Buy Visaka Industries; target of Rs 260: Centrum

Centrum's research report on Visaka Industries

We maintain Buy rating on Granules India (GIL), with a revised TP of Rs190 (earlier Rs200) based on 14x March’18 EPS of Rs13.5. GIL’s Q2FY17 results were below our and consensus estimates. GIL reported revenue growth of 3% YoY, 100bps improvement in EBIDTA margin to 20.4% and 26%YoY growth in net profit. The company reported 450bps YoY improvement in gross margin to 48.5% under Ind- AS. GIL has developed a new API for multiple sclerosis which has market size of US$4.0bn (Rs270bn) and is growing at 100%YoY. Profitable product mix, focus on process innovation, cost optimisation, commencement of Omnichem JV production and upward movement on value chain will improve GIL’s performance.

We maintain Buy rating, with a TP of Rs190, based on 14x March’18E EPS of Rs13.5, with an upside of 52.1% over CMP. We have revised FY17E and FY18E EPS downwards by 8% and 5%, respectively. We expect the company to deliver superior performance due to change in product mix, additional capacities, margin improvement and new product launches. The recent agreement with US Pharma to acquire its 12.5% stake would improve profits. Key risks to our assumptions are slowdown in the global market and regulatory risks for its manufacturing facilities.