Granules India Share price: Sharekhan maintains Buy rating on Granules with price target of Rs 475

Granules India Limited (Granules) reported a mixed set of results for Q3 FY21 with the operating performance missing expectations, while higher other income resulted in PAT slightly ahead of estimates. Revenues at Rs 845 cr grew 20% y-o-y backed by strong double digit growth across all the segments of API (Active Pharmaceutical ingredients) – up 20%, PFI (Pharmaceutical formulations intermediates) – up 48% YoY and FD’s (Finished Dosages) up 11.2% yoy.

Granules operating margins 25.1% expanded 190 bps yoy on the back of 300 bps YoY expansion in gross margin largely attributable to favourable mix and better efficiencies due to higher utilization levels. However sequentially, the operating margins contracted by 480 bps on the back of a 420 bps contraction in gross margins, on account of covid led challenges which resulted in supply chain and logistics issues.

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Granules operating profits stood at Rs 211.6 cr, up 29.7% yoy for the quarter. The adjusted PAT for the quarter stood at Rs 146 cr, as against Rs 96 cr in Q3 FY20 and was slightly ahead of estimates. Granules see strong demand traction across its segments and expect the same to sustain going ahead as well. Tapping new geographies for growth, a strong product pipeline and benefits of incremental capacities (including the MUPS block) would be key revenue drivers.

Also, Granules has announced an incremental capex of Rs 400 cr towards setting up a new facility for PFI – FD at Genome valley Hyderabad, which is expected to be ready in early FY2024 and provides visibly for growth going ahead. A favourable mix, operating efficiencies generated due to benefits of operating leverage and higher margins from new product launches would result in OPM expansion. Consequently, Granules sees its margin trajectory to be in the range of 25-27% as compared to 21.1% as of FY20.

Further, during Q3 FY21, Granules had confronted challenges on the supply chain and logistics front which it expected to sustain in Q4 21. Granules management are weighing alternative options so as to be able to tide over the challenges. Citing caution, the management expects PAT growth for FY21 to be around 60-70% as compared to 70-80% guided earlier. A sturdy topline growth, expansion in operating margins leading to a strong earnings growth, healthy return ratios and a strong balance sheet position augur well and are the key positives for Granules.