here. Welcome to our post result teleconference for FY 2015 Q1 results. I have with me, Mr. Sanjay Gupta, who is the Executive Director, looking after international operations, Mr. Ruchir Modi, Chief Marketing Officer. Mr. Sudhir Menon, my colleague at General Manager, Finance and Rishi Shah, AGM, Finance.

Let me first take you through the operating highlights of the quarter. During the quarter the revenues from our domestic and international core business grew at 27%; however, adjusting for revenues from contract manufacturing operations and the one off income which we had in the last year the actual growth of the company was 15% and the revenues increased from 972 Crores to 1114 Crores.

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International operations registered a growth of 36%, while on constant currency basis it was 27%.

The highlights of the major international territories are as follows:

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Rest of the World including RCIS operations registered degrowth of 12% with revenues at 86 Crores. The revenue degrowth was majorly attributable to the market inventory correction, discontinuation of sales in some nonperforming countries and overall lower performance than anticipated.

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Moderator: Thank you very much Sir. Ladies and gentlemen, we will now begin with the question and answer session. We have the first question from the line of Chintan Sheth from SKS Capital and Research. Please go ahead.

Dimple Sheth: This is Dimple here. Congrats on a good set of numbers. Sir I would like to know that the Elder deal is completed, so have we transferred the entire cash of Rs.2000 to Elder Pharma?

Ashok Modi: Yes the entire consideration has been paid.

–  –  –

Ashok Modi: Actually the transaction is also inclusive of working capital, so there has been a small adjustment on account of actual working capital vis-à-vis the anticipated working capital of about 40 Crores.

Dimple Sheth: Sir, if you can give me the quantum that on what amount of cash is exactly transferred to Elder Pharma?

Ashok Modi: I could not follow your question.

Dimple Sheth: My question is that what is the total amount of cash consideration which is actually transferred from Torrent Pharma to Elder Pharma?

Ashok Modi: We will send that details to you in offline.

Dimple Sheth: Thank you so much sir. That was all from my end.

Moderator: Thank you. The next question is from the line of Ashish Rathi from Emkay Global Financial Services. Please go ahead.

Ashish Rathi: Thanks for taking my question. Wanted to check on Brazil business we have seen some growth this quarter coming back at a good highlight what caused this bounce and what will be the outlook for the geography going ahead? Sir on Brazil business we have seen some growth in this quarter, could you tell me what causes growth, we were maintaining at tepid outlook and what is the outlook if there is any change going ahead for FY 2015 for Brazil?

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Ashish Rathi: Have we launched any new products in Brazil?

Sanjay Gupta: The last product, we launched was nebivolol. So we have not launched any products this year.

Ashish Rathi: I just wanted to check we reported very strong margin this quarter, what has contributed to the sharp increase in margins and on a longer term period what could be the sustainable margins for Torrent? We have seen a sharp jump from say earlier margins from 22% to 23% type margins, we used to report in the last two quarters you report a 28.5% and this quarter around 30+% margins what would you like to help us understand with in terms of sustainable margins for the company going ahead?

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Ashish Rathi: On forex gain you said, forex gain would be built in other income below the EBITDA margin if I am calculating it correctly?

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Ashish Rathi: Will we come back to the previous margins of around 20% to 21% for the company going ahead as a sustainable margin?

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Ashish Rathi: Thank you Sir. I will join back the queue.

Moderator: Thank you. We have next question from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund. Please go ahead.

Sudarshan P: Congrats for good set of numbers. What I specifically want to understand is if you are looking at the US business quarter-to-quarter there has been a substantial drop, if you are looking at it I think this quarter we have moved out of the exclusivity of Cymbalta. Was this drop primarily on account of that or do we see probably products x of Cymbalta remaining a bit kind of flattish and second is going forward what is the outlook that you are looking at for the US business?

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Sudarshan P: Sir can you also explain the drop in your ROW growth, we have shown a decline in the ROW markets what specifically contributed to that and how do we see things?

Ashok Modi: ROW was basically two reasons, one was the general sluggishness in the market of which this segment comprises of and secondly discontinuation in a couple of CIS countries and that are also contributed a bit to the drop. Going forward I would say this is more of a one time because the discontinuation is a significant contribution to degrowth.

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Ashok Modi: This is substantially, from the debt taken for Elder. Don’t foresee any further debt likely to come on the books on account of Elder.

Sudarshan P: How much would that be Sir?

–  –  –

Sudarshan P: So that should be coming from the second quarter?

Ashok Modi: No, no it is already there.

Sudarshan P: The interest cost is being taken on that?

Ashok Modi: Interest cost obviously in this quarter would be for a very small period.

