Ultra Investment Advice
BUY Granules India Limited (NSE: GRANULES)
OUR RECOMMENDATION
| CP# | 295 |
| Idea | BUY |
| Buy Range | 285 – 290 |
| Target | 350 – 360 |
| Duration | 5 – 6 Months |
| Upside Potential^ | 22 – 25% |
| CP# | Idea | Buy Range | Target | Duration | Upside Potential^ |
| 295 | BUY | 285 – 290 | 350 – 360 | 5 – 6 Months | 22 – 25% |
Company Overview
Granules India Limited is a Hyderabad-based pharmaceutical company engaged in the manufacture and sale of active pharmaceutical ingredients (APIs), pharmaceutical formulation intermediates (PFIs), and finished dosages (FDs) for both domestic and international markets. Its API portfolio spans a wide range of therapeutic areas, including anti-retrovirals, anti-hypertensives, anti-histamines, anti-infectives, analgesics, anticoagulants, anti-fibrotics, and platelet inhibitors. The company also produces tablets, caplets, and press-fit capsules in various formats such as bulk, blister packs, and bottles. Additionally, Granules offers high-potency and oncology products, along with specialized development and manufacturing solutions for peptides, peptide fragments, and amino acid derivatives. Established in 1984, Granules has grown into a globally recognized player in the pharmaceutical industry.
Q3 FY23 Financial Highlights
- Revenue: ₹1,146 crore, up 15% YoY, driven by strong demand across geographies despite US logistics issues.
- EBITDA: ₹231 crore, up 33% YoY, reflecting operational efficiency and product mix optimization.
- EBITDA Margin: Healthy at ~20.2%, despite increased API sales and temporary FD disruptions.
- Operational Cash Flow: Strong at ₹161 crore, up sharply from ₹23 crore in Q3 FY22.
- ROCE: Improved to 25.6% (vs 21.2% YoY), reflecting better capital efficiency.
- Capex: ₹194 crore YTD, including ₹50 crore for green initiative at Kakinada and ₹42.5 crore for land acquisition in Vizag.
Business Highlights & Strategic Progress
1. Green Chemistry Initiative
- MoU with Greenko for supply of carbon-free electricity, hydrogen, ammonia, and nitric acid.
- Plans to produce APIs like paracetamol and metformin using fossil fuel-free, green energy.
- Targeting lowest carbon footprint from cradle-to-port.
- Project aims to supply >50% of global demand for select APIs.
- Investment: ₹2,000 crore over 4–5 years.
2. R&D and Innovation-Driven Strategy
- New enzyme-based API development underway; first validations expected by Q3 FY24.
- Focus on controlled substances, bio-based manufacturing, and flow chemistry.
- Shift toward high-value, differentiated molecules beyond core products (paracetamol, ibuprofen, metformin).
3. Geographic and Product Mix Diversification
- US price erosion (~12–15%) mitigated via geographic expansion and product mix shift.
- Strong trust from top global pharma brands; long-term contracts for paracetamol growing.
- Investing in controlled substances and regulated market launches.
4. Logistics Normalization Expected
- Q3 impacted by 3PL transition in the US, causing:
- Lost sales of a few million USD.
- Penalties for supply failures.
- Expected resolution and recovery in Q4 FY23.
Valuation
- The stock’s P/E ratio of 14.7 indicates moderate valuation, reflecting fair pricing relative to its earnings.
- Meanwhile, the P/B ratio of 2.7 suggests it remains attractively priced, as stocks trading below a P/B of 3 are often considered undervalued.
Debt Analysis
- A debt-to-equity ratio of 0.42 indicates a stable financial position with sufficient room to raise additional debt if needed.
Shareholding Pattern
- Promoters hold 42.02%, up slightly from 41.93% — reflecting strong promoter confidence.
- FIIs increased their stake to 23.66% (from 22.35%), a positive indicator of global investor interest.
- DIIs hold 4.75%, up from 4.32%, reflecting growing domestic institutional confidence.
Conclusion
Granules India presents a compelling mid-term investment case, driven by strong fundamentals and a clear strategic direction. The company is not only delivering consistent financial growth but also future-proofing its business through green energy initiatives, innovation in enzyme-based APIs, and expansion into regulated markets. Despite temporary headwinds in the U.S., its diversified portfolio and improving operational metrics signal resilience. With increasing institutional interest, stable debt levels, and favorable valuations, Granules is well-positioned to capture long-term value while offering solid upside potential in the medium term.