Buy Granules India; target of Rs 480: KR Choksey

KR Choksey is bullish on Granules India has recommended buy rating on the stock with a target price of Rs 480 in its research report dated January 24, 2024.

Broker Research

January 29, 2024 / 14:52 IST

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KR Choksey's research report on Granules India

Granules India’s revenue has increased at a flat pace of 0.8% Y-o-Y (-2.9% Q-o-Q) to Rs. 11,556 Mn for Q3FY24 (vs. our estimate of Rs. 12,379 Mn, miss by 6.7%) The miss was due to lower than anticipated growth in API sales (19% of revenue, miss by 48%). API sales decline was due to reduction in paracetamol formulation prices, which has followed reduction in the prices of its key starting material (KSM). FDF sales (66% of revenue) grew at 46.6% Y-o-Y (+3.2% Q-o-Q) due to strong growth visible in North America market across major products, especially for products such as controlled substances. On the other hand, API and PFI segments witnessed 46.1% Y-o-Y (-26.8% Q-o-Q) and 20.9% Y-o-Y (+15.7% Q-o-Q) decline in sales, respectively in Q3FY24. Granules India’s gross profits margins (GPMs) increased substantially by 859 bps Y-o-Y (+531 bps Q-o-Q) to 57% in Q3FY24. It was driven by improved products mix towards high value FDF segment, which was largely driven by North America’s market growth. This in turn was driven by new product launches and growth in existing products.

Outlook

We expect the company to see a Revenue/ EBITDA/ PAT CAGR of 8.9%/ 12.7%/ 12.9%, respectively over FY23-FY26E. The stock is trading at 21.1x/15.6x/13.6x our FY24E/FY25E/FY26 EPS. We apply a multiple of 18.0x (earlier 16.1x) on FY26E EPS of INR 30.7 and arrive at a revised target price of INR 480, implying an upside of 15.1% from the CMP. Accordingly, we maintain our “BUY” rating on the shares of Granules India Ltd.

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