Overseas Growth Gets Critical For Torrent Pharma As Unichem Drags India Biz

Growth in overseas geographies is becoming critical for a domestic market focussed Torrent Pharma as its recently acquired Unichem portfolio continues to be in the slow lane. In the fourth quarter financial results for fiscal 2018-19, not only did Unichem drag TPL’s domestic portfolio, but the company also saw other key markets like Brazil and Germany post a decline or muted growth.

While it continues to work on integrating Unichem in its specialty model, Torrent Pharma will focus on overseas geographies like US, Brazil and Germany even as it looks to build its presence in Mexico, UK and other rest of the world (RoW) markets.

“Our four large geographies are India, Brazil, US and Germany and we remain focused on these markets with an objective to drive higher market share and a deeper presence. We are also building our business in Mexico, UK and certain RoW markets,” a company spokesperson told Business Standard.

The company recently took a hit on its bottomline by posting a net loss in Q4 on account of an impairment provision of Rs 217 crore on certain intangible assets and goodwill, recognised as part of acquisition of Bio-Pharm in US, as well as product recall charges of Rs 140 core in the US.

The drug maker had to recall over 1.078 million bottles of Losartan Potassium, a tablet for the treatment of hypertension, from the US and Puerto Rico on account of deviations from current good manufacturing norms.

Yet, while revenue from its US business, including that from acquired businesses, grew by 21 per cent on a year-on-year (YoY) basis, its India, business dragged along with a 9 per cent growth in Q4FY19 to Rs 754 crore. According to a Reliance Securities report, the lower growth at 9 per cent in its India business was due to “some of the initiatives taken by the company such as discontinuation of low-margin and low value products and hygiene initiatives”.

Of the other major markets, while Germany saw a muted 2 per cent growth, growth in Brazil fell by 4 per cent.

Until recently, Torrent Pharma had been integrating Unichem acquisition through cost synergies or per capita per month (sales) improvement by the rationalisation of field force. While it did improve Unichem’s margins, growth seems to have alluded the company in the domestic market.

“Q4 of FY’19 was the first full quarter with Unichem in the base and the growth rate fell to single digit despite double digit growth in Torrent Pharma’s domestic portfolio. Unichem portfolio comprising mature brands and high overlap with Torrent Pharma portfolio has slower growth profile than Torrent Pharma,” a recent Edelweiss report on Torrent Pharma stated.

Growth in overseas geographies including US, Germany and Brazil has become imperative as domestic growth could take some time to revive. However, analysts also believe the drug recall could impact these markets. “Recall of losartan and losartan H in the US, Germany and Brazil will impact growth in these businesses,” as per the Edelweiss report.

On its part, Torrent believes growth in the generic markets of US and Germany will be driven by new product introductions and gaining market share in its existing covered market, according to the spokesperson.

Meanwhile, with Unichem, Torrent Pharma is willing to weather some “short term pain” for long term gains in future. “Over the last one year substantial efforts were undertaken to integrate the acquired business with the Torrent specialty model. Our primary objective was to drive growth in the top brands, improve productivity and bring business hygiene. In this process, we have accepted some short term pains for sustainable long term growth,” the company spokesperson added. – Business Standard