Torrent Pharmaceuticals Ltd (TPL), a zero debt Ahmedabad based Rs 460-crore plus pharma entity, is marching ahead with clear focus on research & development, aggressive entry into international market and major expansion plans. With the 74 per cent equity holding by promoters, the company has developed healthy product pipeline to tap future opportunities. TPL has embarked on a major capital expenditure programme to meet the existing and future challenges. Though the long term outlook consider to be good, the short term position is under pressure as the first nine months performance is not so promising one. Further, to part finance its present capital expenditure programme, TPL will have to depend on borrowings, which may put pressure on bottomline in 2004-05 and 2005-06.

Financial Highlights (Rs crore)
	Mar-04	Mar-03	Mar-02	Mar-01	Mar-00
Total Income	460.59	381.14	445.77	412.93	446.37
PBDIT	106.9	162.5	88.5	79.47	81.24
Interest	0.24	1.25	8.87	9.43	16.24
Net Profit	61.17	51.77	5.61	42.81	45.58
Div(%)	80	80	80	75	101
Exports (FOB)	44.94	38.27	31.51	28.49	109.92
Equity Capital	21.16	21.1	21.08	21.08	21.16
Reserves & Surplus	286.03	240.99	208.31	219.99	198.32
Total Assets	442.08	349.59	350.1	456.19	450.68

TPL, a leading domestic player in the cardiovascular (CVS) and central nervous system (CNS) segments, has launched two new products viz., Atomoxetine, a new safe and effective treatment option for Attention Deficit Hyperactivity Disorder (ADHD), and Duloxetine, a new-generation anti-depressant for the first time in India under the brand name Symbal during the third quarter of 2004-05.

The new products are playing important role in growth of topline despite stiff price competition in the markets. The company has introduced 25 new products (including extensions) in the domestic market and it developed 12 formulations for Europe, Russia and Brazil during the year ended March 2004. The new products such as Ecogat (gatifloxacin), Modlip (Atorvastatin), Vaalz BCD ( Valdecoxib) and Valzaar (Valsartan) started contributing to sales. TPL is taking steps to reduce the products under DPCO and stepped up share of other products in total revenue. It has successfully brought down the proportion of sales of products under price control to the level of 13 per cent during 2003-04.

To overcome the stiff competition, the company is focusing on R&D activity and investing more funds. During 2003-04, TPL incurred a total capital expenditure of Rs 39.67 crore, which worked out 8.9 per cent of the total turnover. The R&D centre developed 7 processes for APIs and transferred to plant. The company developed once-a-day formulation of an anti-epileptic drug and it is planning to introduce the same in current fiscal year. TPL filed 163 applications for patents on NCEs in several countries and it received approval for 28 patents. Further, it has filed 70 applications for patents for innovative processes of APIs and formulations. The company is developing nearly 39 new formulations for domestic market and 30 APIs as well as formulations for Brazil, Russia, Europe & US.

TPL has entered into a license agreement with Novartis Pharma AG, Switzerland for global rights to its patented AGE breaker compound. These compounds have potential in the treatment of heart disease and diabetes related vascular complications. Under the terms of agreement, TPL will receive upfront payment of US$ 3 million and royalties linked with global sales. Such tie-ups will boost the company's earnings in the coming years.

Considering the future demand from regulated market, the company has chalked out capital expenditure plan of Rs 153 crore. It is spending Rs 24 crore for expansion of its facility located at village Indrad near Ahmedabad in Gujarat. It is installing a process development laboratory to undertake continuous process improvements and cost management. The company management is expecting early approval from US FDA for this plant. TPL is also investing Rs 129 crore for the setting up of a new formulation plant at Baddi, Himachal Pradesh to avail fiscal benefits in form of exemption from excise duty and income-tax. The plant is likely to be operational in 2005-06. The company may shift its few products from Gujarat plant to Baddi in near future. To part finance its investment plans the company may have to issue fresh capital or bonds in the near future.

TPL achieved satisfactory performance during the year ended March 2004 on account of launch of new products and zero interest burden. Its net sales increased by 23.2 per cent to Rs 447.39 crore from Rs 363.06 crore in the previous year. The formulation sales worked out to 96 per cent of total sales at Rs 429.36 crore and bulk drugs sales worked out to 4 per cent at Rs 18.03 crore. There was substantial rise in sales of vials/cartridges, which increased by 41 per cent to Rs 93.55 crore from Rs 66.36 crore. Similarly sales of capsules and tablets went up by 21.3 per cent and 20.8 per cent during 2003-04.

