Samir Mehta on how Torrent's pharma, energy & gas businesses & more

“In energy, most of our investments are in the renewable space. Concrete current year additional capacity being worked upon is 700 to 800 MW in solar and wind. Last year, we added another little over 300 MW through acquisitions that we did. We continue to work on looking at new tenders and new M&A opportunities,” says Samir Mehta, Chairman, Torrent Group.

Do you think anything can come in the way of Torrent’s growth?
Samir Mehta: We do not see any constraint in our continuing to be able to post double digit industry beating growth.

Even when it comes to the United States which is a big market for Torrent Pharma, you continue to remain one of the top Indian companies in US generics. Is there any pricing pressure in the United States? What kind of growth do you foresee in that geography?
The US had been a relatively late business for us. In that sense, what was an opportunity missed, has in hindsight, been to our benefit. We do not have as much stake in that market as many of our other industry friends have.

In certain pieces of businesses, we were not meeting our profitability criteria. So we exited out of the liquid business recently and we continue to review our presence in terms of whether it makes sense to continue having that particular product or should it be reviewed. That is to ensure that the US piece also comes up to a minimum required profitability threshold.

Back home, there has been a lot of cost competitiveness and very strong pricing power when it comes to the branded business as well. That has helped to escalate the company’s margins. Will margin growth continue?
We believe we are amongst the best in class with margin at the current level and business would continue to grow in terms of double digit revenue growth and that itself would generate a momentum which would improve the margin further.

On the other hand, our last seven-eight years’ growth has been substantially driven through the acquisitions that we made. We have a lot more room to grow on improving our organic growth and which in the last few quarters has seen significant improvement. We see a large room to improve and work on our reach in terms of our sales force strength that we have.

Sometime, given the acquired businesses that we had, we focussed on improving the productivity of the set up that we acquire but that is all behind us. We are working on significantly enhancing our reach so that for the next five to seven years, we continue to deliver a sizable growth lever.

In terms of our portfolio, almost 75% is in the chronic and sub chronic space. That is a bigger growth driver within Indian pharma and that would continue to help us drive the growth. We continuously work on improving our portfolio. So a differentiated portfolio is a major thrust and obviously like everybody else in the industry, would benefit from patent products and products going off patent. That also would contribute to our own growth.

When it comes to the US filings, can you just give us a little bit of an update? What is the update in terms of some of the other plants, the ANDA approvals, the inspections as well?
We got stuck with our inspections because of Covid. It has been almost three years, I would say that we submitted our remediation plan to USFDA and then COVID happened for two years. Inspections had been completely suspended. It has begun now and we believe we should get inspected in another three months-four months time and hopefully yes we get the clearances in due course. That would bring the US business back on track.

You spoke about inorganic growth opportunities and acquisitions etc. Torrent Pharma has really done splendidly well in turning around a lot of the acquired assets in the past. Is there anything on the cards right now? There had been news reports with Curatio if I am not mistaken?
Acquisition opportunities are constantly being looked into. At any given point in time, you work on multiple options. Curatio has been one that we seriously considered. At this point in time, it is hard to say which one will materialise but we continue to be very serious on apportioning our growth capital on acquiring businesses in India.

Is there anything right now in the pipeline?
There are multiple possibilities that we are currently working on, which one really reaches a closing stage it is hard to say.

The diagnostics business is something that the group is really exploring and has huge potential as well. It is a very competitive space but there is still a lot of opportunity. What is the game plan?
It is early days. We have been now working on defining our blueprint for how we would enter the business. This space has seen a lot of competition in recent times. We are looking at all possibilities of where within that emerging competition, we can create a space for ourselves.

The advantage is that for us it is a new business; we have nothing to lose as on date so we will carefully weigh all the possibilities and options and then appropriately conclude our business model.

Gas prices are looking a little bit unviable at the current juncture?
It is anybody’s guess what is going to happen on the gas prices given the complex geopolitical situation that we are dealing with. It has been around $40-50 for LNG pricing. How the whole Russia related situation pans out that would determine but it seems that another two to three years the prices would take some time to soften to a level which is desirable. Beyond 2024-25, it is possibly a different situation as more supply comes on to the stream to ease the current crisis.

What about the update on license distribution, updates on Agra, Bhiwandi etc? Are there any others in the pipeline?
The distribution business has been a highly efficient and successful one for us. Amongst privatisation which happens in the country, we have been successful in many of the bids that the government had announced. The most recent one had been the Diu Dadra Nagar Haveli, which was operationalised a few months back.

