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FDF/API drive earnings Strong start to FY27; complex generics lead the way

* Granules India (GRAN) delivered in-line revenue/EBITDA/PAT in 1QFY27. Higher formulation (FDF) and API sales sustained growth momentum in 1QFY27 as well. Notably, 1QFY27 was the fifth consecutive quarter of healthy YoY growth in earnings.

* CDMO business remained in the ramp-up phase, with revenue of INR600m in 1QFY27. Due to changes in project milestone services, GRAN reported an EBITDA loss of INR24m in 1QFY27.

* The growth in Europe (+50% YoY) was driven by API/FDF, supported by products/dossiers filed in prior periods.

* The complex generics revenue share has increased considerably from 39% YoY to 50% for 1QFY27. GRAN remains on track to shift from a volumedriven to a value-driven complex-Gx-led business model.

* GRAN is enhancing its prospects in the CDMO segment by adding solidphase peptide synthesis and lyophilization capabilities at its Zurich facility.

* Notably, CFO increased to INR3.8b in 1QFY27, aided by lower receivable days in the US segment.

* We raise our earnings estimates by 1.0%/1.2% for FY27/FY28, factoring in: 

a) increased off-take of complex-Gx products

b) the scale-up of CDMO peptide business

c) improved API sales

d) better operating leverage. We value GRAN at 23x 12-month forward earnings to arrive at our TP of INR1,010. Reiterate BUY.

Gagillapur re-inspection outcome awaited

* In 1QFY27, GRAN’s GPI facility in Virginia received USFDA clearance in Jun’26.

* Consequently, seven of its eight facilities now have a clean EIR, with Gagillapur being the only facility awaiting regulatory resolution. Management indicated that remediation at Gagillapur is complete and responses have been submitted to the USFDA on time.

* Operations/supplies from Gagillapur remain unaffected. However, nine ANDAs pending for approvals are subject to successful USFDA inspections.

* Collectively, these developments reflect material progress in strengthening regulatory compliance and transitioning toward a more stable and audit-ready operating environment.

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