Granules India Ltd. share price target

We continue to maintain BUY with reduced TP of Rs 115 (12x FY20E). Driven by fresh capacities in API/PFI and resumption of OTC product supplies for the US partner, revenues grew 42%YoY to Rs 5.0bn in 4QFY18. However, steep price increase in key raw materials (ex. Acetic acetate), unfavorable geographic mix and inventory write off led to sharp fall in EBITDA margin from 18% in 3QFY18 to 8.7% in 4QFY18. As a result, reported PAT was at Rs 204mn, down 55%YoY.

24 May 2018 GRANs 4QFY18 sales rose significantly by ~39% YoY to INR5b (est. Gross margin shrank to 38.5% from 57% in 4QFY17 and 49.1% in 3QFY18, primarily due to higher RM prices, one-time write-off related to obsolete inventory, and product mix change. EBITDA fell ~44% YoY to INR436m (est. of INR760m), with the margin down ~1,300bp YoY to 8.7% due to certain write-offs. Weak operating performance led to a decline in PAT by ~55% YoY to INR204m (est. For FY18, sales, EBITDA and PAT stood at INR16.9b (~18%), INR2.8b (-7%) and INR1.4b (-18%), respectively.

Maintain BUY with a TP of Rs 170 (16x Dec-19E EPS). With fresh capacities kicking in in the API and PFI segments, Granules India (GRAN) grew its top line at ~14%YoY vs 9-10% in 1HFY18. The API segment grew 21%YoY to ~Rs 1.5bn, PFI grew 14% YoY to ~Rs 1bn and formulation sales increased 9%YoY to ~Rs 1.6bn. Higher share of API sales in the revenue mix and increased prices of certain raw materials due to either crude related hikes or capacity issues globally, led to a QoQ decline in the gross margin to 49.1% (from 49.6%) and EBITDA margin dropped to 18%. Higher depreciation due to the increased asset base and a 36% ETR saw reported PAT decline 10%YoY.

Sales rose 14% YoY to INR4.1b (est. of INR4.06b). EBITDA margin came in at 18% (-320bp YoY, -160 bp QoQ) v/s our expectation of 20.6%, because of: 1) high input cost, 2) forex fluctuations and 3) new capacity ramp-up. EBITDA stood at INR740m v/s our estimate of INR837m. PAT declined 10% YoY to INR350m due to lower margins and associate income (est. of INR433m). US business - Methergene approval will be key: GRAN plans to file ~20 ANDAs in the US until FY19. Of these, ~50% complex ANDAs will be filed from its US-based Virginia facility and the rest from its India facility in Gagilapur. It has already filed two complex generic ANDAs, including Methergene (LPC is the innovator; market size: ~USD50-60m). GRAN is the only generic filer, and an approval is expected over the next few months.

Granules India Limited (GIL) reported revenues of INR 393 cr, showing an annual growth of 8% in line with our expectations. However, gross margins were weaker at 50%, a material decline over...

Maintain BUY with a revised TP of Rs 170 (16x Sep-19E EPS). Granules India (GRAN) reported another quarter of top-line growth (8% YoY), after a subdued FY17. Revenue was Rs 3.9bn, in-line with estimates. EBITDA was Rs 769mn (up ~4% YoY), implying a margin of 19.6%, ~190bps below estimates. An increase in employee costs (+8% QoQ) owing to hiring at the US subsidiary, led to the subdued margin performance. A higher tax rate and increasing finance costs (additional debt taken on during 2QFY18) led to PAT declining 1% YoY to Rs 403mn.

Amneal and Impax announced a business merger with Amneal to be a dominant partner in the merged entity. Deal to create the 5th largest generic pharma company in the US. It appears that Impax has been valued at trailing EV/Sales of c.2.5x, which is a significant...

Granules India's (GRAN) Vizag facility was inspected by the US FDA in Dec-16, post which it was issued seven 483 observations. This is a new facility, and currently the JV is manufacturing pre-APIs from this facility. EIR will clear the road for the JV to reach out to innovators to supply APIs. We expect GRAN to make APIs in 2HFY19E from this plant (~12-15 months will be required for making exhibit batches and site transfers). This would lead to margin inflection (from ~21% now to ~30% by 2HFY19E). Granules-Omnichem JV a potential cash cow: This is a 50:50 JV between...

Granules (GIL) earnings came below our estimate. The company posted revenues of Rs 3,787mn with 10.2% YoY increase which was below our estimate of Rs 3,857. EBITDA margin, at 20.3%, was below our estimate. Adj. PAT came below our estimate at Rs 368mn (Incl. JV share Rs30mn) with a decline...

Maintain BUY with a revised TP of Rs 185 (16x June19E EPS). After several quarters of muted top-line growth, GRAN reported 10.2% growth in 1QFY18. Top-line came in at Rs 3.78bn, 5% ahead of estimates. The EBITDA margin at 20.3% was up 40bps YoY, in-line with expectations. While the gross margin expanded ~330bps YoY owing to the improving business mix, higher operating expenses prevented further expansion in the EBITDA margin. PAT was Rs 368mn, down ~5%YoY, largely owing to lower other income (Rs 4mn vs Rs 30mn YoY) and a higher tax rate.