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Centrum Broking
Granules India (Buy)
CMP: ₹112.95
Target: ₹220
We maintain Buy rating on Granules India (GIL), with a revised TP of ₹220 (earlier ₹190) based on 14x March 2019 EPS of ₹15.8 as we have rolled over to FY19 estimates. GIL’s Q3FY17 results were below our estimates. GIL reported revenue growth of 11 per cent y-o-y, 110 bps improvement in EBIDTA margin to 21.2 per cent and 38 per cent y-o-y growth in net profit. The company reported 440 bps y-o-y improvement in gross margin to 51.8 per cent from 47.4 per cent. GIL has developed a new API for multiple sclerosis which has a market size worth of $4 billion (₹270 billion); it has identified a partner for formulations and its partner plans to file ANDAs with the US FDA.
Profitable product mix, capacity expansion, focus on process innovation, cost optimisation, commencement of Omnichem JV production and upward movement on value chain will improve GIL’s performance. GIL is among the top picks in the pharma sector.
Key risks to our assumptions are slowdown in the global market and regulatory risks for its manufacturing facilities.
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