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MOSL: GRANULES INDIA (Buy)-Superior performance persists-outlook remains robust

Granules India: Superior performance persists; outlook remains robust

(GRAN IN, Mkt Cap USD0.3b, CMP INR92, TP INR140, 52% Upside, Buy)

 

• GRAN delivers record quarterly EBITDA: GRAN's 3QFY19 sales came in at INR6.3b (v/s our estimate of INR5.5b), up ~54% YoY, led by API and formulation (FD) segment. Gross margin (GM) declined by ~600bp YoY (+200bp QoQ) to 43.2%, primarily due to increased competition and higher input costs. Despite sharp contraction in GM, GRAN was able to maintain EBITDA margin at 17.8% (flat YoY; +60bp QoQ) due to better operating leverage. Absolute EBITDA increased by ~53% YoY to INR1.1b (v/s our estimate of INR970m) on back of strong revenue growth. For 9MFY19, profit from JV/associates stood at INR297m v/s INR127m YoY. PAT grew at a higher rate than EBITDA due to higher other income and lower tax rate of 31% (v/s 36% in 3QFY18). PAT stood at INR603m (+72% YoY). For 9MFY19, sales/EBITDA/PAT stood at INR16.7b (+40% YoY)/INR2.9b (+26% YoY)/INR1.7b (+54% YoY).
• FD/API led growth in revenue: Fixed dosage (FD) (49% of sales) grew by ~88% YoY to INR3.1b and API (34% of sales) grew 45% YoY to INR2.1b. Limited competition in FD and improved realizations in PFI/API are the key factors for YoY revenue growth in the quarter. Geography-wise, revenue from North America grew 122%/71% for 3QFY19/9MFY19 and forms 52% of sales.
• Other key highlights: (1) GRAN has guided for four ANDA approvals in the next 3-6 months; (2) contribution from JV was subdued due to annual maintenance shutdown; it's expected to be on-track from 4QFY19; (3) strong growth in FD was due to Methocarbamol and Ibuprofen, which were launched by GRAN under its own label; and (4) working capital cycle is down to 124 days from 137 days end-FY18