Buy Granules India: Motilal Oswal

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Motilal Oswal

Motilal Oswal maintains a buy rating on Granules India post Q1 results with a target price of Rs 130. Granules India 1QFY19 sales grew 17 percent YoY to Rs 450 crore, led by finished dosages and APIs.

Gross margin declined from 53 percent in 1QFY18 to 45 percent primarily due to increase in raw material prices. However, Granules India has been able to pass on the raw material price hike to customers and there has been some cooling off QoQ; hence, gross margin has improved sequentially. EBITDA declined 14 percent YoY to Rs 72.6 crore.

"We believe Granules India capex cycle is close to over and its efforts should start to deliver hereon. The management expects margin recovery in coming quarters on the ramp-up of new capacity utilization, passing on of high RM cost, and key launches in the US," said the report.

The domestic brokerage firm expects the EBITDA and PAT to grow by over 25 percent CAGR over FY18-20. It increased FY19E EPS by 7 percent on the back of higher other income and increase in income from JVs.