Granules India Ltd - Moneycontrolhttps://bit.ly/2IRN6U6

Granules India Ltd

RESULT UPDATE

29th May, 2018 22nd May 2017

India Equity Institutional Research II

Result Update – Q4FY18

II

29th May, 2018

Granules India Ltd

Page 2

Higher material cost led to dip in margins…

CMP

Target

Potential Upside

Market Cap (INR Mn)

Recommendation

Sector

INR 80

INR 98

14.3%

20,269

ACCUMULATE

Pharma

Result highlights • Net Sales stood at INR 5,038 Mn which was up by 41.8% y-o-y and 22.7% q-o-q. The rise in revenues was due to higher utilizations from the new capacities and rise in prices of Ibuprofen. • EBIDTA stood at INR 436 Mn which degrew by 43.6% y-o-y and 41.1% q-o-q. Increase in R&D and material cost led to contraction of EBITDA margins by 1311 bps y-o-y and 936 bps q-o-q. The company has reported margins of 8.66% in Q4FY18 against 18.3% in Q3FY18. • The company has reported profit of INR 172 Mn in Q4FY18 against the profit of INR 302 Mn in Q3FY18. PAT Margin for the quarter stood at 3.42% down by 393 bps q-o-q and 680 bps y-o-y. Higher depreciation and lower EBITDA led decline in PAT margins.

KEY FINANCIALS

MARKET DATA Shares outs (Mn) Equity Cap (INR Mn)

253

Particulars (INR Mn)

254

Revenues

Mkt Cap (INR Mn)

20269

52 Wk H/L (INR)

151/78

Volume Avg (3m K)

2277.9

Face Value (INR)

1

Bloomberg Code

GRAN IN

FY16 14,312 2,784 1,166 5.4 24.2 15.2 21.3

EBITDA APAT AEPS (Rs) P/E (x) EV/EBITDA(x) ROAE (%)

FY17 14,106 2,989 1,645 7.2 18.1 12.3 21.0

FY18 16,846 2,784 1,326 5.2 14.9 8.5 12.0

FY19E 19,098 3,075 1,521 6.0 13.0 10.1 11.2

FY20E 21,426 3,857 2,079 8.2 9.5 8.8 14.0

Source: Company, KRChoksey Research

SHARE PRICE PERFORMANCE

Strong revenues across all regions: The company reported strong topline growth of 23% Q-o-Q and 37% Y-o-Y. This was mainly due to robust growth from North America and LATAM regions which grew 3% and 117% Q-o-Q respectively. The company has also seen volume pick up in key molecules such Ibuprofen, paracetamol and methacarbonal which led to stunning growth of topline in the quarter. In the current quarter, Granules has received approval of methergine which has a market size of USD 70 bn in the US. Currently, this drug is sold by Lupin in the US. Being a two player market, we expect the growth revenues to continue with topline displaying growth of 13% Y-o-Y in FY19.

170

120

US and LATAM business grew strongly: The US market has registered growth of 6% Q-o-Q with sales at INR 6,402 Mn mainly due to revival in Canadian market. The LATAM market grew by 29% Y-o-Y with sales at INR 1853 Mn. The revenue growth was led by increased operationalization from the Bonthapally facility for API and Gagillapur facility for PFIs.

Granules India

May-18

Nov-17

May-17

Nov-16

May-16

Nov-15

May-15

70

Sensex

MARKET INFO SENSEX

35165

NIFTY

10689

Higher material cost led to decline in EBITDA: The Company delivered EBITDA of INR 2784 Mn which has seen a sharp decline of 46% Y-o-Y due to increase in material cost. The company said that most of its raw material (Chemicals) are by product of Crude oil. Due to rising prices of crude oil there was a spike in raw material which has increased 31% Y-o-Y. along with this, the company also So rising COGS and R&D expenses led to spurt in EBITDA. Along with this, the company also had supply issues from China which led to dip in margins. EBITDA margins for the FY18 was 16.5% which has declined 1311 bps Y-o-Y. Pick up in ANDA filing process: Granules has embarked on the journey to file a mix of Para IIs, Para IIIs and Para IVs in the US markets. The company has filed 20 ANDA filings out of which 7 are approved and have also launched a niche drug Methergine which will help to boost the sales going ahead. Going forward, we see growth of 13.4% in topline in FY19 due to ramp up in filings along with increase in supply from the added capacities i.e. Bonthapally and Gagillapur facilities.

