EUR 120.00 For Business Accounts Only

MOSL: GRANULES INDIA (Buy)-Strong end to FY19, momentum to sustain over next 2-3 years

Granules India: Strong end to FY19, momentum to sustain over next 2-3 years

(GRAN IN, Mkt Cap USD0.4b, CMP INR110, TP INR150, 36% Upside, Buy)

 

• Formulation-driven growth: Sales increased 22% YoY to INR6.1b (our estimate: INR6.5b) in 4QFY19. Gross margin (GM) improved 740bp YoY (+270bp QoQ) to 46%, led by a superior product mix. Sales were largely driven by a 43%/22% YoY increase in FD /API sales, partly offset by a 14% decline in intermediates sales.
• Profitability supported by a superior product mix: EBITDA margin expanded 850bp YoY to 17.9% (our estimate: 16.8%), largely on account of an improvement in GM. Other expenses and staff cost as a percentage of sales were stable YoY. We, however, note that the EBITDA margin shrank 70bp sequentially, mainly due to a steep increase in other expenses (20.4% v/s 16.7% in 3QFY19). Absolute EBITDA increased 142% YoY to INR1b (our estimate: INR1.1b). PAT of INR720m exceeded our estimate of INR577m owing to a lower tax rate.
• For FY19, sales/EBITDA/PAT grew 35%/41%/77% YoY to INR22.7b/INR3.9b/INR2.3b.
• Key concall highlights: (a) GRAN guided for CAGR of 20% in sales and 25% in PAT over next three years. (b) The company aims to reduce net debt of INR9.1b by at least INR500m in FY20. (c) R&D spend to be INR1.8b (~60% to be expensed through P&L) in FY20. (d) FY20 capex guided at ~INR1.5b