Granules 1QFY20 results: Finished dosage sales to drive margins higher

Dated: 2nd August 2019

1QFY20 result update:

• Consolidated revenue grew 31% YoY (-3% QoQ) to Rs 5,953 mn. API, PFI and FD segments contributed to 36%,16% and 48% of revenues respectively.
• EBITDA grew 63% YoY (+22% QoQ) to Rs 1,186 mn. Reported EBITDA margins expanded by 390 bps YoY to 19.9% from 16.0% in 1QFY19.
• Net Profit without JV grew 55% to Rs 578 mn and net profit with the share of JV grew 61% YoY to Rs 832 mn.

Management Commentary:

• Management has reiterated 20% CAGR growth in revenues and 25% CAGR growth in profits for the next 3 years.
• Management has said that raw material costs risks have been mitigated so going forward raw material costs will be stable.
• Good growth in FD sales and increased utilization of few idle capacities has led to an improvement in gross margins
• Management has guided for ~19% EBITDA margins for FY20E.
• Granules have guided for 8-12 filings and 3-5 approvals in FY20E.
• Capex guidance for FY20E remains constant Rs 1500 mn.
• Management has mentioned that they will be reducing promoter pledging which is 43% as of now to 33% in a few days and will be fully removed by FY21E.

Consensus Estimate (Source: market screener website)

• The closing price of Granules is Rs 92/- as on 2^nd August 2019. It traded at 8x / 7x the consensus EPS for FY 20E / FY 21E of Rs 11.6 / 13.6 respectively.
• Consensus target price of Rs 142/- implies a PE of 10x on FY21E EPS of Rs 13.8.