Granules India Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Healthcare

Company

Granules India Ltd

Reco Price
Rs. 261
Price Target (12 Months)
Rs. 420
Upside
60.92%

Date

06 February 2014
Sensex
20310
CNX Nifty
6036

Exchange

Code

NSE
GRANULES
BSE
532482

Strong acquisition of Auctus will drive the future growth.

Strong Revenue Growth Expected:
GIL is a pharamaceutical manufacturing company, which produces Active Pharmaceutical Ingredients (APIs), Formulation Intermediates (PFIs) and Finished Dosage (FDs). GIL is among the top global manufacturers of Paracetamol and Ibuprofen (APIs) and also manufactures single and multiple - active PFIs. The company also has its own Abbreviated New Drug Applications (ANDAs) and dossiers, which enables MNC pharma companies to quickly enter the market instead of filing their own applications. Leveraging its sound technological knowledge and manufacturing skills in API and PFI, GIL has increased its thrust on Fixed dosage (FD) with intent to enrich its basket of offerings. Backed by strong vertical integration, the increased thrust on down-stream products will generate strong revenue growth along with robust profitability.

Strong Acquisition:
Company is acquiring an APIs and intermediates manufacturing company, Auctus for Rs.1.2bn. Auctus has an impressive portfolio of APIs like Anti histamines (Levocetrizine, Cetrizine and Doxylamine succinate), Antihypertensives (Losartan, Telmisartan, Olmesartan and Valsartan), Antifungal (Fluconazole), Antithrombotic (Clopidrogel), Amti ulcerant (Pantoprazole), Antibacterial (Rifaximin) and Anti convulsant (Pregabalin). It also manufactures the intermediates for most of these products. The APIs unit is FDA approved. For Rifaximin, it’s the only generic player to get an EU approval. These will help GIL to improve in its product portfolio and strengthen its market presence across geographies.

Pioneer:
Granules pioneered the concept of commercializing PFIs, saving customers the need to manufacture their own PFIs and leaving them free to focus on finished dosage manufacture and marketing. The Company, through its PFI facilities at Gagillapur and Jeedimetla, is a leader in manufacturing PFIs and has the world’s largest capacity. The manufacturing facility uses high-shear and fluid-bed granulation processes with a 6 ton batch size, the largest in the industry.

Paracetamol:
Paracetamol, also known as acetaminophen, is used to reduce body pains, headaches and lower fevers. The current global market for the product is 104,000 tons per annum (TPA), and is expected to grow at 2% for the next 4-5 years reaching 110,000 TPA. While the global capacity is 141000 TPA, high quality supply for the regulated market is tight. With plans to expand its bulk drug manufacturing capacity in FY13-14E (expected to come on-stream by FY15E) taking its total capacity to 30,000 tons (API and PF), GIL aims to capture 27% market-share of the global market by FY17E (from the current 15% aided by strategic external sourcing).

Guaifenesin & Naproxen:
This drug is currently being supplied to developed markets (majorly supplying to US >50%). The growing popularity can be substantiated by GIL’s expanding order-book and increasing capacities. Also companies is supplying the Naproxen to Canadian markets and have recently started to US markets too showing the clear intent of the company to expand its reach geographically.

Initiatives to boost growth:
In July 2011, GIL entered the contract-manufacturing sector by signing a JV with Ajinomoto OmniChem and decided to form Granules-OmniChem Private Limited, a 50:50 joint venture company. The new entity has delivered high value through a unique contract-manufacturing platform by leveraging GIL’s technological capabilities, efficient processes, OmniChem’s extensive product portfolio and existing customers. A Greenfield facility set up in the Pharmacity SEZ Zone in Vishakhapatnam had commence commercial production in January 2013. As per the company, the JV had initially focused on APIs and intermediates in the cardiovascular, central nervous system (CNS) and oncology therapeutic sectors for patented, brand name products. The JV also worked on second-generation manufacturing processes and has develop new chemical entities for the future. This will help to boost company in its future domestic and international growth.

