MOSL: GRANULES INDIA (Buy) -Scoring well on execution; outlook remains positive

Granules India: Scoring well on execution; outlook remains positive

(GRAN IN, Mkt Cap USD0.3b, CMP INR97, TP INR140, 44% Upside, Buy)

• Quarter characterized by strong revenue growth: GRAN’s 2QFY19 sales increased by 48% YoY to INR5.8b (our estimate: INR4.7b), led by API and Formulations (FD) segments. Growth, however, was partly offset by flat sales in Intermediates segment. Gross margin shrank ~430bp YoY to 45.3%, primarily due to higher input costs. Margins were stable (-20bp QoQ) as GRAN has been able to pass on increased input cost to customers. EBITDA margin shrank ~230bp YoY (+130bp QoQ) to 17.3%, mainly due to gross margin pressures, partially offset by lower employee cost (-140bp YoY) and other expense (-70bp YoY). Absolute EBITDA grew ~31% YoY to INR1b (our estimate: INR848m), led by strong revenue growth. Profit on JV/associates stood at INR130m v/s INR146m in 1QFY19. PAT increased 49% YoY to INR603m (our estimate: INR406m). For 1HFY19, sales stood at INR10.3b (+33% YoY), EBITDA at INR1.7b (+7% YoY) and PAT at INR1.1b (+45% YoY).
• Price/volume-led growth in API, FD segments: FD sales (39% of sales) grew ~37% YoY to INR2.3b, with volumes increasing ~22% YoY (implying ~21% increase in prices) on account of new launches and better traction in existing products. API sales (45% of sales) increased 96% YoY to INR2.6b. GRAN was able to take ~60% price hike in this segment to offset the impact of increased input cost, driving revenue growth for the quarter.