Torrent Pharmaceuticals, one of India's top drugmakers, has said that it expects a 'new base' for its profitability going forward, given that several of its overseas operations have outgrown the investment stage.
Over the last two years, the company's profit margin from its operations has improved from around 27% to 31.8%, both due to cost cuts as well as better revenue.
What's more, the company expects its profit margin to improve by 0.5 to 1.0 percentage points every year.
"Our operating EBITDA margins at 31.8% looks to be the new sustainable base going from here," said Chief Financial Officer Sudhir Menon, in the context of the company's third quarter results.
"There are two key margin drivers for us - annual price increases granted in key markets like India and Brazil that add directly to profitability, and operating leverage as growing revenue allows better absorption of fixed costs," Menon said.
He particularly highlighted that the company's Brazil business, after completing its recent field force expansion, is now positioned to reap better operating leverage benefits.
"Brazil has reached an operating scale where the fixed cost base is already absorbed, so revenue growth from new product launches and field force expansion should directly enhance profitability," Menon added.
The company's revenue in that market grew by 17% to 185 million Brazalian Real (around Rs 310 crore), a growth of 17% YoY. The company is growing at twice the rate of the Brazilian pharma market.
"Growth is supported by new launch momentum and a robust pricing environment," said Sanjay Gupta, who heads the company's international business.
"We’ve had a consistent pace of launches - 4 brands launched in 2021, 4 in 2022 and 3 in calendar year 2023. Going forward, we intend to maintain 3 to 5 branded launches per year," he added.
The rising revenue is leading to better profits as the company's fixed costs are now being spread across more sales, as pointed out by Menon.
"What's positively playing out for Brazil now is it's reached a particular scale, right, and the expansion which we did some 18 months back with better growth coming in Brazil. The operating leverage will be much better than what we see in India," he added.
Other contributors to better profitability include improved capacity utilization and a higher mix of high-margin products, the rise of branded generic drugs in domestic sales to 72% and synergies from recent acquisitions.
India Business
The company also said it will continue to expand its workforce in India, which saw a 12% revenue growth during the quarter and contributes about 50% of the company's total revenue.
Torrent Pharma currently has a field force of 5,700 representatives, and now plans to add another 200-300 medical representatives in the year starting April.
"We have significantly expanded our field force over last 18 months across key divisions and regions. This has aided our growth and allowed us to improve market share," said Aman Mehta, Head of India Business, Torrent Pharma.
The field force expansion, coupled with structural changes like divisionalization, has helped the company penetrate high-growth chronic therapy areas more effectively, according to Menon.
Torrent Pharma has been growing faster than the market in terms of revenue, and also improving productivity.
"While there has been a slight drop in productivity post expansion, we aim to again take it above the ₹10 lakh per representative levels seen before," said Aman Mehta, head of Indian operations.