Revs. up 13%; OPM up 127 bps; PAT up 9%;
EBITDA margins up 127bps to 17.3%
Auctus’ EBITDA loss= 1.2cr.,for 9M it stands at 13cr.
PFI contribution has risen to 42% now,API contribution continues to decline.Management targets 65% of revs. from PFIs in the coming 2-3 years,with API falling to 20%.So,EBITDA margins should move towards 20%,
The numbers are in-line with what management had indicated,& a bit better than what I was expecting.Management has re-iterated that Auctus will break even in Q4.I believe EBITDA margins should be around 15% for Auctus in FY16.The new PFI facility has got delayed by 2 months,due to late receival of equipments.Production loss was 3 weeks,due to Vizag situation.QIP will be used for Capex alone,LT loans will be repaid through internal accruals.Growth will be aided by better utilisation in the short-medium term.
All in all,once Q4 is out of the way…things should take off from FY16.EPS for FY15 maybe in the vicinity of 46-48.Next fiscal,EPS should move to north of 60.FY17 will also be good.The management seems to be thinking big now,after their experience in the manufacturing space.My sense is,we can see the company move up the value chain quiet steadily in the coming years.R&D spends are also slated to rise ‘steeply’.Company will file 7 ANDAs in the coming 12-18 months,revenue contribution will happen only from FY17/18.
Stock may spend some more time in this price range,split news may keep the volumes buzzing for some weeks though.I stay bullish in the long term & GIL is one of my top holdings.
How do you see the current higher debt to equity ratio and a small percentage of pledged shares by promoters ? What do you see a fair PE band for Granules ?
Agree with most points you mentioned, however couple of points where I disagree:
FY16 EPS might not be above 60 as they mentioned ~250 cr QIP which will lead to dilution
Management mentioned in the con call that over the long term Auctus margins would improve, it might not converge to a steady state figure in FY16 itself. Also, given that Granules sells APIs, PFIs and FDs, and Auctus is primarily into APIs, Auctus margins will probably converge to Granules API margins (early teens).
Positives: Management targeting long term FD share at 65% and API at 15% which should lead to increase in margins, FY16 to be better than FY15 in top line and bottomline growth. Also management mentioned that we have much bigger plans than outline right now, which means great growth in the long term (also means more debt and probably further dilution).
This stock got my attention after being in the news recently. I have analysed and found that this is manufacturing driven pharma company and hence the discount compared to larger peers. I have some flags to raise which may not be called red.
Promoter compensation: The promoter is getting the cream nicely. Promoter familyâs salary As % of group profits it is like this. FY12: 8%, FY13: >13%, FY14: 16.7%. I checked screener.in to see payout ratio. It seems to have fallen below 10% after FY10. I checked other (potential 100x stock) Aarti Drugs: 4-5%, Suven:3%. The question is what kind of critical ability they bring to deserve this obscene % commission. I feel, among these companies, Suvenâs promoter really brings something to the table.
R&D: I was almost shocked to find that their R&D spend largely goes into paying consultancy fees (>50%). Can Any idea what are these charges? Anyway it is not generating any IP and the state of affairs suggest it wonât for next 5 yrs.
regarding R&D costs, the consultancy charges are for filing ANDAs. they keep filing ANDAs for the Actus APIs. please listen to the Q4 concall for further details
there is no linkbetween management compensation and dividend payout ratio. in fact they will be more than happy to get more dividend for then as well. div payout ratio is decided based on future growth plans and existing cash balance. higher compensation is a concern but it needs to be viewed along with several other factors like management efficiency , net profits, corporate govt issues. from whatever I heard the management is vey conservative, they have added lot of value to the business over last few years. Granules is no more a company selling low margin APIs. most of their sales now come from high margin finished dosages.
I don’t see any thread on MQ similar to BQ and Valuations
Hi
While granules maintain good sales growth (10years CAGR - 25% ), but year wise sales growth has lot of fluctuation. Even years reported huge growth and odd years reported very minimal growth.
What is the reason for huge fluctuation YOY sales growth?
There is drastic jump and decline in YOY sales growth. See the below table.
For any typical CRAMS player, the ramp up in sales depends on a) external clients and b)capacities. Granules was primarily a Paracetamol API player and PFI( also called Granules) (Pharmaceutical Formulation Intermediates) player.
Thus what we essentially see is sales ramp up (FY06) and continuation at same level(FY07) until next level of orders/capacities materialize(FY08).
The company post Auctus acquisition and Omnichem JV is trying to move up the Value chain, which should add stability to sales and profit growth going forward.
I don t see a reason why past YOY growth fluctuation matters. Capex led growth tends to show this kind of step like growth pattern. There are multiple drivers working in favor of granules, and how they are going to play out in future matters the most.
Hi subash,
I agree to your comment. Past growth is not important, if future prospects are good.
My only reason to check past YOY growth is how company has performed in past. Is there any predictability in terms of sales growth.
What i understand is for granules, we may need to look the story in terms of 2 years. They receive orders first and execute later by expanding(ofcourse by taking debt or thru equity dilution).
And after all this discussion recently in a few words Basant Maheshwari said it is a sure multibagger and its common news now. 10yrs down the line if the management is the same and the rate of growth is nice then you will see it as a 4 digit stock
Granules’ Q4 was on expected lines…the management had guided for a slack quarter in the Q3 concall.
I have been seeing a lot of questions on the management strategy and the slowing core business(ex-Auctus,the growth in topline was only 2-3%) However,this has been a phenomenon of the 2nd half of FY15 mostly.The topline growth should improve to 15-20% in FY16…aided by the PFI facility coming on-stream & lower disruptions at manufacturing sites.Auctus broke even in Q4(again,as per mgt guidance) So,going ahead the PAT growth should be very healthy…as Auctus’ topline growth will be pretty strong.The basic question here,is of valuations: Since its inception,GIL has been by & large a volume based player.It is only recently that the company branched out to PFIs and FDs in a meaningful fashion.Listening to the management,I have a very strong feeling that their focus will be on moving up the value chain consistently in the coming years.Of course,nothing should be based on ‘feelings’ or ‘hope’ alone.So,Q1 will be very critical.The margin of error will be low on the margin front & some concrete evidence of margin expansion is needed.Moreover,we need to see meaningful spends on R&D.At present,I feel it is more of a call on the execution capabilities of the management,than valuations alone.
@FocObs Thanks bro. While shareholders will all wish that it becomes what Lupin is today, the similarity of numbers is just a co-incidence. :–)
On business quality, management quality, valuations etc, one could also look at cloning a few good value investors who one trusts like a few on VP, and people like Basant Maheshwari, Ramdev Agarwal etc.
Ramdev Agarwal lists Granules as one of his seven picks that could become 100x in a decade or so.
BM is also invested after meeting the management.
Also, people on this forum have been invested in this co. long before BM or RA endorsed it, as you can see.
