KRChoksey is bullish on Granules India and has recommended buy rating on the stock with a target price of Rs 1140 in its January 29, 2015 research report.
Total revenues showed growth of 12.5% YoY to Rs 320crs in line with our estimates. Auctus Pharma contributed around Rs 20.7crs impacted by shutdown at its Vizag plant for 3 weeks due to hudhud cyclone. EBIDTA grew by 20.8% YoY to Rs 54crs & EBITDA margins stood at 17% expanded by 110bps mainly due to higher contribution of finished dosage sales & increased sales in regulated markets. PAT grew by 8% YoY to Rs 24cr on account of strong operating performance. EPS during the quarter stood at Rs 11.5. Board of Directors approved stock split ratio of 1:10 & approved fund raising of Rs 250crs through QIP.
During the quarter, around 42% of standalone sales were contributed from FDs, 25% from PFIs & 33% from APIs versus 39% of standalone sales from FDs, 33% from PFIs & 28% from APIs during the last corresponding quarter. FDs and PFIs are high margin business compare to APIs. Granules' strategy is to securing API's supply & making high margin PFIs & FDs along with supplying to long standing customers not only APIs but also formulations & PFIs. In FY14, new capacity was commissioned which has led to increased formulation sales. Customers started allocating larger wallet share to Granules since the Company has commissioned its additional capacity. Currently capacity utilization level at FD facility- 55-60%, API facility-100% & PFIs-70%. Company is planning for capacity expansion based on customer requirements. Management has guided sales contribution from FDs will reach 65% at peak level in 5yrs time. Going forward we believe company will continue its momentum from the existing and newly commissioned facilities which will lead to top line growth, utilization as well as margin improvement. We expect revenue CAGR of around 16% over FY14-17E & operating margins to be around 18-18.5%.
"Granules India has achieved 28% CAGR in revenues & 38% CAGR in earnings over past 10 years. We expect the company to continue its growth momentum on account of moving up the value chain towards high margin business, improved capacity utilization & additional product offerings from Auctus Pharma. We expect revenue & earnings CAGR of around 21% & 33% respectively over FY14-17E. Currently the stock is trading at 12.4x of FY16E & 9.7x of FY17E EPS. We maintain our 'BUY' rating on the stock with the revised target price of Rs 1140 based on 13x FY17E EPS", says KRChoksey research report.
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