Small & Midcap Mantra: Granules India on track to test record highs

Granules India Ltd.

Granules India has remained flat so far in 2021, despite the smart rally seen in the pharma space. The stock has fallen more than 6 percent so far this year, compared to the rally of over 17 percent in the S&P BSE500 index, and an over 50 percent jump in the S&P BSE Healthcare index in last one year.

Granules, which has a market-capitalisation of more than Rs 8,000 crore, is on track to retest its record high level of Rs 437.95, recorded back in December 2020, in the next 2-3 months.

Granules India has a presence in over 75 countries and has eight manufacturing sites. It is a vertically integrated pharma company headquartered in Hyderabad.

“Our business is bucketed into three areas - the core business which comprises our core molecules - Paracetamol, Ibuprofen, Metformin, Guaifenesin and Methocarbamol; the emerging business that focuses on manufacturing APIs, with a focus on vertical integration; and, the CRAMS segment, which focuses on contract research and manufacturing,” the company website says.

On the technical charts, the stock hit an all-time high of Rs 437.95 in the first week of December 2020, and, thereafter, a gradual slide brought it down to the Rs 300-level below the significant 200-Day Moving Average.

The stock bottomed out around that level and consolidated to regain for a fresh upward move to just cross the 200 DMA and again corrected.

“The stock has indicated a higher bottom formation pattern, reversing from the Rs 315 levels and picking up momentum with a series of positive candles to improve the bias,” Vaishali Parekh, Assistant Vice President, Technical Research, at Prabhudas Lilladher, said.

“It’s just hovering near the significant 50-Day Exponential Moving Average (EMA) of Rs 328 level, and a decisive breach above would further strengthen the bias. Also, the Relative Strength Index (RSI) indicator has indicated a trend reversal from the oversold zone to signal a buy to justify our positive bias,” she said.

The RSI is a momentum oscillator that helps traders to measure the speed and change of price movements.

Parekh further added that, purely on the basis of technical chart patterns and supporting indicators, one can have a fresh buying opportunity at the current rate and expect an upside target of Rs 375.

A break above Rs 375 could take the stock towards the Rs 420-425 levels in the coming months, with the near-term support seen near the Rs 315 level and a major support base maintained near the Rs 300 level.