Partner With Us NRI
Granules India Ltd>
  • CMP : 324.3 Chg : 6.10 (1.92%)
  • Target : 345.0 (35.29%)
  • Target Period : 12-18 Month

20 May 2022

Revenues growth amid persisting headwinds…

About The Stock

Granules is a large-scale vertically integrated company that manufactures API, intermediates and finished dosages and has seven manufacturing facilities along with B2B & B2C marketing & distribution.

  • Revenue mix FY22: Formulations – 52%, API (API+PFI) – 48%
  • Top five products (Paracetamol, Ibuprofen, Metformin, Methocarbamol, Guaifenesin) contributed 81% to FY22 revenues

: Granules’ revenue growth in this quarter was mainly on the back of higher selling price realisation from Paracetamol and new launches in the US.

  • Sales were up 29% YoY to ₹ 1030 crore
  • EBITDA was at ₹ 193 crore, down 5% YoY with margins at 18.7%
  • Adjusted PAT was at ₹ 111 crore (down 13% YoY)
What should Investors do?

Granules’ share price has grown by ~1.67x over the past five years (from ~₹ 148 in May 2017 to ~₹ 247 levels in May 2022).

  • We maintain BUY on the back of 1) launches lined up across geographies along with incremental contribution from MUPS block, 2) focus on backward integration, 3) initiatives like passing on price hike to customers, and 4) compelling risk-reward matrix based on FY24E earnings
Target Price Valuation

Valued at ₹ 345 i.e. 14x P/E on FY24E EPS of ₹ 24.6 

Key Triggers for future price performance
  • Twelve launches lined up for US with market size of ~ US$3.6 billion in FY23
  • Ability to pass on input cost inflation and margins improvement through focus on cost management
  • Extending its core products via additional strength/different forms in US, launching in other geographies may provide better operating leverage
  • In the US, it also focuses on select small but high value launches where competition is less, which bodes well in a crowded generics market
  • Timely completion of new block construction in Gagillapur and new initiatives for backward integration in key molecules like paracetamol and metformin, along with rationalising R&D portfolio
New Stock Ideas

Apart from Granules, in healthcare coverage we like Laurus.

  • Laurus is evolving as a strong vertically integrated player with strong order book visibility and incremental traction from custom synthesis
  • BUY with a target price of ₹ 690

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues 2,279.2 2,598.6 3,237.5 3,764.9 21.7 4,362.3 4,953.3 14.7
EBITDA 384.1 525.3 853.6 722.2 19.5 863.2 1,053.1 20.7
EBITDA Margins (%) 16.9 20.2 26.4 19.2 - 19.8 21.3 -
Net Profit 187.7 309.9 549.5 412.8 24.2 486.6 610.6 21.6
EPS (Adjusted) 9.5 12.4 22.2 16.6 - 19.6 24.6 -
PE (x) 32.5 22.9 14.0 15.3 - 13.0 10.4 -
EV to EBITDA (x) 22.4 15.8 9.7 9.7 - 8.0 6.2 -
RoCE (%) 11.8 15.2 24.0 15.6 - 16.8 18.6 -
RoE (%) 15.5 16.7 25.3 16.0 - 16.0 16.9 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results: Revenues grew amid margin pressure

  • Revenues grew 29% YoY to | 1030 crore, driven by YoY growth of 78% in PFI to | 257 crore and 28% growth in API to | 248 crore. Formulations grew 14% YoY to | 525 crore. EBITDA margins fell 656 bps YoY to 18.7% due to lower gross margins (down 834 bps YoY) and higher other expenditure. EBITDA de-grew 5% YoY to | 193 crore and adjusted PAT declined 13% YoY to | 111 crore. Delta vis-à-vis EBITDA was mainly due to higher tax expense being partially offset by higher other income, lower interest and tax expense
  • Granules’ revenues growth in this quarter was mainly on the back of higher selling price realisation from Paracetamol and new launches in the US. EBITDA margin drop was on account of pricing pressure in the US and also increase in cost of KSMs, solvents and increase in logistic cost. Two positive takeaways being - 1) sequential improvement in margins despite adverse business condition arising out of supply constraints of Para Amino Phenol (PAP), other input price cost increase and logistic cost increase and 2) share of non-core molecules increased to 19% in FY22 from 16% last year. Granules remains a decent player with clear vision to play on its strength of economies of scale and gradual expansion into more complex products/forms to improve margins

