IGI Logo

Strong performance across segments..

Granules (Inc) is a leading generic player in the Indian Pharmaceutical industry, with 2/3rd of its revenue generated from North America and Europe.

* Granules reported a subdued increase in revenue to Rs.888cr,up 3% YoY owing to increased sale of existing products and new launches especially in the Finished Dosage particles which has resulted in an increase in topline partially offset by loss of MEIS benefit.

* For the quarter, EBITDA contracted to Rs.151 cr, down 41% YoY mainly due to reductions in margins of almost all products especially paracetamol due to the increase in raw materials prices. Resultantly, adj PAT declined to Rs.80.4cr from Rs.164cr, down 51% (YoY).

* Going forward, backed by passing on a substantial portion of these increases to the customers along with backward integration, the company expects an improvement in gross margins.

* Company’s ANDA, and Dossier filings are on schedule with a total of 48 approved as of Sept’21.

* However since the positive triggers have already factored in, we downgrade our rating from “Buy” to “Accumulate” with a target price of Rs.349 based on 12x FY23E EPS.

Subdued performance owing to various business disruptions

The repercussions of covid continue to negatively impact GIL with Granules reporting a subdued revenue of Rs.888 cr, up 3% YoY mainly due to increased sale of existing products and new launches especially in the Finished Dosages (FD) segment partially offset by loss of MEIS benefit. FD contributed 57% to the total revenue whereas APIs and PFIs together contributed 21.5% each. During the quarter, EBITDA contracted to Rs. 151cr down 41% YoY due to challenges posed by various business scenarios on the backdrop of covid and logistics disruptions resulting in shortage of raw material and lower utilisation of capacities. Price pressure in USA has also resulted in marginal drop in gross margin for core products. Resultantly, adj PAT declined to Rs.80.4 cr from Rs.164cr, down 51% (YoY). Cash-to-cash cycle has increased by 38 days from 104 in Q2FY21 to 142 in Q2FY22 mainly on account of an increase in inventory holding days. The planned increase in inventory is on account of non-availability of containers and raw material requirements.

Finished Dosages records robust growth

Finished Dosages (FD) grew 18% YoY to contribute 57% to revenue while Pharmaceutical Formulation Intermediates (PFI) segment and Active Pharmaceutical Ingredients (API) contributed 21.5% each. The API segment degrew by 25% YoY mainly due to Paracetamol KSM supply disruptions. Share of other molecules increased to 19% .During the quarter GIL filed one ANDA, one EU Dossier, one US DMF and one CEP.

New plans in focus

As GIL was unfavourably impacted due to the difficulties in procuring raw materials from China due to the Chinese dual energy policy and increase in logistics cost and procurement prices, Granules plans to re-allocate its capex spends for backward integration in order to reduce its dependency on imports especially from China.. The company also plans to pass on a substantial amount of its costs to its customers by Q3, thereby reducing the burden on their margins.

Outlook and valuation

Despite various supply constraints and uncertainties in the short-term, we continue to remain optimistic about the company’s long-term profitability and growth prospects. The company expects good visibility in the next few years by shifting to backward integration through green chemistry. By reducing their dependency on imports and passing on the increased prices to the customers, GIL can reduce the burden on its margins going forward. However, despite a healthy balance sheet and improving return ratios, since the positive triggers have already factored in, we downgrade our rating from “buy” to “Accumulate” with a target price of Rs.349 based on 12x FY23E EPS.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Above views are of the author and not of the website kindly read disclaimer