My bad …Latest loans are in EURIBOR. Per google, current 12 month EURIBOR rate is -0.25%. So, effective rate is ~ 2.5% in EURO.
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I have two interesting queries with respect to current scenario Granules has
- There are speculations roaming regarding withdrawal of DDT in upcoming budget. As Granules has announced buyback of Rs 250 Cr… the total expense including taxes will be approx 300 Cr. Now when we consider removal of DDT, which results in saving of this tax (~20% ) if the company follows Dividend path rather than buyback path (which is already announced but shareholder approval & other detailed steps are yet to be announced and initiated). Do we see Dividend path better than Buyback path opted by promoters. I did calculate pledge reduction considering promoters opt for dividend & utilize dividend receipt for pledge reduction. They will be able to achieve projected target of approx 25% pledge reduction. I consider this as the prime motto of promoters for this buyback. I have also noted that buyback & dividend have different type of impact on long term behaviour of share prices including impact on EPS.
I understand that its speculation & It may or may not be part of ACTUAL budget and even if appears in the budget, it may take time before implementation (normally such rules are applied from 1st April i.e. fresh financial year.
- There have been numerous discussions on debt removal rather than keeping healthy treasury and management came up saying that they pay less (~1.5%) interest than what they get on Fixed deposits. If such is the case… can’t they take more loan which will contribute to healthy treasury while other productive activities improving topline / bottomline follow their projected growth trajectory. I know that Granules is already beaten down due to Debt / Pledge, but as we have seen better revenue from operations, investors shouldn’t be worried with extra contribution from difference in interest.
I wish to invite & understand views of community members on above which is nothing but a) replacing buyback with dividend and b) Take more loan & enjoy the interest play
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On point number 1, there will be additional dividend tax on the promoter to the extent of 10% + surcharge or MAT if the holding is in a company
Will the coronavirus situation impact their China JV and corresponding plans? Any short-term revenue impact expected? (Hubei is at the centre of Coronavirus and much of it is in lockdown)
The transaction (for a total consideration of RMB 109 million) is completed and Granules-Biocause Pharmaceutical Co. Limited is ceased to be the Joint Venture Company of Granules India Limited.
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Guys, does someone know why did granules management had to pledge their stocks to raise debt of 800cr on reserves of 1600cr?
Other companies like aarti drugs, which is in same business line has debt to equity of about 1, and it did not have to pledge their shares…,
Any comments on this line?
My understanding from skimming this thread is that management wanted to invest in the company through issue of warrants. So, in order to buy the warrants they pledged their existing shares.
They have been reducing pledge through dividends received and now buyback. Seems to me a cyclical flow of re-investment back in the business itself.
Also shows the confidence of promoter in business by increase of their stake.
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Colchicine tab approval by FDA today. Seems to be an expensive tablet especially FDA approved tabs. What is the market size in US ? Granules seems to be on a roll.
Granules buyback details
Proceeding further after buyback announcement on 21st Jan’20, Granules has initiated next step of share holder approval, which is planned to complete by 10th Mar’20.
The proposed buy-back will be 1.25 Crore equity shares (representing 4.92% of the total number of Fully paid up Equity Shares of the Company) at a price of INR 200 per share aggregating to INR 250 Crore excluding transaction costs viz. brokerage, applicable taxes such as securities transaction tax, GST, stamp duty, any expenses incurred or to be incurred for the Buyback like filing fees payable to the Securities and Exchange Board of India, advisors/ legal fees, public announcement publication expenses, printing and dispatch expenses and other incidental and related expenses (Transaction Costs)
As per provisions of the SEBI Buyback Regulations, 15% of the number of Equity Shares which the Company proposes to buy-back or such number of Equity Shares, entitled as per the shareholding of small shareholders, as on the Record Date, whichever is higher, shall be reserved for the small shareholders holding Equity Shares of the Company
Current promoter share holding
Statement of permissible Capital Payment
Granules getting Products Approvals in regular intervals, Pipeline is also strong.
