Objectively yes it is good. The growth guidance was a major reason why it is one of my largest holdings. Disappointed to see it coming down instead of going up. Also what do you think is the moat of Granules? I see it as a decent-good business, not very heavily moated and prone to business cycles.
Moat is their low cost production. 19% CAGR revenue growth in last 10 years with products around 4 to 5 core molecules is an indication that they are taking the Market share from their competitors
5 Likes
I am not worried about the current quarter performance.
I think the delivery of 50% +PAT growth YOY is good at any point of time, considering that the last year was a resonably good year.
Overall I am a bit concerned about management raising expectations in term of guiding 70 % PAT growth or guiding 25% CAGR. Agreed, they have delivered to their promise so far, but considering that the stock is trading at reasonably average multiple, I think they do not have to raise the expectation. Instead, if they focus on delivering on the result- as they have been doing- the market will notice it sooner or later.
The issue with me is when the management raise expectations, they tend to make up the number to keep up their promise. This can lead to management making up the number- not saying Granules management doing so, but a general observation. Warren Buffett has hinted on a similar line.
- One of the Q3 impacted reason is MEIS export incentive has more or less gone. I am not sure about the quantum, but it could be in the around 10 cr per quarter (guess)
- Other than that higher raw material cost will eventually be passed on a client in Q1, which will be fully reflected in Q2 result.
- Additionally, the container cost has increased dramatically. I read somewhere that container cost has increased from say $1500 (China to Europe, for example) to more than $8000 in a short span of a few months. This is because empty containers are lying in different parts of the world, resulting in their shortage, in turn pushing the cost of container freight. I think this shall normalise in the next few quarters if not immediately. So this effect too shall be transitionary(2- 3 quarters) in my view.
The question I am trying to answer is why they have not increased the dividend pay-out. Their PAT has increased more than three times in the last 2-3 year, but dividend pay-out has not increased. Agreed, they are finding better use of funds by investing in attractive organic opportunities, but they could partially increase or provide some notional increase.
I would think that stock shall settle at a current range for some time. Management is already investing in new capacities that offer higher ROCE, which is good for long term growth for the company.
Overall, I think management has done a stunning job in delivering results and barring some issues the future looks bright.
6 Likes
I feel by not increasing the dividend payment the company has made a right decision.
The promoter in many of his recent interviews has made it clear that the interest of the investors is of utmost importance.
By investing in growth of the company the value of investors will definitely increase.
Letâs hope for the best.
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While notes from a concall are fantastic to get quick pointers there is nothing like attending/listening to the concall to get the overall tone and context from management
Between minutes 23 and 30 youâll clearly see Mr. Krishna Prasad saying current revenue and profitability can be maintained. He also clearly mentions that âthings can surely not get worseâ. When asked about guidance he mentions that he âwants to be a bit cautiousâ and then gives the number 60/70 percent. Around 37 minutes when asked to elaborate on guidance Priyanka states that they want to be conservative due to covid and noone knows what will happen tomorrow, and even though intentionally delayed launching a few products since they wanted to build up enough inventory is partly responsible, at the end of the day the reason is covid and hence why they are being conservative.
I think all thatâs happened is they have decided not to overpromise anymore⌠and they are now underpromising and will let the business performance do the talking which is the right way to do things⌠not just in covid times but in general(and considering the issues theyâve faced theyâve handled themselves spectacularly imo)
Disc: not a sebi advisor. Not a buy/sell recommendation. Invested.
5 Likes
Consensus estimates on street for FY21 EBITDA stands at Rs871cr. This has moved up quite a bit during the year. Still, given the results, Granules should comfortably do higher than Rs900cr. Though this is lower than Rs1000cr, I believed was possible before this results
What is the supply chain disruption and container shortage they were speaking about in the concall? Was there any company specific incident here? I donât find any such mention in any other concalls.
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There is a global shortage of shipping containers due to Covid related disruptions. Most companies are opting to spend more and deliver good by air freight which is more expensive.
You can read more about container shortage here https://finshots.in/archive/when-containers-disappear/
4 Likes
Astec mentioned it too.
Disc : not invested
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There was this incident with Meghmani Organics 2 years back, I was heavily invested in it, there were no red flags, past numbers were very good, quarterly results were up to the mark, but the share price kept on declining, lost 30-40 % in 6 months. Then there came the bomb, the corporate governance issue, the share fell 30% in 2 days. Retailer investor like us is the one to get the news at the last hence suffer the greatest damage.
I am also experiencing the same in Granules, shares falling more than 20% even after great quarterly numbers, is there a bomb yet to drop?
Yes, I am pessimistic about it, but we can collectively agree that there is no red flag in this company, right?
