The EBITDA margin contracted at a lower rate (110 bp YoY) to 31.7% (est. 30.5%) due to slightly better operating leverage.
US growth revival is heavily dependent on regulatory approval - TRP's performance in 1TFY22 was largely in line with our estimates. The growth momentum in the domestic formulation (DF) business was offset by a subdued performance in the US business and a higher tax rate. He continues to work on alternate site submissions to reduce the impact of USFDA regulatory issues. We lowered our FY22E / FY23E EPS estimate by 7% / 2% to account for a delay in resolving USFDA compliance issues at its key sites and increased MAT credit utilization, thereby increasing the effective tax rate . We value TRP at 25 times future 12-month earnings to reach our TP of Rs 2,800. Overall rates of return may be waived until there is a revival in revenue for the US segment The current valuation is adequately influencing an upturn in the branded generics segment. We maintain our 'neutral' rating.
Online earnings; Price pressure in the US outpaces growth in the DF business: Revenue grew 4% YoY to Rs 21.3 billion (Rs 20.8 billion estimated) in 1TF22. DF sales grew 18% year-on-year to Rs 11 billion (51% of sales). Brazil sales increased 9% YoY (14% in CC terms) to Rs 1,500 crore (7% of sales). Contract manufacturing sales grew 6% year-on-year to Rs 1,500 crore (7% of sales). Sales in Europe grew 6% year-on-year to Rs 2.6 billion (12% of sales). Sales in the US decreased 26% year-on-year to Rs 2.7 billion ($ 36 million; 12% of sales). Gross margin contracted 160bps YoY to 72.4% due to changes in the product mix. The EBITDA margin contracted at a lower rate (110 bp YoY) to 31.7% (est. 30.5%) due to slightly better operating leverage.
Valuation and Opinion: We reduced our estimate of EPS FY22E / FY23E by 7% / 2% to account for a delay in ANDA approvals due to regulatory issues at Indrad / Dahej and a rising effective tax rate. We continue to value TRP at 25 times 12-month earnings and carry over our TP to Rs 2,800.
We expect 13% CAGR in profit, led by 11% / 12% / 8% / 11% CAGR in DF / US / Brazil / Germany sales, and an EBITDA margin expansion of 80bp due to lower operating expenses in DF after the rationalization of the sales force. We maintain our 'neutral' rating as the current valuation adequately factors in an improving outlook in DF / Germany / Brazil.
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