Buy Granules India Ltd for the Target Rs 860 by Motilal Oswal Financial Services Ltd
From scale to specialization – enters next growth phase
* Granules is evolving its operating model into a formulation- and R&D-led platform on the back of its strong API foundation, with increasing focus on complex generics and entry into peptide CDMO as incremental growth drivers.
* The company has delivered strong execution, with a continued shift toward finished dosages (~75%+), margin expansion (~60%+ gross margins), and rising contribution from complex, high-value products.
* This evolution is supported by consistent R&D investments (~5%+ of sales) and capex (~INR23b over FY22-26) for backward integration, complex capabilities, and differentiated technology platforms.
* With a growing complex generics pipeline, a higher share of pending approvals in complex segments, and early traction in peptide CDMO, Granules is wellpositioned for stable growth and margin expansion.
* We believe its earnings momentum will be driven by the scale-up in complex generics and gradual CDMO contributions. Accordingly, we expect 27% earnings CAGR over FY26-28. We value the company at 21x 12-month forward earnings to arrive at a TP of INR860. Reiterate BUY
Executing the shift toward high-value formulations
* The business mix has decisively shifted toward finished dosages over FY16-26 (from 33% to 74%), with APIs continuing to play a critical role in backward integration and supply chain control, supporting margin expansion.
* This transition is underpinned by a steady scale-up in R&D (~2.8x growth over FY21-26), with intensity increasing to ~5%+ of sales, signaling a strategic focus on differentiated products.
* Parallel investments in capacity, backward integration, and technology platforms are being executed with financial discipline, supported by strong cash generation (OCF consistently exceeding capex).
* Strong execution is visible in a robust pipeline (148 dossiers, 100+ DMFs) and high approval conversion, reinforcing the company’s ability to translate investments into commercial outcomes.
Peptide CDMO entry opens a high-growth, innovation-led platform
* The acquisition of Senn Chemicals marks a strategic entry into peptide CDMO and therapeutics, complementing the existing small-molecule and API capabilities.
* The platform provides end-to-end CDMO capabilities with differentiated technologies (LPPS, SPPS) and strong innovator linkages, positioning the company in regulated, high-value markets.
* Peptides represent a large and rapidly expanding opportunity (~USD70-80b), driven by GLP-1 therapies, oncology, and personalized medicine, with strong outsourcing tailwinds.
* Peptide CDMO is transitioning from integration to execution, with 4QFY26 marking EBITDA breakeven and early commercialization; the business is poised for scale-up in FY27, supported by improving pipeline traction, demand-led capacity expansion, and a focus on achieving full-year profitability.
Valuation and view
* We expect Granules to deliver ~17% revenue CAGR over FY26-28, driven by the scale-up in finished dosages, increasing contribution from complex generics, and incremental growth from the peptide CDMO platform.
* EBITDA/PAT are expected to clock ~19%/27% CAGR over FY26-28, supported by operating leverage, richer product mix, and continued margin expansion.
* We value the company at ~21x 12-month forward earnings (vs. historical peak of ~34x), reflecting a balanced view on growth visibility and execution, to arrive at our TP of INR860. Maintain BUY.
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