Torrent Pharmaceuticals Manages To Improve Unichem’s FY19 Profits

After an initial struggle, Torrent Pharmaceuticals has managed to improve the profitability of Unichem, which it acquired in December 2017, from 18 per cent to more than 30 per cent in 2018-19 (FY19). This is in line with the company’s domestic margins. Analysts point out that the profitiablity is the result of the company’s efforts towards rationalisation — of both manpower and tail-end or overlapping brands.

Torrent has reduced its employee strength in FY19 by around 1,102 people, according to its annual report. It has a workforce of 13,598 employees as on March 31, vis-à-vis 14,700 as on March 2018. Of 1,100 people, around 600 were from the field force.

Sales, marketing, and promotional spend as a percentage of domestic sales declined by 261 basis points in FY19, which indicates the front-end synergy of the Unichem acquisition, said Nomura analysts. On top of it, medical representative (MR) productivity improved to Rs 75 lakh per year from Rs 40 lakh a year in FY18, when it had plummeted primarily due to the acquisition of Unichem’s domestic and Nepal businesses.

This apart, the company has discontinued its discounted sales (around 11 per cent of Unichem’s portfolio), noted a recent Edelweiss report.

An e-mail sent to Torrent Pharma remained unanswered as the firm is in silent period before the first quarter results. FY19 included full-year sales for Unichem versus 105 days in FY18.

Unichem’s portfolio of mature brands such as Losar (anti-hypertension drug) was registering slow growth and, hence, some analysts saw it as a drag on Torrent’s revenues. Losar comprised almost 20 per cent of the acquired portfolio of Unichem. The early generation anti-hypertension drug was not witnessing much growth in the past five years — it posted negative growth in June last year — as the market had shifted to a new drug called Telmisartan.

Torrent, however, remained committed to Losartan as it felt it plugged the gaps in its anti-hypertension portfolio. Losar features in the top ten brands of Torrent — it comes second after Shelcal (another acquired brand from Elder) in terms of rankings.

In a recent note, Nomura analysts have stated that Torrent is trying to gain market share within Losartan. “The company has been able to gain share from Sun Pharma since the acquisition of the brand in December 2017. Sun Pharma is the second-largest player in the market,” the report noted. It has also taken a 10 per cent price increase (the maximum allowed) in Losar in April 2019.

Torrent’s overall India revenues grew by 38 per cent year-on-year (YoY) in FY19 to Rs 3,234 crore, accounting for 42 per cent of its sales.

After realising most cost synergies from earlier integrated Unichem portfolio, Torrent’s focus remains on improving productivity of India sales team by ramping up promotional efforts to specialist doctors, noted HSBC analysts.

However, balancing growth and profitability objectives can be challenging for Torrent Pharma going forward amid slowing Indian domestic market growth, said Deepak Malik, analyst with Edelweiss.

Similarly, in the US, the company is struggling for new product approvals after the US Food and Drug Administration (USFDA) observations on its two facilities.

The inspections in March and April at Torrent’s formulation sites at Dahej and Indrad resulted in five and four observations, respectively. The inspection classification for these facility audits is expected in around a month. – Business Standard