Nomura expects Torrent Pharmaceuticals to report strong second-quarter numbers, driven by robust domestic sales and cost savings from the JB Pharma merger. Despite predicting profits and revenue to beat market forecasts, the brokerage has kept a 'Neutral' rating. This comes as the stock trades at high valuations, leading to recent price pressure for shareholders.
Nomura analysts expect Torrent Pharmaceuticals to outperform market estimates in the second quarter of the 2027 fiscal year. The brokerage forecasts that revenue, operating profit, and net profit will track ahead of consensus predictions. This expected performance is supported by strong demand in the Indian market and active cost-saving measures following the acquisition of JB Pharma.
The company is focused on streamlining its business to improve efficiency. A key part of this strategy involves reducing its field force by 400 employees, with headcount expected to drop to 9,000 in the second quarter from 9,400 in the first. This is part of a broader plan to achieve Rs 4.5 billion in cost savings by the 2029 fiscal year. Nomura projects that these efforts will push EBITDA margins to 34.4%, reflecting a year-on-year improvement of 158 basis points.
Domestic operations remain the strongest growth engine. The company recorded 16.3% year-on-year growth in India during the July-September period, which significantly outpaced the broader industry growth of 12%. While the core business is performing well, the US market faces a short-term challenge, with revenue expected to fall by $4 million to $40 million as one-time benefits from the previous quarter fade. Meanwhile, the Brazilian market shows signs of recovery, with 17% growth in local currency after experiencing inventory adjustments earlier in the year.
Despite the positive outlook on earnings, Nomura maintains a 'Neutral' rating. The stock is currently trading at 30 times its March 2027 estimated operating profit, a valuation that the brokerage finds high. Shares have declined 8% over the past month, which is partly attributed to these valuation levels and investor concerns regarding potential government price controls on medicines in India. However, the company appears to have less exposure to such regulatory risks than many of its peers, with only 11% of its total sales subject to drug price controls.
Investors may look to the upcoming earnings release to track whether the company can maintain these margins and growth momentum, especially given the challenging regulatory environment for the pharmaceutical sector in India.