Torrent Pharmaceuticals –Buy- Sharekhan

AstraZeneca Plc has signed a licence and supply agreement with Torrent Pharmaceuticals (Torrent). As per the deal, Torrent would supply to AstraZeneca a portfolio of generic medicines for which Torrent already has licences in a range of countries.

As per the deal, AstraZeneca would initially buy from Torrent the licences and market authorisations for 18 products in nine countries. We believe that the AstraZeneca would expand the scope of the portfolio in terms of both products and geographies as the deal progresses.

We believe that Torrent is on the right track as this deal would boost its revenues in addition to the receipt of licensing fee. However, we maintain our estimates for FY2011 and FY2012, awaiting more clarity on the company’s strategy for the emerging markets. In our view, such licencing deals push Indian pharmaceutical companies to expand further in the emerging markets due to increasing competition from the global pharma companies and because the US market is maturing and has become less attractive. While an early entry in the branded markets facilitates share gains, the emerging markets are under-penetrated and more competition could help grow these markets.

We view this development as positive as it synergises with Torrent’s key target markets like Brazil, the USA and Mexico, and re-iterate our BUY recommendation on the stock with the price target of Rs554. At the current market price of Rs495, Torrent is discounting its FY2010E earnings by 16.7x and its FY2011E earnings by 12.5x.

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