Hold GRAN India Ltd For the Target Rs. 623 by Choice Broking Ltd
Sequential revenue recovery led by Gagillapur facility; EBITDA and PAT beat estimates significantly
* Revenue declined 1.5% YoY but rose 17.7% QoQ to INR 11.4 Bn (vs. consensus estimate of INR 11.0 Bn), driven by the staggered resumption of production at the Gagillapur facility.
* EBITDA de-grew 8.0% YoY but increased 13.3% QoQ to INR 2.3 Bn, with margins contracting 143 bps YoY but expanding QoQ to 20.2% (vs. consensus estimate of 19.6%).
* PAT declined 3.0% YoY but surged 16.5% QoQ to INR 1.2 Bn, (vs. consensus at INR 1.0 Bn beating estimates by 17.6%).
Gagillapur Facility Resumes Operations; OAI Status May Delay New Product Approvals
The Gagillapur facility has resumed phased operations since October 2024. While the USFDA's OAI (Official Action Indicated) status does not impact existing product sales, it may delay approvals for new products from the site. To address the issue, the company has engaged third-party consultants and submits monthly updates to the FDA for transparency. Management anticipates resolution by March 2025, with the Finished Dosages (FD) segment expected to operate normally in the meantime
Genome Valley Expansion to Fuel Revenue Growth from FY26
The Genome Valley Greenfield facility has completed Phase 1, adding 2.5 Bn FD doses, with commercial dispatches of U.S. OTC monograph products already underway. Phase 2, with an additional 7.5 Bn doses, is set to commence by Q4FY25, with validation activities starting in Q1FY26. Prescription product commercialization for the European market is targeted by March/April 2025. This facility is expected to boost revenue growth from FY26, leveraging full capacity utilization for monograph and prescription products. Additionally, it will diversify revenue streams and reduce reliance on other sites, including Gagillapur.
View and Valuation: We have revised our FY26/FY27 EPS estimates downward by 0.7%/0.6% and changed our rating to ‘HOLD’ with a target price of INR 623 (PE of 22.0x), which is lower than peers due to the uncertainty surrounding the resolution of the Gagillapur facility’s OAI status. The FD segment is expected to show stable growth, bolstered by the resumption of existing drug production at Gagillapur and new product approvals at the Genome Valley facility, although these factors are not reflected in our estimates, leaving room for potential upside. We will continue monitoring updates from the company. API normalization is expected from FY26 onwards.
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SEBI Registration no.: INZ 000160131