Stock Data

CMP (Rs)
264.05
Face value (Rs)
10
52 Week Range (Rs)
270 - 90
Market cap (Rs Crores)
536.02
Price To Book Value (x)
1.66
P/E Ratio (x)
16.32
EV/EBIDTA (x)
8.89

One Year indexed Stock Performance

Granules India LtdSensex
Granules India Ltd
Performance (%)
1m
3m
1year
Absolute
35.86
107.02
115.90
Sensex
-2.29
4.06
4.86

Shareholders

(in %)
31-Dec
Promoter
48.86
FII
1.54
DII
0.08
Others
49.52
Total
100

+91 22 6639 3000
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Profile

Incorporated in 1984 Granules India Limited (GIL) is a pharmaceutical manufacturing company based in Hyderabad manufacturing Active Pharmaceutical Ingredients (APIs) (20000 TPA), Pharmaceutical Formulation Intermediates (PFIs) (14400 TPA) and Finished Dosage (FDs). GIL is among the top global manufacturers of Paracetamol and Ibuprofen (APIs) and also manufactures single and multiple-active PFIs. The company also has a dedicated FD plant with a capacity to produce 18 billion tablets per annum.

It also has its own Abbreviated New Drug Applications (ANDAs) and dossiers, which enables MNC pharma companies to quickly enter the market instead of filing their own applications. Since early days, GIL has maintained unstinted focus upon regulated markets (EU and North America), justifying its emergence as a reputed supplier to Big Pharma players across regulated and semi-regulated markets.

Industry

The industry is expected to grow approximately 28% by 2015 to reach US$1.1 tn. Market growth will be driven by a continuing shift to generics and the rapid growth of “pharmerging” markets. In addition, drugs in the diabetic and oncology therapeutic sectors will grow more rapidly than other sectors. In order to take advantage of the market situation, pharmaceutical companies will need to strengthen production capabilities to meet demand and streamline their supply chain to meet the dynamics of each unique market. India’s pharmaceutical market is one of the fastest growing globally and is estimated to rise upto US$17.5 bn in CY14.

The Indian pharmaceutical industry is mainly regulated on patents, price and quality. Until 2004, the regulatory system in India focused only on process patents. Indian companies thrived during this phase by process re-engineering products of global pharmaceutical players and launching them in India. Indian companies gained process chemistry skills, but de-emphasized on research & development for new drug discoveries. From January 2005, India adopted the WTO norms to follow the product patent regime. The Act allowed for only two types of generic drugs in the Indian market: off-patent generic drugs and generic versions of drugs patented before 1995. The Amendment grants new patent holders a 20-year monopoly starting on the date the patent was filed and no generic copies can be sold during the duration of the patent.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
FY 10-11
FY 11-12
FY 12-13
FY 13-14E
FY 14-15E
Income:-
  • Sales
  • Total Expenditure
  • EBIDTA
  • EBIDTA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • Profit Before Depreciation & Tax
  • Depreciation
  • Profit Before Tax
  • Tax
  • PAT
  • Adjusted (EPS)
  • 475.18
  • 418.92
  • 56.26
  • 0.80
  • 57.06
  • 11.99
  • 45.07
  • 18.31
  • 26.76
  • 5.86
  • 20.90
  • 10.42
  • 653.97
  • 574.68
  • 79.29
  • 1.38
  • 80.67
  • 16.99
  • 63.68
  • 20.70
  • 42.98
  • 13.02
  • 29.96
  • 14.93
  • 764.37
  • 679.35
  • 85.02
  • 2.06
  • 87.08
  • 17.67
  • 69.41
  • 23.08
  • 46.33
  • 13.76
  • 32.57
  • 16.18
  • 1003.09
  • 865.00
  • 138.09
  • 3.50
  • 141.59
  • 19.50
  • 122.09
  • 26.05
  • 96.04
  • 29.00
  • 67.04
  • 33.30
  • 1325.02
  • 1135.00
  • 190.02
  • 5.02
  • 195.04
  • 22.50
  • 172.54
  • 29.05
  • 143.49
  • 46.50
  • 96.99
  • 48.18
Source: Stockaxis Research, Company Data

Valuation

Granules India Ltd is a fast growing pharmaceutical company with world-class facilities for APIs, PFIs and Finished Dosages serving customers in over 50 countries. GIL has a specialized product list and offers all three components of the pharmaceutical manufacturing chain. GIL pioneered the concept of commercializing PFIs. Its facilities are among the largest in the world.

With increased thrust towards an enriched offering, we believe the company would deliver robust revenue performance of 32% and strong growth in profits.

At CMP of Rs 261 stock currently trades at 5.41x its FY15E EPS of Rs 48.18. We recommend BUY with a target price upward to Rs 420 at which the share will trade at a P/E of 8.71x indicating 61% upside from current levels.

 
 

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