Looks like there is a sharp rise in Key raw material prices for paracetamol and Metformin. Q1 could be bad for Granules.
This has been communicated in Q4 FY21 concall, that Q1 and Q2 also will have the impact of this raw material price rise and the company is not in a position to pass on this to customer
Agree they said about paracetamol, but they did not say about metformin price rise in the last quarters.
They are hoping that prices will get normal towards Q2-Q3, however it may not happen (guess) considering overall prices increases in other raw material as well.
The management was very cautions in the last call, generally this is very rare with Granules management. If Isee their last 3/4 years communication they were optimistic even when they had challenging time (e.g oil prices rise 3 years back). Let us see how the situation unfold.
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- Does any one know what is the KSM for metformin.
2.How easy will it be for them to pass on the inflated prices.
3.Have they done any backward integration
dimethylamine and 2-cyanoguanidine
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hmmâŚmuch better quarterly performance than what one would have expected after management guidance in last conference call. I donât understand why management was so pessimist last time. 24% EBITDA even with raw material and high logistics charges. Once the situation normalize and increased formulation contribution from new launches, 30% EBITDA seems possible. Re-rating story? Any thoughts?
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I agree that the management seems to be pessimist and not sure why. May be there are seeing more challenges that we can see and they are resetting investor expectations.
In term of re-rating- Re-rating has happened in the stocks which have presence in API, but also have a presence in CRO/CDMO/CRAMS (e.g Neuland, Solara, Laurus). Granules does NOT have presence in these segment and as Aditya Khemka has said repeatedly that US API/Formulation business is a commodity business. If one goes by that assumptions, re-rating seems to be difficult IMO.
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Granules is low cost manufacturing company with clean FDA record over 10+ years. I consider it as lowest cost commodity manufacturer and itâs a big moat in itself. No big pharma player will ever enter this space or VC funded company as itâs not worth to be loss making for many years when there is no reward at the end.
Paracetamol, metformin, Ibuprofen will be used 5-10-20 years later also world will continue to need these and they will not be replaced by any new researched drug.
So as long as Granules maintain itâs cost advantage it will do well in long term.
For rerating, IMHO, It needs to improve as manufacturing company. Reduce China dependency/ reduce supply chain risk and raw material price shock. Continue to be largest and lowest cost manufacturer.
And possibly find a niche for additional growth.
Manufacturing focused company should not try to become CRO, CDMO, or drug discovery or research organization.
Disclosure: investor for 5+ years.
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Why is the mgt not doing a concall this time? Or Ive missed that filling, would be great if someone could share the concall details.
Results do look good but that can be attributed to reducing the R&D exp, lower dep and emp exp. Gross margins have come down by almost 500bps. Hope this is transitory and not persistent.
In the earnings release, Mr. Chigurupati stated that heâs seeing stress easing and the company is adapting to the new realities well.
Todayâs concall shud give a better idea.
Increase in working capital days and negative FCF is a flag needing to be addressed in the concall i.e whether due to lockdown etc.
In the concall, the management reiterated meeting the bottom-line guidance. They stated that gross margins may go up or down given RM prices and terrible logistics situation.
The company is clearly more than just API play
Though replying late, but will like to challenge it. If hands on people donât make mistakes then how treating senior doctors with decades of experience make mistakes or Senior judges made mistakes?
Commodity business giving sales growth of 20% CAGR & Profit growth of 27% CAGR for last 10 years, Profit in every Q. Which commodity business have this kind of Cycle. Same Aditya Khemka ji also saying donât ignore API businesses. Present Indian API biz is 4 billion dollars & China have 40 billion. 10-20% shift is expected in next few years. Means Indian API biz of 8-12 billion dollars(Aditya Khemka). If I remember correctly in 2009 Granules has EPS of 0.21 paise. Now more than 22 rupees after 11 years.
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The promotors have taken the exactly 10% of PAT as their remuneration for FY2021. The maximum possible remuneration allowed by law. Even last year, they took around 9-10% of the PAT as their pay. Is this a red flag? The promotors are taking huge salaries when they have significant debt on books as well as huge plans of capex in the next three years
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better than siphoning out the money. I donât think it is a red flag
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I would like to emphasize my point on debt (850 crores) and capex plans(1000 crores). They are substantial and hence my question on huge promotor pay (84 crores). Every rupee helps
âThis is better than thatâ is a terrible answer. It doesnât justify anything.
In 2020, salaries to the employees = 176 crores. Managerial remuneration = 39.27 crores. Three people take close to 18% of the total salaries paid by the company.
In 2021, salaries to the employees = 215 crores. Managerial remuneration = 83.89 crores. Three people took 28% of the total salaries paid by the company.
Is this justified? I know they have grown the company extensively but the pay needs to seen in context of total payout of the company to its employees.
In my previous comment, I mistakenly typed 10% of the PAT. It is 10% of the profits defined in Companies Act 2013.
If we consider the PAT, the promotorsâ remuneration is 15% of the PAT in 2021.
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Are you raising a social issue here or financial issue or corporate governance issue? On corp governance issue, I donât see it as a red flag. Social issue probably yes. Financial issue - managerial remuneration is approved by minority shareholders. If shareholders are not happy with the management performance they can veto out this remuneration.
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I have a query: Do the shareholders decide the limit or the actual remuneration of the executive directors?
I have seen that usually the executive directors take 10-15% of the total salary payout.
Isnât 28% too much?
Excessive executive salaries have a contentious corporate issue in the Indian companies. I donât see it as a social issue.
Disclosure: Invested for more than 1 year
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When is the dividend expected to be credited to shareholders? Interim+final