Pharma R&D IS as good as rocket science. It is not easy to build a pipeline and thats why companies need to spend 6-7% of revenues into R&D.
Till now, Granules model has been “good efficiencies on a huge scale/volumes”. I feel they have just started the journey of moving up the value chain and into newer high margin products. IMO, the Auctus acquisition was a smart move. It was a loss making company with good ANDAs. Granules can leverage their operational excellence to turn Auctus around and then move up the value chain from intermediateries to formulations.
Granules could be a completely different story in next 4-5 years. I feel that the management is making the right moves and they are executing. Below is a management comment from above business standard link
“Every thing, including our plans to build extra capacities, is now on track, We are building some more cash enough to leverage debt for funding the acquisitions,” Granules chairman Prasad said.
I do agree about the sound bites comment though. I dont feel comfortable about it. But if thats the reason for raising capital, they have a right to advertise it I would give them the benefit of doubt and closely track the process of Auctus and Omnichem turnarounds.
"Through the acquisition of Auctus in FY 2013-14, we added 12 APIs in anti-hypertensive, anti-allergic, anti-infective and antifungal product offerings. These products have a market size of $37 billion globally. The acquisition provides a platform
to expand our API business. We have commercialized the sale of Abacavir, an anti-retroviral drug, the API of which was developed by our internal R&D Team. The global market size of Abacavir is around $1.5 billion and it is growing 15% on a year-on-year basis. In addition to Abacavir, we are expecting to commercialize an additional three to four APIs in the current fiscal year. This has strengthened the product portfolio and
opens up new opportunities in the integrated generic space. "
Results above market expectations - consolidated eps has gone up by 22% from 1.07 to 1.32 - creation of new life sciences subsidiary is interesting - perhaps they will provide it free of cost to granules shareholders ? Learned boarders pl share thoughts on results
The notes of results state That Board of directors approved issue of 1,86,56,000 warrants on preferential basis to Ms/ Tyche Technologies Pvt Ltd. a promoter group company, subject to shareholders approval, at a price arrived at in accordance with the SEBI (ICDR) regulations, 2009. Is this a back door entry? Can somebody throw more light?
The Shares pledging has come down from 7.3% to 5.5% so will be received well by market.
Consolidated revenue up by 11%
Consolidate Profit up by 20%
Results at Standalone basis are pretty good, but I would not put too much emphasis on that. Looks like their Omnichem JV has not yet started contributing meaningfully, even though the plant at Vizag was inaugurated in Feb of this year. We may have to wait for one more quarter to see its impact on the consolidated level.
@gyansr I think Omnichem JV will start contributing meaningfully only after regulatory approvals are received,as per management this should take atleast 2 years.They projected a Sales of 75-100 cr for this year,it’s a 50:50 JV so only about 40-50 Cr. addition to topline.At full capacity utilization,this will contribute about 250-275 Cr.
Excerpts from Q3 concall
Bhagwan Chaudhary: This was regarding what you shared Rs.204 crores CAPEX for the OmniChem, but at the same time I think earlier you estimated that the sales out of this project maybe somewhat Rs.100 crores.
VVS Murthy: The projected sales for next year will Rs.75-100 crores . We do not have any regulatory approvals as on date for Granules Omnichem. We will be making only intermediates next year also. Regulatory approvals will take about 2-years approximately. After obtaining regulatory approvals only we can start making APIs and supply to customers, till such time to fill up the plant we will be making some intermediates for supplying to our joint venture partner. Once we achieve full capacity utilization, the sales can be around Rs.550 crores from this project.
Although the recorded Concall was not very clear, PFB some highlights:-
This year EBITDA margin which was in range of 18% was mainly due to product mix inspite of greater proportion of API sales
There was less Formulations because of constraint in PFI (expansion which has been completed)
This will remain a B- type negative cash flow business with capex planned in range of 150 cr for this year and 250 cr for next year
Promoters infusing 50 cr immediately and 75 cr by end of year and 75 cr in next year would mean QIP has been put on back burner
4 ANDA will be filled this year while 10 in next year
Auctus was negative NPM this quarter due to less sales(37 cr vs 44 cr last year). This was mainly due to shutdown of facility for few days this year. Overall they expect to end year at slightly positive PAT
The company expects an asset turnover of 3x for the capex of 400 cr (2 years) which means an additional sales of 1200 cr in next 5 years. Also they emphasised they look for minimum Asset turnover of 3x while putting in capex (similar expectation from Omnichem JV)
Granules US will mainly be used for complex Formulations products
Increasing Metformin capacity from 2000MT to 9000MT in parts (4000MT this year and remaining next year)
Standalone performance is excellent but consolidated performance is moderate. The company is in transition phase of setting right the subsidiaries and also installation of new plants and newer molecules. This means, its subsidiaries are not yet contributing to sales in a significant way. Once that happens and also once new molecules and new plants start functioning which is very much likely from next quarter itself, we will find rise in sales & profits.
The company has a SGR of 20% while it is aiming grow its sales by more than 25%. This means, the debt will go up in the medium term and later it will come down once capex gets over and we reach high RoE. That is the time when PE will expand. The decision to pay interim dividend is bit confusing since they need money to expand but are willing to pay dividend and do capex with debt. We will try to analyse this some more.
Granules reported a good Q1.Margins have started to trend higher as guided earlier by management & should stay steady or even rise.
Key concall takeaways for me:
Trial productions from Omnichem JV have been completed.
Possible to have 20%+ kind of margins in some APIs!!
Rising utilisation at FDs/PFIs plants to buoy margins
Omnichem JV sales expected to be 100cr. for this fiscal(implying 50cr. share of GIL & 25% kind of margins)
R&D spends to rise…both as a %age of sales & in absolute terms as well.
To file 14 ANDAs over the coming two fiscals
Asset turns to be ~3x
Total capex to give company the ability to generate 2500-2700 crore of revenues over the coming years
Auctus’ revenues were hit due to planned shutdown at one of their plants.The Sales guidance for Auctus for FY16,remains unchanged.
All in all,I stay positive on the stock.From being a volume based player,Granules is moving towards a higher margin product portfolio.Auctus will continue to be the vehicle which aids their entry into better margin business.Avoiding QIP seems like a good idea. As gyansr pointed out,the dividend will act as a money giving device to the promoters,to subscribe to warrants.Not such a bad thing,since the shareholders also stand to benefit.The thesis for me,remains unchanged.
Granules is not going with a QIP. They got the money infused by the promoter group in the form of 1.86 Cr warrants. They got approval for 250 Cr and now already raised 200 Crs, which they say is sufficient and may not need to go with the QIP for now.
13.1.1.1The issue of shares on a preferential basis can be made at a price not less than the higher of the following:
i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date;
OR
ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date."
I would give them the benefit of doubt and closely track the process of Auctus and Omnichem turnarounds.