Q4FY22 Earnings Conference Call highlights

  • FY22 was a challenging year for the company in the backdrop of inflation in raw material, solvents and catalysts; Global supply chain challenges; Geo-political crisis and pricing challenge in US
  • Other raw material supplies ex-PAP is smooth but prices have either gone up or remained elevated. Granules is able to pass on the price rise in B2B business while in B2C company can only pass the hike from Q2FY23 due to terms of contract agreements. The management guided for biggest PAP producer to resume operations in next couple of weeks
  • Inflation: Raw material increased 60% YoY, solvents increased 40-70% YoY and freight cost increased 70% YoY
  • US is experiencing high double digit price erosion (highest of last 10 years). Granules launched five products in FY22 and plans to launch 12 products in FY23 with addressable market size of ~ US$3.6 billion. The management has guided for better growth from the US in FY23. In EU, Granules launched five products in FY22. EU will continue to operate in partnership model
  • In the US, Granules has 24 Rx products and 10 OTC products. Majority of formulations growth in this quarter was driven by US. The company guided for 17 finished dossiers launch across geographies over next two years
  • Going forward, Granules is looking to creating tech platform to bring innovation for 1) R&D in APIs and formulations, 2) Technical excellence in IPs, 3) B2B business in value added APIs and 4) commercial excellence in new product launches and core molecules
  • Granules aspires to provide CMO services from oncology blocks, validation was done last quarter while commercial supplies would begin post regulatory approvals
  • MUPS block will start contributing revenues from Q2FY23 onwards. Granules launched two MUPS products while six more are to be launched
  • China supplier would account for 15-20% while rest would be ex-China suppliers. The management is looking for backward integration for paracetamol and metformin
  • Capex: FY22: | 397 crore while guidance for FY23 and FY24 at | 600 crore
  • R&D expense for FY22 at | 143 crore, guidance for | 160-165 crore in FY23.
Variance Analysis
  Q4FY22 Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 1,030.0 799.3 28.9 996.8 3.3   YoY growth on back of higher selling price realisation from Paracetamol and new launches in US
Raw Material Expenses 526.0 341.6 54.0 531.9 -1.1    
Gross margins (%) 48.9 57.3 -834 bps 46.6 229 bps   Gross margin was impacted due to inflation in KSMs and solvents along with high double digit price erosion in US
Employee Expenses 108.2 99.9 8.3 105.3 2.7    
Other Expenditure 203.1 155.9 30.3 185.8 9.3    
Total Operating Expenditure 837.3 597.3 40.2 823.0 1.7    
EBITDA 192.7 202.0 -4.6 173.7 10.9    
EBITDA (%) 18.7 25.3 -656 bps 17.4 128 bps   EBITDA margin declined YoY due to lower gross margins along with higher logistic cost (up 70% YoY)
Interest 6.4 6.8 -6.7 4.6 38.5    
Depreciation 40.2 44.5 -9.7 39.2 2.4    
Other income 4.0 3.3 20.8 4.9 -18.6    
PBT before EO 150.1 154.0 -2.5 134.8 11.4    
Less: Exceptional Items 0.0 0.0 0.0 0.0 0.0    
PBT 150.1 154.0 -2.5 134.8 11.4    
Tax 39.1 26.4 48.1 33.9 15.4    
MI & Share of loss/ (gain) asso. 0.0 0.0 0.0 0.0 0.0    
Adj. Net Profit 111.0 127.6 -13.0 100.9 10.0   Delta vis-à-vis EBITDA was mainly due to higher tax expense being partially offset by higher other income, lower interest and tax expense
Key Metrics              
API 247.8 193.8 27.9 313.0 -20.8    
PFI 256.8 144.4 77.8 226.0 13.6    
Formulations 525.4 461.1 13.9 458.0 14.7    

Terms & conditions and other disclosures


I/We, Siddhant Khandekar, Inter CA, Raunak Thakur, PGDM, Kush Mehta, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.


ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.


Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.


Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.


ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.


The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.


This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.


ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.


ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.


ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.



ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.


Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.


ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.


Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/ beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.


ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.


Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.


We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.


This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.


Read More