Expect Paracetamol prices to stabilize over a quarter or two – Granules India

Expect Paracetamol prices to stabilize over a quarter or two – Granules India

Update on Indian Equity Market:

A day ahead of monthly F&O expiry, markets were in sell-off mode largely led by banks as Nifty fell 1.8% to 14,549. Within the index, CIPLA (1.8%), ASIANPAINT (1.4%) and POWERGRID (0.9%) were the only gainers while TATASTEEL (-4.7%), TATAMOTORS (-4.2%) and ADANIPORTS (-3.8%) led the losers. Among the sectoral indices, only PHARMA (0.1%) managed to close in green while PSU BANK (-3.3%), METAL (-3.2%), and REALTY (-2.9%) led the losers.

Excerpts of an interview with Ms. Priyanka Chigurupati, ED & Head of Strategy, Granules India (GRANULES) with CNBC -TV18 dated 23rd March 2021:

  • The bulk drug prices of common pain killer drug, Paracetamol, has risen by 75-80 percent in India over the past two to three months. This spike is due to a 60 percent price rise in the two key raw materials used to manufacture the drug.
  • The prices went up from Rs 350 in the domestic market to around Rs 600. The key raw material, Para Amino Phenol (PAP) has seen a sharp increase in the last few months. One of the Chinese facilities responsible for about 46% of the PAP production in the world has shut down resulting in a supply shortage.
  • On the other side, the Chinese companies have increased consumption of PAP due to increasing demand for Paracetamol, further adding pressure on the raw material. 
  • The Company expects this to be a little blip for the next quarter or two. The management is confident of achieving year-end guidance.
  • The Company expects excess supply of PAP in the world over the next few months. This will act as a catalyst for downward pressure on the prices.
  • The Company has passed on the increased cost to its customers. The Company uses formula-based pricing with its strategic partners and has been able to take up most of the price increases. 

Asset Multiplier Comments:

  • The rise in selling price will provide a boost to the top-line during the next quarter or two. This boost will be short-lived as the prices will revert to mean. The price rise has been sharp and may even see muted or slight decline in volumes.
  • As the Company has able to pass on most of the cost rise to its customers, the absolute profitability will see growth. The Company may witness a dip in margins as the base for revenues is high due to higher realization.

Consensus Estimates (Source: market screener website):

  • The closing price of GRANULES was ₹ 323/- as of 24-March-2021.  It traded at 15x/ 13x/ 11x the consensus EPS estimate of ₹ 21.8/ 24.8/ 29.7 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 450/- which trades at 15x the EPS estimate for FY23E of ₹ 29.7/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Share this post

Leave a Reply

Your email address will not be published. Required fields are marked *