I have been looking at granules since past two days and have gone through the AR, and the intellectual capital report both of which combined give a complete picture of the company and the path it intends to take. If the things projected by the management do happen in terms of sales growth, higher margins, and JV kicking in meaningfully from fy 15 granules looks a big winner from current levels also. (Missed looking at the stock when subash posted it here and paying a higher price for the same)
Putting down my write up which I usually do for most of my long term picks.
Granules India Ltd
Cmp 180 , market cap 360 crores
BUSINESS MODEL
The company is involved in manufacturing APIs (active pharma intermediates), PFI
(pharmaceutical finished intermediates) and FDs (finished dosages).
Beginning with manufacturing of paracetamol API, the company
then ventured into PFI and FD segments and added some more products to its
portfolio like metformin used in diabetes, guiaphensin used in coughs,
ibuprofen which is a pain killer. All these drugs are very commonly prescribed drugs
and hugely popular among the doctor community
as a mainstay to treat the diseases and symptoms for which they are
useful.
The hallmark of the business model of Granules is that it
operates in large volume off patent molecules which have established a strong
presence in the symptoms/diseases in which they are effective and risk of obsolescence is low due to the track
record and cost factor in favor of these molecules.
Granules accounts for
12% of global market for paracetamol, and enjoys second largest market share,
12% of global market for ibuprofen and is among the largest globally, more than
20% for guaifensin and among largest producers globally and 12% of global
markets for metformin through its own product and consumption of third party
metformin for FDs.
NEW DEVELOPMENTS:
The change that is
taking place in the company is that company is now heading towards
vertical integration and higher margin finished dosages are going to contribute
a higher percentage to the revenues.
Margins in the finished dosages are over 15% as compared to the 5% in
APIs.
Revenue share from paracetamol is now around 50% in fy 12 as compared to
100% earlier due to the contribution from other products like metformin,
guiaphensin and ibuprofen.
JV WITH OMNICHEM
Granules has entered into a 50:50 joint venture with
Ajinomoto Omnichem which is a global
CRAMS player. This will benefit the
company in following ways
*
Access to complex chemistry and technical
knowhow to manufacture high value APIs
*
Opportunity to manufacture FD for the JV.
*
The JV expects to get regulatory approvals in FY
14 and start generating material revenues from fy 15.
EXPANSION:
Company has undertaken expansion of its FD facilities to 18
billion units which is 3 times its earlier capacity and PFI facility to 18000
tpa which is twice its earlier capacity. This enhanced capacity is likely to
contribute to the top and bottom line from fy 13 onwards.
FINANCIALS
Equity of 20 crores with 2 crore shares of Rs 10 each
outstanding.
Debt is around 200 crores. With market cap of 350 crores the enterprise
value comes to 550 crores.
Promoter stake as on
Sep 12 was 44% which has increased gradually from 40.7% in Sep 11 to 44.28% in
June 12 to 44.51% in Sep 12. Out of this
stake, 14% was pledged. The pledged part of promoter holding has been reducing
gradually from 25.6% in Sep 11 to 21.88% in June 12 to 14% in Sep 12.
Last few years
results:
|
Year
|
Sales
|
Op
|
Opm
|
NP
|
|
08
|
257
|
37
|
14.36
|
9
|
|
09
|
290
|
43.45
|
15
|
4.25
|
|
10
|
461
|
62.63
|
13.57
|
30.37
|
|
11
|
475
|
57.61
|
12.11
|
21
|
|
12
|
655
|
80
|
12.19
|
30
|
|
ttm
|
738
|
90
|
|
38.72
|
|
H1 fy 12
|
280
|
25
|
|
5.58
|
|
H1 fy 13
|
365
|
40
|
|
14.34
|
A KJMC report projects sales for fy 13 at 883 crores with
net profit at 53 crores and EPS of 26.6 and for fy 14, sales at 1059 crores,
with net profit at 68 crores and EPS at 34 per share.
The poor return ratios are likely to improve going forward
due to improving margins and higher asset turns.
INVESTMENT THEME:
With higher contribution likely to come from the higher
margin PFI and FD portfolios, the company is likely to grow its topline consistently.
And with improved margins due to higher margins in the PFI and FD products, the
net profits are likely to grow at an even higher pace.
With expanded capacity likely to be in place by end of FY
13, and JV with Omnichem likely to start contributing from FY 14 onwards,
company seems to be well placed to grow strongly in the coming few years and
that too with improving margins.
Debt at around 200 crores for a company in growth phase looks broadly okay.
I think one needs to
look at the market cap of the company of close to 360 crores and opportunity
size in front of the company because of expansions and change in business model
and effects and benefits of JV.
Opportunity for the company to grow is huge so I feel it looks a good
long term story.
Promoter is pretty good with rattling off numbers, big plans etc but you may want to take it with a pinch of salt because of dubious previous history . I still think that the stock is under-researched and if it delivers the way management says it will, it has a very long way to go.
) and may buy more on dips if any or else as another trading bet near that time.