Motilal Oswal is bullish on Granules India has recommended buy rating on the stock with a target price of Rs 140 in its research report dated January 30, 2019.
Motilal Oswal's research report on Granules India
GRAN's 3QFY19 sales came in at INR6.3b (v/s our estimate of INR5.5b), up ~54% YoY, led by API and formulation (FD) segment. Gross margin (GM) declined by ~600bp YoY (+200bp QoQ) to 43.2%, primarily due to increased competition and higher input costs. Despite sharp contraction in GM, GRAN was able to maintain EBITDA margin at 17.8% (flat YoY; +60bp QoQ) due to better operating leverage. Absolute EBITDA increased by ~53% YoY to INR1.1b (v/s our estimate of INR970m) on back of strong revenue growth. For 9MFY19, profit from JV/associates stood at INR297m v/s INR127m YoY. PAT grew at a higher rate than EBITDA due to higher other income and lower tax rate of 31% (v/s 36% in 3QFY18). PAT stood at INR603m (+72% YoY). For 9MFY19, sales/EBITDA/PAT stood at INR16.7b (+40% YoY)/INR2.9b (+26% YoY)/INR1.7b (+54% YoY).
We raise FY19/FY20 EPS by 16%/10% to INR8.9/INR10.4 to factor in strong 3Q, superior performance in formulation and improved capacity utilization. We reduce P/E multiple to 13x (from earlier 15x) to factor in the current headwinds in the US generics market. We maintain our price target at INR140 on 12M forward earnings basis. Maintain Buy.
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