Brokerage house Motilal Oswal (MOSL) has upgraded Granules India as it believes there are multiple factors at play to improve the firm's business prospects going forward. The brokerage has upgraded the stock to 'buy' and has increased its target price of ₹300, indicating an upside of around 20 percent for the stock.
MOSL is positive on the stock as we expect multiple levers such as a) reducing the impact of paracetamol’s raw material prices, b) healthy launches in developed markets, c) steady market share gain in core molecules globally, and d) improving business prospects from MUPS/ Oncology blocks, to play out over the next 2-3 years. Further, the stock is attractively valued at 12x FY23E EPS of ₹20.5 and 10x FY24E EPS of ₹24.5, it added.
The stock has been witnessing correction for a while. It ha fallen around 15 percent in the last 1 year and 15 percent in 2022 YTD.
The brokerage further pointed out that Granules India has delivered better-than-expected 4QFY22 performance at the operational level. Better realization from paracetamol supported by new launches resulted in improved profitability on a QoQ basis, it added.
Moreover, the increased availability of Para-amino-Phenol, which is a key raw material for Paracetamol, is expected to significantly improve the sales prospects, it noted. Along with this, Granules has a healthy ANDA pipeline to be launched in the US market (10-12 ANDAs) and about five products in the EU market in FY23E, stated MOSL.
the firm's sales grew 29 percent YoY in the March quarter to ₹1,030 crore, driven by Intermediates and APIs (Active Pharmaceutical Ingredient). However, its gross margin contracted 830 bps YoY to 48.9 percent in Q4FY22 due to higher raw material prices, particularly related to paracetamol.
EBITDA margin also contracted at a slightly lower rate of 660 bp YoY to 18.7 percent and EBITDA decreased 4.6 percent YoY to ₹190 crore in Q4FY22. PAT also declined 13 percent YoY to ₹110 crore, due to a higher tax rate.
Meanwhile, on an annual basis, its sales grew 15.8 percent YoY to ₹3740 crore in FY22, while PAT declined 27.5 percent YoY to ₹400 crore in FY22.
Post the earnings, the brokerage cut its EPS estimates for the firm by 3 percent/5 percent for FY23E/FY24E to factor in increased price erosion in the base portfolio, and higher freight cost.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
