Buy Granules India; target of Rs 370: Motilal Oswal

Motilal Oswal's research report on Granules India

Granules India (GRAN) delivered a miss on earnings in 1QFY24, as the company’s financial performance was adversely impacted by the cyber security breach that occurred in May’23. GRAN remains on track to build process for backward integration for core molecules (paracetamol/Metformin). We cut our earnings estimates by 12%/4% for FY24/FY25, factoring in a) the adverse impact of IT interruption (which might be extended for two more quarters), and b) the delay in product launches. We value GRAN at 13x 12M forward earnings to arrive at a price target of INR370. While the FY24 performance has been adversely impacted by the IT issue, leading to reduced revenue and increased working capital requirements, GRAN remains on track to a) building a product pipeline for regulated markets, b) improving profitability once the KSM plant for paracetamol and Metformin is commercialized in FY25 and additional capacity for core molecules as well as differentiated molecules. We reiterate our BUY rating on the stock.

Outlook

We cut our earnings estimates by 12%/4% for FY24/FY25 factoring a) adverse impact of IT interruption (which might be extended for two more quarters), and b) delay in product launches. We value GRAN at 13x 12M forward earnings to arrive at a price target of INR370.