Granules India Ltd

(Subash Nayak) #1

Plus Points Risks
Huge Expansion plan, Exp Revenue CAGR 60+% High Plegded Share (57%)
Colaboration with Ajinomoto Unichem High Borrowing (D/E ratio - 0.35)
Strong presence in Paracetamol, Ibuprofcen, Metf Direct competition with Asian Cos, Quality Control a Must
Good growth in API, FD, and PFI segment High Dependence on 2 drugs (Paracetamol, Ibuprofen)
Strong growth of generics Market High contribution of Export - Currency fluctuations

HDFC Sec has came up with a research report on it.

To me seems a good short-medium term pick.
Views invited on it.

(Vivek Gautam) #2

Bhai Hyderabad based companies SE Bahutu dar lagta good is the promoter from integrity perspective n how is the quality of numbers?hyderabad base d CAs are very enterprising as is evident from satyam ,tanka,mic electronics,bartronics,Icsa,karturi,beta lactam lab,ramky,ivrcl,ncc,the list is too long.

(Subash Nayak) #3

Promoter side story:-

Started by an first generation entrepreneur with around 25 years experience, and a surgeon with 4 decade of experience who is the current Chairman of Andhra Pradesh Medical Council.

Chairman of AMFI, Founder of Karvy, Director of Dena banks are amongst its Board of Director. Current CEO is a IIT-Chennai alumnus, Phd from Purdue, and MBA from Dukes.

Seems company is in Good hand.

(Subash Nayak) #4

Number side story:-

Revunue/PAT/EPS increased 40-50% last one year. Dividend increased by 33%. They have given a guidance of ~40% growth in FY12 and FY13. That too without realizing the effect of their partnership with Ajinomoto UniChem, whose effect will start reflecting from FY14-FY15.

OPM - 12%

ROCE - 19%

Other facts:-

  1. Because of high depreciation burden cash EPS has been very high. It has beenclose to Rs 19-20 for FY11. (2 time EPS)

  2. Promoters and Institutional Investors have approx 80% shareholding.

  3. It has increasing margins and an evolving revenue profile; from active pharmaceutical ingredients (API), it has now moved towards finished dosages which should give a very strong discounting on the markets.

  4. The value will start becoming increasingly evident from Q2 of the current financial year, by which time the impact of the expansion the trebling capacity in finished dosages and more than doubling capacity in pharmaceutical formulation intermediates (PFIs) will be evident.

(Hitesh Patel) #5

I guess the key question to ask is how much of these positive developments are priced in after the run up to current levels of around 126.

(Hardtoget) #6

maybe this report might help to understand the positives & the price better

is it normal of companies to come out with special reports along with their AR

they make anexcellentcase for themselves

(Subash Nayak) #7

Another buy reco

(Subash Nayak) #8

Sales is up 59%. EBITDA is up 47% and PAT is up 103%. API sales up 92% (57 Cr), PFI sales up 50% (52.6 Cr) and FD sales up 35% (49.6 Cr). Consolidated TTM EPS 16.33.

And the stock is down 6% today.

(Hitesh Patel) #9

IF u compare the march quarter results with june quarter there is a lot of margin pressure visibile probably due to higher raw material costs.

sales almost same for both quarters to the tune of 1881-189 crores but net profit figures show big variations. q4 fy 12 net profits at 16.37 crores and q1 fy 13 profit at 6.27 crores.

I dont know if there is any seasonality to raw material costs but there seems to be a big difference in raw material costs for same amount of sales.

(hemant gupta) #10

hi hitesh, i agree that the raw material costs went up but the net profits look much worse because there was a forex gain of 7.85 crores in the mar12 quarter vs loss of 4 lacs this quarter. the seasonality in cost of raw materials is still something to explore more because i see raw material cost as a percentage of sales at 74% this quarter vs 64.2% in mar12 quarter but it was 71.5% in fy11 which is similar to this quarter.

(Satyajit Menon) #11

Q4 FY 12 included 7.85 crores of Foreign Exchange gain. If that is excluded then the net profit would be 8.52 crores.

(Hitesh Patel) #12

thanks guys for the updates.

granules seems to be in correction mode now and needs to be kept on one’s radar.

(hemant gupta) #13

Hitesh, unichem is on a roll!! Market expecting improved results?

(Hitesh Patel) #14

yes i think so. things after a long time seem to be falling in place.

(Subash Nayak) #15

Granules India’s MD talking about future of the company. Seems things are on track.

(Hardtoget) #16

this explains their better performance

(Rohit ) #17

I’m new here. After going through some topics, it seems this website is an information goldmine! So, thank you! By the way, I came here looking for information regarding Granules India. I also noticed the volatile raw materials cost. In the 2011-12 annual report, they wrote that the increase in raw materials cost is mainly due to increase in crude oil prices. Another reason was the company’s insistence on choosing high-quality suppliers to maintain their end-product quality. I think these are kinda acceptable reasons. Good thing is, they also wrote that they have contracts with their customers/clients, so that the variation in raw material costs is passed on to them. Hence, if we see the Y-o-Y (%) changes, the gross sales, total expenditure and operating profit, all three have similar percent changes.

Did any of you find any other reason for this variation in raw materials cost?

(Subash Nayak) #18

Promoter released around 1Lac of share. Share price Zoomed 13% in a single day.

Now I am able to understand why Granule was quoting a such low PE ratio. One major reason has to be the high promoter pledging.

(hemant gupta) #19

hi subash,

although this one continues to look good for long-term, i am getting a bit concerned with the sharp run-up in the short-term. the run up has been on low delivery volumes with today’s move happening at < 9% delivery. a decent consolidation or time-wise correction is warranted to allow the earnings to catch-up or we could be looking at a very sharp fall.

disc: invested and is 2nd largest allocation in my portfolio

(Subash Nayak) #20

Multiple good news for granules

  1. Promoter increased stake from 40.4% to 43.7%
  2. Promoter reduced % of pledged share from 60% to 50%
  3. Trippling FD capacity by next month; doubling PFI capacity