Private Client Research

Rating

Buy

Sector

Pharmaceuticals & Drugs - API

Company

Granules India Ltd

Pharmaceuticals & Drugs - API

June 30, 2020

Sensex: 34915.80

CNX Nifty: 10302.10

NSE: GRANULES

BSE: 532482

Reco Price

Rs. 203.00

Price Target (3 - 6 Months)

Rs. 255.00

Upside

25.62%

Date

June 30, 2020

Sensex

34915.80

CNX Nifty

10302.10

Exchange

Code

NSE

GRANULES

BSE

532482

Stock Data

CMP (Rs)

202.60

Face value (Rs)

52 Week Range (Rs)

224.45 - 84.00

Market cap (Rs Crores)

5148.51

Price To Book Value (x)

2.94

P/E Ratio (x)

15.91

EV/EBIDTA (x)

12.03

One Year indexed Stock Performance

Granules India Ltd Sensex

Return (%)

12m

36m

Absolute

18.18

62.19

108.12

51.74

Sensex

4.84

-15.98

-12.02

12.92

Shareholders

(in %)

31-Mar

Promoter

42.86

Public

57.14

Others

0.00

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

Granules India Ltd (Granules) has created a leadership position in several generic drugs on the back of product-focused, vertically integrated business model. The company has a strong presence in ‘first line of defence’ products including Paracetamol, Ibuprofen, Guaifenesin and Metformin. A major part of the company’s revenues is from exports to the US and Europe. The company’s key customers include some of the leading generic and branded pharmaceutical companies. The company has grown to become a knowledge driven, R&D focused, multi-product organization, with inherent strength in efficient manufacturing of high-volume pharmaceutical products. Over the past 34 years, the company has worked towards strengthening its core through its five products and is, today, an integrated player with a strong market presence. The company’s focus is on forward and backward integration; to do this, Granules is building its presence in new areas, segments and divisions to reach its target.

An established player in pharmaceutical manufacturing through process innovation and unparalleled efficiencies.

Rationale for Investment

Established player with integrated business model
Over the years, Granules has evolved from being an API (Active Pharmaceutical Ingredients) manufacturer to an entity with strong presence across the value chain in the pharmaceuticals industry, thus establishing itself as a complete global pharmaceutical player with presence in APIs, PFIs (Pre-formulation Ingredients) and FDs (Finished dosages). From a commercial perspective, its vertical integration approach gives it a competitive advantage for both drug substance and the drug products in niche areas.

Expanding its product basket with economies of scale
The company is expanding its product basket to address the prospective demand across several markets while also increasing the market share of existing products. It added two new molecules to its existing core portfolio in FY20 and is expected to launch nine products in FY21. The company possesses industry leading batch size for manufacturing PFIs and is among the largest in APIs in its core business product portfolio. This large-scale production helps it reduce production costs and improve manufacturing efficiency.

Focus on R&D capabilities
The company is sharpening its competitive advantage with intellectual property-protected innovation for limited competition opportunities. It has a unique portfolio with a combination of high volume molecules and complex niche products whereby majority of R&D spend is done in high volume core business. The company’s strong R&D capabilities are the driving force for current and future momentum and growth.

COVID-19 Impact
The company’s products and R&D programs will have minimal impact as it caters to the essential items category. The company continues to have normal supply levels for most of its products and supply of its medicines will remain at normal levels throughout the pandemic.

Technical

PULLBACK RALLY FOR NEW 52 WEEKHIGH

Price: Granules gained more than 3.87% in today session and close near the intraday high. On the weekly charts stock has kiss the upper band of Bollinger Band (20, 2) and well placed above the median line which shows the momentum on higher side can be seen in coming days with positive bias. The accumulation has been seen in the range of Rs.189 to Rs.194 levels where supports has placed, indicating bullish view for the stock. The overall chart structure suggests formation of higher highs and higher lows on the daily charts, indicating that the stock is expected to extend gains in the medium terms.

Indicator: The stock is trading above keen moving average 21EMA & 50EMA on weekly chart The RSI on weekly chart is pegged at 67.86 with higher lows formation on weekly chart, reaffirming the bullishness biasness in the counter which is likely to continue in the near term. The MACD is trading above the signal in positive territory on weekly chart, indicating positive momentum in the stock in the near term. The DMI+ is also pointing in northward direction and is currently placed around 28.77 levels, whereas ADX trading at 24.95 levels trading above 20 marks on weekly charts, which shows overall strength is likely to bring in sustained buying from the current levels.

Volume: Price and volume analysis plays an important part in determining overall strength or weakness in the stock. Price and volume pattern are moving in the same direction which reflects the true movements in the stock. GARNULE stock has seen the profit booking with thin volume, which still shows the movement of this stock, is still on bull side.

Conclusion: The recent price action suggests that the positive momentum in the stock is likely to continue. Thus, we recommend buying the stock for 3 – 6 months of time frame for the target Rs.255 levels, at current level or on dips towards Rs.203 levels with stop loss placed below Rs.180.

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