Hold Granules India; target of Rs 400: Sharekhan

Sharekhan's research report on Granules India

Granules reported yet another healthy quarter with revenues and PAT growing by 30% and 80% y-o-y, respectively (OPM improved by 409 bps y-o-y to 21.1%) driven by higher paracetamol sales, higher market share and new launches. Paracetamol sales rose mainly due to increased availability and stability in the sourcing of KSMs such as PAP and cannibalisation from other suppliers. Trend is expected to continue in the coming quarters. Free cash flow (FCF) increased to Rs. 124 crore in Q2FY23 from Rs. 32.4 crore in Q2FY22; RoCE increased to 25% versus 21.8% y-o-y.

Outlook

Granules stock price saw strong run-up of ~30% in the past six months and is currently trading at 16.7x/13.1x its FY2023E/24E earnings. We maintain a Hold on Granules with a revised PT of Rs. 400.

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