GRANULES INDIA LTD - Enriched offerings to boost profitability - Networth

GIL, initially a manufacturer of bulk drugs, has transformed itself into a complete solutions provider for global pharma majors. It has developed integral global alliances on the back of strong technological expertise and manufacturing capabilities, bolstered by apt focus upon quality and regulatory compliances. We believe that within the next 2 years, GIL will emerge as a strong supplier of finished dosages in the global market.

Strong growth in Finished Dosages (FD) to drive revenues:

With strong intent to upgrade its offering, GIL has increased thrust on finished dosages. With global generics poised for high-growth; augmenting manufacturing capacities, increasing utilizations and enrichment of its portfolio will assure robust revenue growth. FD revenue grew 13x from mere Rs 78mn in FY09 to Rs 1,032mn in FY11, and projected to grow CAGR 75% to Rs 3,157mn over FY11-13E.

Recent FDA approvals – Significant milestone achieved:

Recent FDA approvals have underscored GIL's prowess in regulatory compliance protocols, manufacturing skills, consistent ability to deliver world-class quality. This portrays GIL as an integral partner capable of timely supplies of high-quality, regulator-approved finished products. Synchronized capacity augmentations (API and PFI) to fuel momentum: Since GIL is now focused more towards FDs, the API segment is projected to grow at slow pace at 8% CAGR over FY11-13E against 22% CAGR over FY08-11, due to greater captive use. But the relatively high margin PFI (pharma formulation intermediates) segment is projected to grow at higher pace viz. 38% CAGR over FY11-13E v/s 6.5% CAGR during FY08-11.

Enriched portfolio to boost profitability and strengthen Balance Sheet:

Robust uptick in margins would be observed, primarily aided by proficient raw material sourcing, operational efficiency and complete vertical integration. Improving interest coverage and healthier return ratios to enable GIL to turn FCF positive by FY13E.

Valuations:

With increased thrust towards an enriched offering, we believe the company would deliver robust income and profit of 35% and 56% CAGR over FY11-13E. The stock currently trades at 3x its FY13E EPS of Rs 23.4. At CMP of Rs 70, we initiate coverage with “Buy” recommendation with a 1-year price target of Rs 117 (5x FY13E EPS), implying an upside of 67%.

Source : Equity Bulls

Keywords