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Muted topline growth… Margins expanded

Granules India Ltd. (Inc.) is a vertically integrated, high growth pharmaceutical company headquartered in Hyderabad, India. The company manufactures Active Pharmaceutical Ingredients (API), Pharmaceutical Formulation Intermediates (PFI) and Finished Dosages (FD).

* During Q4FY24, Topline reported degrowth by 1.6% to Rs.1,176cr, due to falling volumes and price erosion in paracetamol across all geographies due to overstocking of inventories.

* EBITDA was reported at Rs.256cr, up by 12.1% YoY, and EBITDA margin expanded by 267bps YoY to 21.7%. Resultantly, Adj. PAT was reported at Rs.130cr (8.7% YoY).

* GIL plans to increase R&D spending on CNS and oncology segments and aims to backward integrate key molecules to reduce raw material costs.

* Going forward, softening raw material prices, expansion into new geographies, and strengthening key molecules through backward integration are positive in the long term.

* Therefore, we maintain Accumulate rating with a revised target price of Rs.470 based on 16x FY26E EPS.

Margins improved on value added product mix

In Q4FY24, GIL topline reported degrowth by 1.6% to Rs.1,176cr. This was due to falling volumes and paracetamol prices across all geographies due to overstocking of inventories. While revenue in the US grew by 19% YoY to Rs.696cr, it declined by 30% to Rs.287cr, in Europe in Q4FY24. However, the company’s EBITDA improved by 12.1% YoY to Rs.256cr, and the EBITDA margin increased by 267bps YoY to 21.7%, driven by an improved value-added percentage. Thus, the adj. PAT was reported at Rs.130cr (an 8.4% YoY increase). The company’s value added product mix improved, accounting for 57% of sales in Q4FY24.

Share of FDs increased YoY

The FD (74% of revenue) grew by 41% to Rs. 864cr on increased volumes in all the major geographies. While the API segment contributed 14% to the revenue with a 55% YoY decline to Rs. 163cr, the rest of the PFI segment contracted by 12% on pricing pressure. During the quarter, GIL has received approval from 26 ANDAs in the U.S, with 6 more awaiting approval. The company’s strategic focus is shifting toward the formulations (FD) business and value added products, aiming to increase overall revenue share from 65% to 70% in the coming years. This shift is expected to improve the EBITDA margin going forward. The company is eager to launch 16-18 products in FY25, with 14 of them being new products. This initiative will enhance future revenue visibility.

R&D spending and capacity expansion favours growth

GIL plans to increase R&D spending for the development of complex drugs, particularly in the CNS and oncology. Additionally, the company intends to backward integrate some of the key ingredients used in Paracetamol and Metformin, aiming to reduce raw material costs. In FY25, company plans to allocate a new capex of Rs. 600cr, which will be deployed towards the expansion of Granules Life Sciences and other projects. The construction of the new formulation facility at Genome Valley is progressing and first phase already completed, once completed, adding 8 billion dosages of FD per year.

Outlook and valuation

We remain positive about the company’s long-term profitability and growth prospects owing to new product launches, a focus on backward integration, and increased market share in existing geographies. However, delayed launches of some of the molecules are likely to impact revenue. Therefore, we maintain our Accumulate rating, with a target price of Rs.470 based on 16x FY26E EPS.

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