In terms of the history of our business earlier, Ahmedabad Electricity Company and later Surat Electricity Company – when we acquired those back in the ‘90s, as compared to rest of the businesses in the country, had a relatively lower AT&C loss but still was high as we have brought it down to now a level of almost a little over 3% in Surat and a little over 4% in Ahmedabad.

That competes with the best in the world. A similar trajectory has been achieved at Bhiwandi which was around 60% when we acquired it and it is now in single digit this year. Again, Agra happened a few years later than Bhiwandi also had a little over 70% losses. That is also down to a single digit. The new franchises that we have acquired, Shil, Mumbra & Kalwa, we are working on bringing down the losses. In two years’ time, it has come down from 60% plus to a 30% level. So like Agra and Bhiwandi, that also would be in the single digit some time.

Being one of the largest private sector players within the power space, I understand that Torrent’s overall capacities stand at about 4700 odd MW including what is currently underway. What is the outlook on capacity addition?
Most of our investment is in the renewable space. Concrete current year additional capacity being worked upon is 700 to 800 MW in solar and wind. Last year, we added another little over 300 MW through acquisitions that we did. We continue to work on looking at new tenders and new M&A opportunities. So depending on how it pans out over the next three to four years, looking at a 5 gigawatt portfolio from nearly 2 gigawatt this year that should possibly be reality.

In terms of sourcing of gas, 50% of the total 25% is from Reliance and from IOC and the rest 25% is sourced internationally. Can you walk us through the overall gas sources?
Like I was saying earlier, it has been a mix of sourcing strategy that we had adopted including short, medium and long term. All these varied sources put together have given us an average cost which is reasonably sustainable in the current crisis.

Germany for example, which was so much exposed to Russian gas, if something similar had happened, it is hard to imagine gas at $40-50-60. That is clearly non-viable. In that sense, the procurement strategy has worked to our advantage. Even as recently as April 22 and even just few weeks back, we have been able to secure spot cargoes from the market which still work in the current environment.

So we continue to work on the strength that we have built over the last three-four years of having broad based our international sourcing and that is coming to our advantage. We are making a decent LNG trading profit this year. So, all put together is helping the business remain robust.

Analysts seemed very optimistic talking about close to a 9% CAGR for Torrent Power over the next few years FY22 to FY24 would you concur with those estimates?
We do not comment on the guidance of the businesses…

No but I mean just you are seeing sustainable growth for the business right now or it will be a bit of a rough patch is what I wanted to understand?
The real rough patch is over and moving forward, should not be more difficult than what it has been in recent times. It can only be better I would think.

Any view on the new electrification bill?
That has been a step in the right direction, for a long time that was being awaited. Essentially now it opens up competition, Like the telecom and other service providers, a consumer can pick an alternate supplier, if that is the option being available in that region. Earlier, there was a provision of a second license but the provision was one has to create your own network which now the act says that you can use on the existing network. You do not have to invest in non-productive assets and that would accelerate the growth of the sector.

Now let us move on then to the gas business. How are you looking at the overall viability of the business? How do you see the overall gas business scaling?
It has been a recent business for us. We started participating in the auctions that the government held – the ninth and tenth rounds and later the additional auctions which happened.. We have been reasonably successful and overall, we acquired a total of 34 districts, 8 states, almost about close to 10% market share.

When executed, that should put us into the top two or top three private sector companies in the business and it is happening at a capital outlay exceeding Rs 10,000 crore. That has been an important focus in the last two to three years.

In terms of the international gas prices, it is now close to $50 per MMBtu right now.
Yes, almost around that.

How are you looking at the overall pricing and where do you see it stabilising?
Fortunately for Torrent gas business, which is CGD business, 94-95% of the gas comes through GAIL under what is called the APM regime. As part of the Government of India’s policy back in 2014, CGD has been the most important priority sector. So, that business is relatively less affected.

But is it via contracts that you get lower pricing?
Right. The 2014 policy had laid down CGD as a priority sector and pricing is determined through the then committee which had looked into a mix of global indexation and how APM pricing should be discovered. That pricing worked well for the next five-seven years since 2014, but the great impetus to the sector happened within the last two to three years after the auctions have been commercialised or operationalized. That has brought the demand up from probably 8 million cubic meter per day in 2014 to now almost 21-22 million.