SHARE HOLDING PATTERN (%) Particulars

Mar 18

Dec 17

Sep 17

Promoters

44.94

44.94

48.18

FIIs

10.6

14.24

19.79

DIIs

6.89

4.07

1.57

37.58

36.75

30.47

100

100

100

Others Total ANALYST

Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

12.8%

25.2%

Revenue CAGR between FY 17 and FY 19E KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

PAT CAGR between FY 17 and FY 19E

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com



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29th May, 2018

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Granules India Ltd Valuations & Views: We expect a healthy earnings momentum to kick-start on account of Granules moving up the value chain towards high margin business, expanded capacity additional product offerings from Auctus Pharma, ramp-up in high margin CRAMS business, entry into US OTC market and ramp-up in ANDA filing coupled with Para IV. The company plans to increase in R&D expense to INR 200 crore. The increase in R&D along with rise in material cost due to Crude will impact the EBITDA margins. Higher Capex will lead to increase in depreciation which will impact the bottom-line. The company has also secured approval of Methergine whihc has a market size of USD 70 mn in the US with just two players in the market. Granules has embarked on a journey of high growth and margin sustainability, we expect revenue and EBITDA CAGR of around ~12.8% and ~17.7% respectively over FY18-20E. At CMP of INR 80 the stock is trading at PE of 9.8x at FY20 with EPS of INR 8.2. We recommend “ACCUMULATE” rating on the stock and value the stock at 12x FY20E EPS of INR 8.2 with a target price of INR 98 indicating 14.3% upside from CMP. Revenues has witnessed a steady growth 6000

5,038

5000

INR Mn

4000

3,733

3,638

3,437

3,553

3,526

20.0

4,107

3,926

3,787

25.0

15.0

3000 10.0

2000 1000

5.0

0

0.0 Q4FY16

Q1FY17

Revenue

Q2FY17

Q3FY17

EBITDA

Q4FY17

Adj PAT

Q1FY18

Q2FY18

Q3FY18

EBITDA margin (%)

%

Q4FY18 PAT margin(%)


1346 946 1346

1510 863 1222

1363 810 1510

1505 926 1428

1649 942 1335

1643 986 1479

1814

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Finished Formulation

PFI

1209 2015

1237 825 1375

2500 2000 1500 1000 500 0

1493 1008 1232

Vertical wise break-up

API


Geography wise break-up

Molecule wise breakup

100% 75% 50% 25%

619 172

728 182

928

946

309

437

1409

1346

611 180

626 147

656 154

667 236

791

884

1119

1021

360

904

368

821

463

393

493

452

1466

1610

1479

1520

1654

1657

986

780

246

534

0%

1800 1600 1400 1200 1000 800 600 400 200 0 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18

Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 North America

LATAM

Europe

Row

India

Paracetamol

Metformin

Ibuprofen

Guaifenesin

Methacarbonal

Others


ANALYST Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ




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Granules India Ltd Q4FY18 Result Snapshot Exhibit 1: Consolidated Result Update (INR Mn) Particulars (Mn) Total sales Total Expenditure Cost of Raw Materials (Increase) / Decrease In Stocks R&D expenses Employee Cost Other expenses EBITDA EBITDA Margins (%) Depreciation EBIT & Exceptional Item Other Income EBIT Interest EBT Exceptional items Profit before exceptional items Tax Tax rate PAT PAT Margin (%) EPS

Q4FY18 5,038 4,602 2,817 279.9 98.2 423.8 982.5 436 9% 204.0 232 96.7 329 62.1 267 0 267 95 36% 172 3.4% 0.8

Q3FY18 4,107 3,367 2,110 -21.0 80.1 415.3 782.3 740 18% 196.0 544 8.6 553 82.3 471 0 471 169 36% 302 7.3% 1.4

Q4FY17 3,553 2,779 1,567 -5.5 63.9 362.1 791.2 774 22% 179.9 594 11.8 605 76.6 529 0 529 166 31% 363 10.2% 1.8

Q-o-Q

Y-o-Y

22.7%

41.8%

9% 23% 2150% 23% 8% -6% -1%

20% 9% 898% 24% 15% 104% -16%

-936bps

-1311bps

-2% 0% -68% -1% 7% -3% 0% -3% 7% 10% -7%

8% -22% 24% -21% 3% -24% 0% -24% 15% 52% -36%

-393bps

-680bps

-12%

-9%


Key Con-call Highlights: • Granules have launched Methergine in the US market which has a market size of USD 70 mn and is a two player market as of now • The company benefited with rise in price of Ibuprofen which has benefited the topline • Due to rise in prices of Crude oil, the raw material cost spiked which led to dip in EBITDA margins. There was also supply disruptions due fire at a vendor’s plant which led to shortage of supply for the company. Going ahead, the company feels the prices of Crude oil to settle down and so the raw material cost • The company has started commercialization from the new facilities which has led increase in sales of India region. Since, these facilities is not yet approved by the US regulators the ramp up of sales could be seen. The company expects a healthy growth for next year from these added capacities • Tax guidance for the year will be in range of 31-33%.






