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GRAN Set for Recovery with Facility Clearance and Margin Upside

Although GRAN’ Q4 performance was below expectations, the company remains on track for recovery following the temporary disruption caused by the Gagillapur facility's OAI status. We believe this setback will be short-lived, with recovery expected from Q3FY26 onwards—driven by anticipated clearance of both the Gagillapur facility and the newly commissioned Genome Valley facility. In addition, as FDA remediation costs taper off, EBITDA margins are expected to improve.

With these positive developments in sight, we have revised our FY27E earnings estimate upward by 5.3%. We continue to value the company at an unchanged PE multiple of 22x on FY27E EPS, and revise our target price to INR 640 (earlier: INR 623), and upgrade our rating to BUY.

Modest Growth; Margins Improve QoQ, PAT Boosted by One-Off Gain

* Revenue grew 1.8% YoY / 5.3% QoQ to INR 11.97 Bn (vs. consensus estimate: INR 12.2 Bn).

* EBITDA declined 1.3% YoY / rose 9.6% QoQ to INR 2.52 Bn (vs. consensus: INR 2.7 Bn); margins contracted 67 bps YoY / expanded 83 bps QoQ to 21.1% (vs. consensus: 22%).

* Adj. PAT grew 9.4% YoY / 29.3% QoQ to INR 1.52 Bn (vs. consensus estimate: INR 1.5 Bn).

* Exceptional items stood at INR 0.4 Bn on account of an insurance claim received related to a cybersecurity incident.

Gagillapur Clearance Expected by Q3FY26; Genome Valley Scales Operations: The Gagillapur facility, classified as OAI by the USFDA in Feb 2024, is expected to be cleared by Q3FY26, with financial impact tapering from Q2FY26. While existing products continue to be manufactured, new product approvals remain on hold until clearance. Meanwhile, Phase 1 and 2 of the Genome Valley facility are operational with capacities of 2.5 Bn and 7 Bn doses annually. The company has begun commercializing monograph products, and USFDA and EU inspections are expected in Q2FY26. Post-approval, the facility will be able to manufacture prescription drugs. We believe the Genome Valley facility will help partially offset the impact from Gagillapur and support growth until the latter resumes full operations.

North America CNS Focus; Peptide/CDMO Foray to Drive FY28+ Growth: The company has a strong pipeline of ~10 products in the CNS/ADHD therapeutic segment and has already launched products like Lisdexamfetamine Dimesylate (DMR filing expected in Q1FY26), Dofetilide Capsules, among others, to tap into the USD 20 Bn North American market. The company does not expect any tariff impact, supported by its newly commissioned facility in the US, and plans to pass on any cost increases to customers. Additionally, it has forayed into the peptides and CDMO space through the acquisition of Senn Chemicals, which is expected to meaningfully contribute to revenue from FY28 onwards. We believe this will support the continued growth trajectory of the FD segment.

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