Buy Granules India; target of Rs 170: HDFC Securities
HDFC Securities’s research report on Granules India
Granules India (GRAN) reported another quarter of top-line growth (8% YoY), after a subdued FY17. Revenue was Rs 3.9bn, in-line with estimates. EBITDA was Rs 769mn (up ~4% YoY), implying a margin of 19.6%, ~190bps below estimates. An increase in employee costs (+8% QoQ) owing to hiring at the US subsidiary, led to the subdued margin performance. A higher tax rate and increasing finance costs (additional debt taken on during 2QFY18) led to PAT declining 1% YoY to Rs 403mn.
We believe that 2HFY18 will see the start of strong top-line growth for GRAN, on the back of expected ANDA approvals for the US market and core business capacity expansion kicking in. With the full impact of these factors likely to take some time to be visible, we expect FY19 to be a strong growth year. Overall, we expect ~17% revenue CAGR, ~21% EBITDA CAGR and ~24% PAT CAGR over FY17-20E. Maintain BUY with a revised TP of Rs 170 (16x Sep-19E EPS).
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