Buy Granules India Ltd For Target Rs 800 By Emkay Global Financial Services Ltd
Granules’s 4QFY26 EBITDA/PAT were ahead of our estimates (by 9%/18%; marginally ahead of consensus estimates) on the back of a sharp beat in gross margin. Gross margin (65.7%) was at a record high, and the company posted QoQ topline growth for the 6th consecutive quarter. Senn (peptide CDMO) turning EBITDA-positive in 4Q, in line with management guidance, was a key positive. Granules already emerging as a top-4 player in the US controlled substance market, despite being a relatively late entrant, validates our view that controlled substances (FY26E consolidated sales share at close to 30% with sustained market share gains) will be a key multi-year growth driver with the expected addition of more products to the portfolio starting FY28 (refer to our initiation note). Gagillapur clearance in FY27 could pose an upside to our formulation sales estimates. Our FY27/28 estimates broadly remain unchanged and we introduce FY29 estimates. We expect PAT CAGR of ~26% over FY26- 29E; retain BUY.
EBITDA beat driven by API outperformance + turnaround in Senn
Formulation sales rose ~15.5% YoY, marginally below our expectations. This was offset by a strong uptick in API and peptide CDMO sales. API growth was driven by an uptick in sales from new products, including external sales of APIs developed for own formulations. Growth in Senn was aided by the delivery of pharma projects as well as higher offtake in the cosmetic segment (TFA-free peptides). The gross margin beat in 4Q was attributed to the turnaround in Senn and a favorable mix.
KTAs from the earnings call
1) Per IQVIA, the company ranked 27th in terms of sales in the US generic market in FY26 vs 74th in FY21.
2) The company completed its post-warning-letter engagement with the FDA in Jan-26, submitted responses in Feb-26, and has requested the FDA for a reinspection of the Gagillapur facility.
3) Six ANDAs and six US DMFs were filed in FY26. Nine ANDAs filed from Gagillapur are pending approval.
4) The company is upgrading infrastructure at Senn’s Zurich site and is planning the next phase of peptide API capacity; one project will move to commercial supply in FY27. It will establish a brownfield facility in India for peptide intermediates, followed by peptide API capacity.
5) The company has initiated tech transfer and started filing controlled substance products for ex-US markets, with revenue from these formulations expected in 2 years (contribution from APIs potentially earlier). Granules will set up a new distribution center at its Virginia facility.
6) The company is hopeful of being able to take API price hikes to mitigate RM cost inflation.
7) Gagillapur-linked remediation spend (~Rs500mn in 1HFY26) declined in 2HFY26 and will be meaningfully lower in FY27.
8) For Lisdexamfetamine (the largest controlled substance product in Granules’s portfolio), the company expects the quota allocation for FY27 to be in line with its internal expectations.
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