Gagillapur site under a cloud
USFDA classification is vital for new approvals
Granules India (GRAN) was issued a Form 483 with six observations for its Gagillapur site after a recent USFDA inspection.
The observations are related to cleaning/maintenance, inadequate root-cause analysis, document management, procedures for in-process controls and air purification units.
GRAN is expected to implement remediation measures to address the issues. We await the classification of inspection from USFDA to understand the sustainability of compliance with regulatory guidelines.
Currently, there is no major product pending for approval and is built into estimates from this site. We await clarity on the impact of remediation measures on the ongoing business.
We expect a 36% earnings CAGR over FY24-26. We value GRAN at 18x 12M forward earnings to arrive at a TP of INR680. We reiterate our BUY rating on the stock
Sound compliance track record till date
Till date, GRAN has gone through 24 USFDA inspections since 2009. Out of 24 inspections, Gagillapur (Medchal-Malkhajgiri) has been inspected six times.
With a sound regulatory track record, the company received either Voluntary Action Indicated (VAI) or No Action Indicated (NAI) classifications in these inspection.
The Gagillapur site has 24k TPA of PFI and 21.6b PA of formulation capacity, which is higher than the combined capacity of Parawada, Chantilly, and Jeedimetla.
The management is working to address and resolve the issues raised by USFDA within the stipulated time.
Valuation and view
GRAN has recorded a healthy 10% earnings CAGR over FY19-24. Given that GRAN is focusing on building a niche pipeline in the oncology space, large- volume products, innovative tech-based products and backward integration, we estimate a 36% earnings CAGR over FY24-26. However, the regulatory inspection at Gagillapur will be a near-term hurdle for growth in US markets, and GRAN is working on implementing remediation measures in this plant.
We value GRAN at 18x 12M forward earnings to arrive at a TP of INR680. Reiterate BUY on the stock
