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Granules India Ltd

Hi @nishantkandoi,

In q4Fy15 con call Management provided below statements

  1. For development and filing Rs 4 to 4.5 cr cost incurred per ANDA.

2.They was asked how much of R&D would actually get expensed off?
Management : They will write-off 100% The normal R&D expenditure and the routine R&D expenditure, For
new product development it will be capitalized and when revenue will start generating from that particular ANDA,then they will start write-off .

In the Q4 FY16 concall , Management clarified followings…

  1. Regrading RnD budget on FY17
    Managemnt : FY17 Rnd cost can split it up into two parts, one is APIs and the
    other is the formulation development. Formulation development is going to be really high
    because they are doing formulation development both in India and in the U.S. and they expect
    anything upwards of Rs. 100 crores to Rs. 112 crores for formulation development.

  2. Why they have capitalized entire Rnd Expense ,
    Management : Because theyhave not started production, so entire thing will be capitalized. Commercial
    production start only after getting approval of ANDA. So all theyspend on formulation
    development will be capitalized, what is spent on API R&D will be written off. That is the
    accounting policy they have been following.

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Yes, in the last confcall (Q4 FY2016) it was mentioned that R&D cost for API 's are expensed and the R&D cost for new formulations whose commercial production for regulated markets will start only after regulatory approvals are capitalized.

Question to Pharma experts:
In the conf call it was mentioned that they will focus henceforth on molecules which are complex either on the IP side or the chemistry side. Their Auctus portfolio also will be oriented in this direction . Also it was mentioned that the Vizag and US R&D offices are actively working on it. It was emphasized in the call that these will be game changer for the company. However it was not revealed what these new molecules are.
My questions to the experts are:

  1. Is there are a way to figure out what are these new molecules the company is working on? Or we need to wait till ANDA’s are filed to get this information?
  2. I understand complexity of molecule in terms of IP. But what does complexity in terms of chemistry mean?
    Thanks in advance.

Disc: Invested @80-85 levels. Views could be positively biased. Please do your own research before investing.

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  1. There is no way to find out what new molecule Granules is working on. These are very closely held trade secrets and for good reason. You do not want to give competition a heads up on what you’re working on given the ANDA / FTF race.

  2. Complex chemistry means what it says. These are usually larger molecules with a lot more elements comprising the compound. For example - below is the chemical structure of Ibuprofen, a very simple molecule to reproduce. The second image are those of complex molecules. These are not only complicated in molecular structure, but also require additional processing / manufacturing steps & expertise. Unlike Ibuprofen that can most likely be manufactured in an extremely simplistic lab, the equipment & expertise required to manuf complex molecules are significantly more specialized & expensive.

Ibuprofen

Complex molecules

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Q4 earnings call transcript. http://www.granulesindia.com/img/pressrelease/165.pdf

The best part of transcript coming directly from the Horse’s mouth :slight_smile:

Rajesh Reddy: I just have one question, what is the guidance for FY17 especially top-line as well as the bottom-line?

Krishna Prasad C.: Very conservatively 10% to 15% on the top-line and 20% on the bottom-line growth over last year.

Rajesh Reddy: Okay. And also like just roughly what can the you know the individual investors what we can look for in next two years - three year what kind of growth we can estimate?

Krishna Prasad C.: The current year I am saying this will be but based on product approvals and today going by way the FDA is working the approvals are coming in pretty fast. Normally, I would have said 18 months to 30 months to get approvals but now-a-days the case is where nine months’ approvals are coming through. So assuming there is a nine-month possibility, I think the year 2017-2018 onwards will be really exiting. It will not be the 10% to 15% growth it will be much higher and from then on for a few years there will be real good growth.

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Granules technical picture is a delight for any guy wanting to look into a perfectly uptrending stock. Note some features marked in the chart along with comments.

disc: Invested as a techno funda bet a couple of months back around 120.

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hi hiteshbhai,

I have a question may be dumb :slight_smile: once in page thread you mentioned earlier that “when any stock is in f&o and there could be a lot more volatility and huge price swings due to that.”. my question is, FnO is nothing but the derivatives of the original price of the stock in cash market , so inclusion in FnO of a stock , how it increase the volatility of original stock price?

Amitayu, there is leverage in the F&O trades. Also there is expiry to the F&O contracts. So it is likely to have more volatility.

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Thanks Manish. Let me frame the question correctly. How the price of derivatives has a impact on underlying share price (vice versa)? Is it due to hedging ? suppose somebody buy call options but to hedge them sold some shares in cash market. thus cash market price get affected. Please correct if i am wrong.

PS: Always believe no matter what , stock price will always follow the earning :slight_smile: Upper mentioned question is from curiosity as granules listed in FnO.

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amitayu,

as manish mentioned there is leverage in f and o trades. someone having 10 rs in his pocket can buy or even sell maybe 100 rs worth of stock if it is in f and o. and if he gets it wrong he will rush to exit his position to avoid getting wiped off. And there will be many such guys. Imagine its impact on stock price atleast in short term. Some people would highlight some news items or links providing positive or negative newsflow to suit their purposes and would ignite volatility.

Earnings updates are available only every three months whereas market related hormonal bursts are there almost every hour. And hence stocks in f&o suffer from higher volatility atleast in shorter term. In longer term prices usually follow earnings.

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techno funda is a combination of technicals (chart readings) and fundamentals.

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Any views on the news article and possible impact on granules or other pharma stocks.?http://economictimes.indiatimes.com/markets/stocks/news/crisil-rings-warning-bell-for-pharma-on-us-slowdown/articleshow/52317420.cms

I read here that the promoters were involved in circular trading. Is that a downer?

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http://iias.in/downloads/Broker%20operator%20nexus%20-%20final%20file.pdf

Link also mentions granules & Sanjay Dangi on operator promoter nexus.

(invested)

This post was flagged by the community and is temporarily hidden.

The involvement of Granules MD Mr C Krishna Prasad in 2002 SEBI case of circular trading is not a new finding and has been known for the last 6 years or so.
I was part of a stock advisory service by a reputed investor who last year recommended Granules to the members. About this issue, his view was that this was an old case (2002) and after that Granules has executed well so this particular instance should not cause much grief.
Given the stock performance over the last year, I think he was right so far…

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After knowing this information, the only thing which has affected me is my exit point definition.
Assuming the hypothesis of the grand eps growth plays out for granules in next 5-7 years, I earlier planned to exit at a hypothetical expanded PE ratio of 70-85. But now I would exit the stock if pe ratio touches 50-60.

@nishantkandoi, suggesting a slightly diff approach. Here are my views.

  1. First of all, the incident dates back to 2002-03 which is 12/13 yrs back. Indian stock market is filled with several such scams since last many decades. Small investors are still gullible and tend to rush in/out with herds mentality. Thankfully, with the market regulator has evolved over the years, has got more teeth and lets hope that such incidents become isolated ones.

  2. As for Granules, we already know that there are several triggers which are likely to play out over next 4-5 years. IMHO, rather than tracking only PE, it would be sensible to track if the triggers are playing out as expected and then decide accordingly. I believe it has got a long way to go.

Disc : Invested and views may be biased.

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I remember RJ saying that when he invested in Lupin it was considered having poor corporate governance but things did change and it became mega multibagger. not taking any parallel here but things have changed and promoted know the power of their currency i.e. stock. I must acknowledge that I did decide to sell Granules at many occasions.

Disc: invested

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