The company's export on FOB basis increased to Rs 44.94 crore from Rs 38.27 crore in 2002-03, registering a growth of 17.4 per cent. TPL is giving due importance to the international market for tapping lucrative opportunities. However, the company suffered in the Russia and CIS due to a restructuring of the organizational set-up. In Brazil, TPL is marketing its 14 products through its subsidiary, which is likely to turned the corner in the current year. The German subsidiary is entering into nine dossier licensing agreements during 2003-04 and entered into six supply tie-up agreements for generics. TPL has strengthen its market in other countries like Philippines, Myanmar and Vietnam, and entering into regulated markets such as South Africa and Saudi Arabia. The US subsidiary is likely to submit its first abbreviated new drug application with US FDA in the current year.

The investment in five subsidiaries increased sharply to Rs 33.30 crore from Rs 18.97 crore. TPL has setup a wholly owned subsidiary Torrent Pharma Inc. in USA to tap emerging opportunities in North American market and invested Rs 0.45 crore. It has increased its investment in Brazilian subsidiary Torrent Do Brasil Ltda (TDBL) to Rs 31.11 crore from during 2003-04 from Rs 17.79 crore and that in its German subsidiary Torrent Pharma GmbH to Rs 1.31 crore from Rs 0.75 crore. TDBL has improved its working with sales of Rs 22.56 crore in its first full year of operation. The Russian subsidiary ZAO Torrent Pharma suffered setback and incurred a loss of Rs 6.53 crore due to lower sales and an increase in marketing expenses. The German subsidiary Torrent Pharma GmbH also incurred loss in its full first year operations. TPL is taking steps to strengthen operations of its subsidiaries in the current year.

TPL has incorporated a new subsidiary in Philippines during July 2004 with an investment of Rs 0.92 crore and sold out its one subsidiary TPL Finance Ltd during September 2004.

Higher sales, other income, exports and zero interest burden pushed TPL's net profit by 24 per cent to Rs 64.17 crore during the year ended March 2004 from Rs 51.77 crore in the previous year. The earning per share moved up to Rs 30.33 from Rs 24.47. Net profit as net sales improved significantly to 14.3 per cent from 6.7 per cent in the preceding year. The company management paid handsome equity dividend of 80 per cent for 2003-04 and 2002-03.

The company has built up strong financial position in the past and it transferred huge amount of Rs 107.05 crore to its reserves. With this transfers, its reserves & surplus went up by 16 per cent to Rs 286.03 crore during 2003-04 from Rs 240.99 crore in the previous year. Though the reserve position is strong, the company is not likely to issue bonus shares immediately due to its requirement of funds for future expansion plans. TPL added Rs 41.80 crore to its fixed assets, which touched to Rs 288.30 crore from Rs 246.50 crore. Rising inventories and sundry debtors will be a cause of concern for the future growth and the company will have to take steps to reduce the same in the current year. Its sundry debtor increased by 55.9 per cent to Rs 43 crore and inventories went up by 20.4 per cent to Rs 94.64 crore.

Current Performance
(Rs crore)	Nine Months Ended On		% change
	31/12/04	31/12/03
Net Sales	371.03	331.00	12.1
Other Operating Income	22.10	10.55	109.5
Total Income	393.13	341.55	15.1
Raw Material	146.19	136.52	7.1
Staff Cost	45.96	29.25	57.1
Manufacturing & Other Expenses	46.48	39.43	17.9
Selling Expenses	47.00	36.07	30.2
R&D Expenses	36.14	20.23	78.6
PBDIT	74.85	87.59	-14.5
PBT	60.46	75.54	-20
Net Profit	49.62	54.37	-8.7
EPS for the period	23.45	26.45	-11.4

The financial performance for the first nine months of the 2004-05 was not upto the mark. Though its net sales increased by 12 per cent to Rs 371 crore from Rs 331 crore, its net profit declined by 8.7 per cent to Rs 49.62 crore from Rs 54.37 core. This put pressure on EPS for the nine months period, which declined to Rs 23.45 from Rs 25.70 in the corresponding period of last year. The sales through contract manufacturing activity declined to Rs 71.31 crore from Rs 72.14 crore.

The significant rise in other operating income helped the company to push its net profit to Rs 49.62 crore during the first nine months period. The other income went up by 109 per cent to Rs 22.10 crore from Rs 10.55 crore. The company received Rs 13.89 crore as license inome pursuant to the Licence Agreement entered with Novartis Pharma AG. Thus it shows that the profit from the manufacturing activity is under pressure mainly due to stiff competition in generics. The company borrowed funds to the tune of Rs 112.50 crore for ongoing expansion programme during first nine months of 2004-05.

Unless the company launch new products in regulated market like US and Europe, the performance is not likely to improve. Further, the investment in subsidiaries will also likely to put burden on working. Currently, TPL scrip is quoted around Rs 475 on the BSE as against its 52-weeks highest level of Rs 598. At the current price, the price earning ratio worked out to 16.9. The equity capital stood at Rs 21.16 crore and its market capitalization reached at Rs 1005 crore. Though the long term outlook depends on launch of new products in regulated market, the short term outlook will remain under pressure on account of competition and large scale borrowings.