EUR 120.00 For Business Accounts Only

MOSL: GRANULES INDIA (Buy)-Another quarter of record high revenue/EBITDA margin

(GRAN IN, Mkt Cap USD0.5b, CMP INR140, TP INR165, 18% Upside, Buy)

Formulation – the backbone of strong earnings trajectory
** GRAN is on a sustained earnings growth trajectory, led by higher business from forward integration, expanding its portfolio and reach.

** We raise our EPS estimate by 6.5%/7.3%/2.2% for FY20/21/22 to factor in (a) increased formulation business on account of ANDA launches in the US and (b) improving profitability due to forward integration and addition of higher-margin API molecules in the portfolio. Reiterating Buy.

Seventh straight quarter of strong double-digit YoY PAT growth
** Sales increased 11% YoY to INR7b (our estimate: INR6.9b) in 3QFY20.

** Growth was mainly driven by strength in the formulation dosage (FD) segment (+23% YoY; 54% of total sales). Geographically, North America (+13% YoY; 53% of sales)/Europe (82% YoY; 21% of sales) performed well.

** Gross margin expanded 750bp YoY to 50.7%, led by the higher share of formulation revenue.

** Consequently, EBITDA margin improved 530bp YoY to 23.2% (our estimate: 20.2%), partly offset by higher other expenses (+160bp YoY) and staff cost (+70bp YoY). Strong EBITDA growth and a lower tax rate led to PAT growth of 56.4% YoY to INR944m (our estimate INR876m).

** GRAN reported one-time provision charge for impairment of INR320m related to the divestment of Granules Biocause Pharma, resulting in lower reported PAT of INR641m.