MOSL: GRANULES INDIA (Buy)-Revenue in-line-margins below expectation

Granules India: Revenue in-line; margins below expectation

(gran IN, Mkt Cap USD0.5b, CMP INR119, TP INR175, 47% Upside, Buy)

• Sales rose 14% YoY to INR4.1b (est. of INR4.06b). EBITDA margin came in at 18% (-320bp YoY, -160 bp QoQ) v/s our expectation of 20.6%, because of: 1) high input cost, 2) forex fluctuations and 3) new capacity ramp-up. EBITDA stood at INR740m v/s our estimate of INR837m. PAT declined 10% YoY to INR350m due to lower margins and associate income (est. of INR433m).
• US business – Methergene approval will be key: GRAN plans to file ~20 ANDAs in the US until FY19. Of these, ~50% complex ANDAs will be filed from its US-based Virginia facility and the rest from its India facility in Gagilapur. It has already filed two complex generic ANDAs, including Methergene (LPC is the innovator; market size: ~USD50-60m). GRAN is the only generic filer, and an approval is expected over the next few months.
• Concall takeaways: 1) In 3QFY18, Virginia facility was inspected for the first time by the USFDA with one 483, to which GRAN responded and also later received EIR. 2) On target to file 10 ANDAs in FY18; 5 ANDAs in 4Q (all complex ANDAs). 3) Maintained revenue guidance, although PAT may be impacted by lower margin; 4) First product from Virginia facility will be launched in 1QFY19. 5) Depreciation will increase from FY19, led by new facility becoming operational.