Granules India share price: Sharekhan reiterates Buy recommendation with an unchanged price target of Rs 475
Granules India is witnessing a robust outlook across segments and the finished dosages (FD) segment is expected to be a key growth driver. Granules India is looking to increase contribution of the high-margin FD segment to 60% over the next the 2-3 years from 52% (FY2020) backed by a strong product pipeline and growth in existing business. Sharekhan reiterates Buy recommendation on Granules India with an unchanged price target of Rs 475.
Granules India is witnessing a robust outlook across segments and the finished dosages (FD) segment is expected to be a key growth driver. Granules India is looking to increase contribution of the high-margin FD segment to 60% over the next the 2-3 years from 52% (FY2020) backed by a strong product pipeline and growth in existing business. Sharekhan reiterates Buy recommendation on Granules India with an unchanged price target of Rs 475. Granules India share price closed yesterday at Rs 331, down Rs 3.75 or 1.1%.
Granules India is looking to add 23 new products across all dosage forms in FD segment over FY21- FY23. Also, it has relaunched Metformin in the US recently and has been able to quickly grab a 60% market share, which is a key positive. Further, traction in the core molecules is also expected to sustain backed by tapping new geographies. Moreover, demand for Ibuprofen has normalized post the decline in quarter ending December 2020.
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Strong overall demand would be supported by capacity expansion as Granules India looks to commence new MUPS block and de-bottlenecking by Q3FY22, while the Genome Valley capacities could be ready by FY2024, which provides ample visibility on growth ahead. Further, to reduce dependence on China, Granules is in the midst of diversifying / shifting its supplier base to India. The exercise is expected to be completed by Q2FY22 and would shield the company from supply disruptions.
Also, prices of key inputs for Paracetamol (50% of sales) have almost doubled versus previous year and could exert pressure on the margins as the price hikes would be passed on to customers with a lag. However we see this as a transient issue over the next 1-2 quarters as with the completion of the supplier base diversification, margins are expected to normalize. Consequently, Granules India sees its margins moving to 27% levels from 21.1% as of FY20. Therefore, sales and PAT are expected to clock a 20% and 34% CAGR over FY20-FY23.
Granules India Key risk:
1) A delay in product approvals or the negative outcome of a facility inspection by USFDA can affect future earnings prospects
2) Steep increase in the input cost could have an adverse impact on profitability.
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