Sudarshan P: That is from my side. I will join back the queue.

Moderator: Thank you. The next question is from the line of Kaushik Pal from Kotak Mutual Fund.

Please go ahead.

Kaushik Pal: Congrats on a great set of numbers. Just to understand the margins a little bit in Q-o-Q obviously your Cymbalta topline and US dropped and still we have had 100 BPS expansion in core margin and so just want take the point is there and also between the quarters your other expenditure on absolute terms have dropped by almost about I think from 350 Crores, 345 Crores to about 85 Crores which is a very sharp drop which is probably set of expenditure. So if there any charge back which was extra growth from last quarter which lesser charger provided for this quarter is there something related to Cymbalta which is going on there can you please elaborate it?

Ashok Modi: You are talking about the USA or you are talking about the entire business?

Kaushik Pal: The entire business has seen a margin expansion. What I am referring to despite the fact that in US topline drop in Q-o-Q which has largely drop in Cymbalta and I imagine Cymbalta would have made much more money than the company corporate average. I am just trying to understand how your margin can expand when your most affordable product would have declined on Q-o-Q basis?

Ashok Modi: What I was telling you is that the improvement in margins had come on the account of let us say the COGS coming down, which I told you may not be sustainable because like you rightly say there is Cymbalta effect coming in that, but there has been a definite improvement in efficiency on account of other spend and we are hopeful that we would be able to continue to be more efficient on the expenditure part.

Kaushik Pal: So on other expenditure part this 60 Crores drop that you have seen on a Q-o-Q basis that is from Q4 to Q1, so this should we take the current base of other expenditure as a sustainable number?

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Prakash Agarwal: Thanks. Congrats for good set of numbers. Just trying and the understanding the US piece again. I am not sure whether this has been discussed. On the sequential piece have we taken any price rebating or any discounts as we see a sequential drop because I understand June 2014 was the month were some competition came in leading to price erosion?

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Prakash Agarwal: So it would still be $150 odd million kind of generic sales put together?

Sanjay Gupta: $150 million for Torrent?

Prakash Agarwal: For the whole generic market?

Sanjay Gupta: That is ballpark number.

–  –  –

Prakash Agarwal: So we are getting towards there but does not seem to reflect in the financials, so would it be fair to assume that this product has seen some higher than expected price provision?

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Sanjay Gupta: Yes exactly because we will see this Endo Pharmaceutical has just come in June, so that is a new player, it depend upon what approach they take.

Prakash Agarwal: Any comment you can give on Lamictal which we got approval sometime back?

Sanjay Gupta: We have not launched it yet. It is a five-player market already in the US.

Prakash Agarwal: On the margin front, I just wanted to get a sense you talked about forex impact, so where is this forex impact sitting?

–  –  –

Ruchir Modi: I cannot tell you the numbers, but as far as the core business is concerned it is still growing.

Ashwini Desai: That is all from my side. Thank you.

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Chirag Dagli: Have we taken a view on what period will be amortized to Elder goodwill?

Ashok Modi: We will send you the details offline.

Chirag Dagli: What will be the cost of funding this debt?

Ashok Modi: I do not think that is the information which you would able to share with you.

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Nitin Agarwal: Thanks for taking my question. Have I been like a month since taking over the Elder business, although it is a little early in the day, but anymore insights you will probably like to share in terms of are you see the combination really progressing over the next few years?

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Nitin Agarwal: I am completely confident Sir that you will do it, but I think more from a strategic perspective qualitatively we are seeing some positive robust to the business how do you see expectation on the quality the business how it is going to change for going forward?

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Nitin Agarwal: But you said portfolio adding to growth of the Torrent existing business will that help you in that?

Ruchir Modi: It will, it will because typically if you see that we started our Gynecology division two years back with division called Sensa and we have started our orthopedic division about one and half years back with the division called Uno Vista. Now Uno Vista is 42 Crores and Sensa is around 20 Crores. Now these divisions are focused on the core pain products and the gynec hormonal products whereas Elder is a nutraceutical products focused on Women

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Nitin Agarwal: Thanks very much and last one, on the US business how many launches are we looking at for this year?

Sanjay Gupta: Generally, we are between I would say five and 10 launches that is what we are aiming for this fiscal year.

Nitin Agarwal: Any from niche launches, competition launches do you expect from whatever the assessment you have with the market right now?

Sanjay Gupta: It depends upon what the competition is up to and what happens to them, so out of this 6 or 7 we would expect at least the law of averages to pay out in our favor so one third of them should have above average, good profitability, but I really cannot identify which ones because it depends upon the number of players for which we have very limited visibility.

Nitin Agarwal: Thanks very much. Best of luck.

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