Management guided 20% CAGR for next three years.
Rerating Candidate
Seems Mr Market already started Rerating the Co.
Disclaimer : Invested
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The stock is substantially undervalued at this point.
For some reason the upside in the stock doesn’t come as smoothly as it comes in some other high momentum stocks. Several financially performing mid caps have doubled over the last nine months.
Four approvals in 2 weeks is noteworthy (although 2 are tentative approvals). the next three years is the time when the stock need to capitalise and go up multifold.
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I mentioned few times in forum too that it’s a clear Rerating Candidate.
Everything is seems to be falling in place for the Co.
Debt coming down
Pledge of Shares down
Getting Products Approvals in Regular intervals
Strong Products Pipeline for Approvals
Significant Capex Cycle is Over
Great Growth Guidance
Buy Back & Dividend
Promoters walking the talk
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Divesting from two JVs will also help Granules avoid messy situations apart from helping promoters drastically reduce their pledge.
Granules should utilise next two years to consolidate financially and work on their Oncology project.
They should also work out promoter succession plans within next 3 years and implement them in another two years.
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With China down with the coronavirus battle, how is Q1 likely to pan out following the utilisation of existing inventory by q4 (of raw materials)? Given that most Indian companies are dependent on China for paracetamol API.in the past the management has guided that any price increase lags the raw material cost increase
How is the current situation of Corona Virus impacting Granules? Paracetamol prices are rumored to be up, would they benefit? How dependent is Granules on China for supply of raw material?
Thanks
COVID-19 seems to be getting resolved. From the excellent info shared above I gauge low to medium impact on Granules, mostly lowish side. This assumes 5 weeks of total loss of production (most workers are being kept in quarantine for 2 weeks at least). This loss has to be made up and might take a quarter for supplies to normalize. Granules does not have that much time and will have to ship supplies at bit higher prices. Competition is well buffered and they will just wait for prices to come down.
Inventory would be elevated because of Chinese new year holiday 1-2 week shut-down anyway.
Granules should benefit from the coronavirus to the extent that Hubei Biocause Pharmaceutical (a big API manufacturer in the province) is presently closed down. This company caters to 10% of global Ibuprofen demand. Also, BASF’s plant is closed down which together with the 10% above aggregates to 30% of total global demand for Ibuprofen.
This demand should shift to India. In India, Solara Active, Granules & IOL Chemicals are the key producers of Ibuprofen. IOL is the largest with 12000 Tonnes.
Thus, these companies should benefit with increased prices and healthy export demand. However a key risk to consider is the dependence on propionic acid (key RM for Ibuprofen) which is largely imported from China.
So my question is,
- How much propionic acid is used to manufacture 1 Ton of ibuprofen? What is Granules annual requirement?
- How much of the annual requirement is imported? What is the current inventory of the same with the company?
- What has been the price trend for the acid over the last few years?
If anyone can help me with any/all of the above points, it would be really helpful. Thank you in advance.
Disc.: Have a tracking investment.
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Which BASF plant is shutdown??
Of the nine analysts rating the company, six have ‘strong buy’, two have ‘buy’ and one has ‘sell’ ratings on the stock, data from Reuters Eikon showed.
Granules India gets some of its key starting materials (KSMs) from China, but so far it has not witnessed any major disruption, Emkay Global said in a note after hosting a roadshow with the company’s managing director and promoter Krishna Prasad Chigurupati
“Key products such as paracetamol and Ibuprofen are dependent on China, but so far supplies have been broadly smooth for paracetamol intermediates, though with a slight delay. On the other hand, Ibuprofen can see some impact (if the issue prolongs beyond March) as one of the suppliers and its former JV partner, Biocause, is based out of Wuhan and production has been completely halted there. Granules has alternate supply arrangements with IOL Chemicals and remains confident on bridging the gap,” Emkay said in a note.
Disc: 14% of holdings @ 150.
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