Buy Granules India Limited Target Rs.360 - ICICI Direct
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
APIs buoy revenues; margin headwinds persist…
About the stock: Granules is a large-scale vertically integrated company that manufactures API, intermediates and finished dosages and has seven manufacturing facilities along with B2B & B2C marketing & distribution.
Revenue mix FY21: Formulations – 52%, API (API+PFI) – 48%
Top five products (Paracetamol, Ibuprofen, Metformin, Methocarbamol, Guaifenesin) contributed 84% to FY21 revenues
Q3FY22 Results: Granules revenue growth in this quarter was mainly on back of new launches and increased selling price of Paracetamol.
Sales were up 18% YoY to | 996 crore
EBITDA was at | 173.7 crore, down 17.9% YoY with margins at 17.4% (adjusting for YoY increase of | 29 crore in freight cost, margins ~ 20%)
Adjusted PAT was at | 100.9 crore (down 31.3% YoY)
What should investors do? Granules’ share price has grown by ~2.4x over the past five years (from ~| 131 in February 2017 to ~| 310 levels in February 2022
Upgrade from HOLD to BUY on 1) focus on backward integration, expected normalisation in RM/freight inflation, 2) initiatives like passing on price hike to customers, 3) compelling risk-reward matrix based on FY24E earnings
Target Price and Valuation: Valued at | 360 i.e. 14x P/E on FY24E EPS of | 25.8
Key triggers for future price performance:
Ability to pass on input cost inflation and margins improvement
Extending its core products via additional strength/different forms in US, launching in other geographies may provide better operating leverage
In the US, it also focuses on select small but high value launches where competition is less, which bodes well in a crowded generics market
Timely completion of new block construction in Gagillapur and other expansion activities along with rationalising R&D portfolio
Alternate Stock Idea: Apart from Granules, in healthcare coverage we like Laurus.
Laurus is evolving as a strong vertically integrated player with strong order book visibility and incremental traction from custom synthesis
BUY with a target price of | 625
To Read Complete Report & Disclaimer Click Here
https://secure.icicidirect.com/Content/StaticData/Disclaimer.html
Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer
.jpg)
