Granules India - Building additional levers for higher earnings growth …

Visit Note by IndiaNivesh

We recently interacted with Granules India (GIL) management to understand the current business and outlook over next two‐three years. GIL is in the process of creating additional levers for growth in terms of increase in presence in regulated market, own ANDA filing, higher forward integration and enhanced synergy benefit from acquired entities. At CMP of Rs114, the stock is trading at 19.9x
FY16E EPS of Rs5.7 (Bloomberg consensus EPS) and 15.3x FY17E EPS of Rs7.4 (Bloomberg consensus EPS).

Key highlights of management meet –

Five molecules formed majority of sales in FY15

GIL’s base business (~88% of total turnover) is mainly from five molecules –
Paracetamol, Metformin, Ibuprofen, Guaifenesin and Methacarbamol. The base business has shown a robust CAGR of 28.3% to Rs10.9bn in FY15 over past 4 years. The strong growth has been on account of volume expansion as well as increase in prices. GIL supplies these 5 molecules in the form of API, Pharmaceutical formulation intermediates (PFI) or Formulation depending on need of customers.

The API capacity has increased at CAGR of 7% over past three years to ~22500 MT/annum. The production has increased at higher rate of 15% over similar period. And, the revenue has increased at 29% CAGR over past three years to Rs5.7bn by the end of FY15.

The PFI capacity has increased by 30% CAGR to 18,400 MT/annum by FY15. The production has increased at CAGR of 10% over past three years. And revenue has increased by 16% CAGR during similar period to Rs3bn by the end of FY15.

Formulation capacity has increased at rate of 44% CAGR to 18bn tablets/ annum. The production has increased at CAGR of 22% over past three years. And revenue has increased by 29% CAGR during similar period to Rs4bn by the end of FY15.

With faster growth in formulation segment, the proportion of formulation sales in total turnover has increased from 29% in FY12 to 32% in FY15.