So how does one explain the downfall, I know we are not here to decide the share price on a daily basis, but what I am talking about is the last 4 months
Disclosure: I have added 4-5 times after the last 2 Q results, among my top invested companies
6 Likes
Itâs gone from 90 rs per share to 400. I think this is just a breather.
Only background issue is promoter stake sale- nothing concrete but lots of rumours. If they sell cheap then minority investors can get affected.
5 Likes
The pharma sector in general has got hammered and the intensity is different for different stocks.
The management has a proven track record and they show consciousness about capital allocation and valueâŚthey had a challenging March 2017 or 2018 (canât remember) and had guided for better timesâŚthey walked the talk then. I donât even think their competitive advantage is threatened. A good management should be able to tide thru challenges so letâs hope they once again do it.
Imho the stock is clearly undervalued and with time should do well given that the current attention is on financials.
Last couple of days some broker reports are outâŚplz check those.
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@sham72942
My rational reasoning:
- A lot of momentum investors piled on when the rumors of PE exit at higher valuations came in. When they left the stock went under pressure
- The mess regards earnings guidance. Again, momentum investors chasing 80 percent/30 percent next year PAT increase piled in and must have got a shock when management spoke about supply chain issues and decreased guidance. I really hope from now on we donât get and more short term guidance and management letâs the numbers do the talking since they are pretty loud and clear
- Stock has runup from under 100 to 300+. This could just be a breather/profit booking
- In a bull market patience wears thin. With so many companies in different sectors with blockbuster short term prospects some people may be exiting granules which could have short term supply chain issues and have moved else where for the time being
My irrational reasoning:
- The rumors of PE exit first and then the PR articles on Priyanka followed by her huge contribution in the concall makes me feel Krishna prasad wants to step down and pass the baton and maybe thatâs what has put pressure on the price. I have nothing to back this up apart from pure speculation and Priyanka seems perfectly capable so Iâd be happy either way ⌠however, I would say this reason is a lot more likely than corporate governance issues.
Personally, I have been averaging up since June and even though my buying price is now near CMP I have no issues sleeping especially after hearing their long term guidance (mups and Fy24 capex) and with succession issues no longer an issue and will gladly add more at current levels or lower
Disc: not a sebi advisor
14 Likes
I think one can be more confident if he know why pe deal didnât go through ⌠whether itâs valuation or any other issues (corporate governance)
Any one has the latest shareholding of FII in the company.
During last 2 quarters the FII have increased stake and as of September 2020 it was 26.31%.
Whether it has increased or reduced any information pls share.
I found this:
FII/FPI have increased holdings from 26.31% to 26.38% in Dec 2020 qtr.
I understand where you are coming from. Moneylife covered this stock around Mar-20. They typically should have highlighted any governance issue, if any. However, they havenât. That provides some comfort to me; though I am also concerned about the price movements despite stellar numbers. Iâll wait for some more time to confirm the downtrend or possible reversal before exiting.
2 Likes
There was one other issue in the concall now that I think about it. Listened to it again and around 34 minutes when asked about the one off 10 crores loss granules took in Q3 Mr. Krishna Prasad mentioned it was a CRAMS venture that failed.
He also said that CRAMS wonât be a part of their strategy going forward and that it wonât happen again. Maybe some in the market took this as a negative since crams is all the rage and margins are so high and they were hoping granules would move towards it soon but now we have officialy confirmation that they wonât. Core business is what theyâll be concentrating on which I have no problem with personally but maybe it dashed the hopes of some investors since with their manufacturing capability this was a natural extension. He did mention that they completed the order without issue but there was a contract issue with client. Not seen this mentioned anywhere so thought it was worth posting. Please delete if inappropriate.
Also, yesterday:
Granules India Limited announces approval of Potassium Chloride Oral Solution USP, generic equivalent of Potassium Chloride Oral Solution of Genus Lifesciences, Inc.
Disc: not a sebi advisor. Invested
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1.Promoters holdling was 42.90 earlier before buy back now it is 42.04% which I cannot consider as a huge selling by promoters.If at all they want to exit even they could have exited 30% premium to current valuation. Moreover promoter clarified they want to grow their business at this opportune time. My case here as a long term investor wish founder promoters run this co as they have domonstrated their competence so far in itâs journey.
2. In my view mostly short term minded retailers with PE fund rumours/noise traders are selling to get in to cyclical rally rather than fii, which will become evident in the next shp.
Again the companyâs moat as large scale low cost producer with unparalleled operational efficiencies is still intact.I donât see current valuation (on any quant metrics!) as hurdle for me to buy even 10 or 20% premium to cmp as it is growing at a scorching rate. I expect more volatility in retail heavy stocks like Granules and Laurus which can give opportunity for long termers.Moreover multibaggers are not everyones cup of tea as they cannot withstand short term pain for long term gain.
Disc: Invested (25% of pf)
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