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Granules India Ltd Exhibit 2: Income Statement INR Mn

FY16

FY17

FY18

FY19E

FY20E

Revenues

14,312

14,106

16,846

19,098

21,426

Op. Expenses

11,528

11,117

14,062

16,024

17,569

EBITDA

2,784

2,989

2,784

3,075

3,857

60

99

108

112

116

Other Income Depreciation

643

715

762

761

791

EBIT

2,201

2,373

2,131

2,425

3,182

Interest

399

323

331

376

379

PBT

1,801

2,050

1,800

2,050

2,802

Tax

617

652

634

728

995

PAT

1,185

1,398

1,166

1,322

1,808

Minority

19

-247

-160

-198

-271

Adj Pat

1,166

1,645

1,326

1,521

2,079


Exhibit 3 : Balance Sheet INR Mn

FY16

FY17

FY18

FY19E

FY20E

Equity Share Capital

217

229

254

254

254

Reserves & Surplus

6,399

8,807

12,789

13,814

15,325

Total Shareholders Fund

6,616

9,036

13,042

14,068

15,578

Minority Interest

0

0

0

0

0

Non- current liabilities

2,466

1,879

4,951

5,051

4,951

Long term Borrowings

1,842

1,242

4,331

4,431

4,331

Deferred tax liabilities

568

564

543

543

543

Other LT liabilties & prov

56

72

77

77

77

Current Liabilities

6,547

7,848

8,446

8,718

13,692

Short-term borrowings

3,928

4,738

5,251

5,451

5,651

Trade payables

1,811

2,159

2,522

2,510

2,699

Other cur liabilities & Prov

808

950

673

757

5,342

15,629

18,763

26,439

27,838

34,222

Non- current Assets

7,449

10,413

14,907

14,676

14,417

Fixed assets

6,364

9,049

12,912

12,651

12,360

Non-current investments

701

1,082

1,566

1,566

1,566

Long-term loans & adv

59

75

131

131

131

Total Liabilities Assets

Other non-current assets

324

208

298

328

361

8,180

8,349

11,532

13,162

19,804

0

0

0

0

0

Trade receivables

3,753

4,177

6,171

5,866

6,580

Inventories

2,537

2,761

2,799

3,139

3,522

Cash & bank balances

1,303

497

1,157

2,717

8,232

7

16

3

10

11

579

898

1,402

1,430

1,459

0

0

0

0

0

15,629

18,762

26,439

27,838

34,222

Current assets Current investments

Short-term loans & adv Other current assets Miscellaneous exo WTO Total Assets Source: Company, KRChoksey Research






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Granules India Ltd Exhibit 4: Cash flow statement INR Mn PBT Depreciation Interest Exp Others CF before W.cap Inc/dec in W.cap Op CF after W.cap Less Taxes Net CF From Operations Inc/(dec) in F.A + CWIP (Pur)/sale of Investments Others CF from Invst Activities Loan Raised/(repaid) Equity Raised Dividend Others CF from Fin Activities Net inc /(dec) in cash Op. bal of cash Cl. balance of cash

FY16 1801 643 399 -1 2843 -915 1928 -490 0 1438 -1281 0 0 -1281 -215 1059 -234 -116 493 650 653

FY17 2050 715 323 0 3088 -484 2603 -652 0 1951 -3399 0 0 -3399 178 12 -134 586 643 -805 1303

FY18 1800 762 331 0 2893 -2438 454 -634 0 -180 -4626 -1 0 -4627 3271 25 -297 2467 5466 659 497

FY19E 2050 761 376 -27 3160 3 3163 -728 0 2435 -500 -2 0 -502 -76 0 -297

FY20E 2802 791 379 -30 3943 3647 7590 -995 0 6595 -500 -3 0 -503 -279 0 -297

-373 1561 1156

-576 5515 2717

FY16 5.4 8.3 30.5 0.6 10.9

FY17 7.2 10.3 39.5 0.6 8.1

FY18 5.2 8.2 51.4 1.2 22.4

FY19E 6.0 9.0 55.4 1.2 19.5

FY20E 8.2 11.3 61.4 1.2 14.3

24.2 4.3 15.2 0.0

18.1 3.3 12.3 0.0

14.9 1.5 8.5 0.0

13.0 1.4 10.1 0.0

9.8 1.3 8.9 0.0

19.5 8.1 21.3 19.3

21.2 11.7 21.0 15.9

16.5 7.9 12.0 10.4

16.1 8.0 11.2 9.7

18.0 9.7 14.0 12.1

0.3 0.7 2.1 5.4 3.1

0.1 0.6 2.0 7.0 2.7

0.3 0.6 3.4 6.1 3.6

0.3 0.5 3.2 6.2 4.0

0.3 0.1 2.6 8.1 2.5

10.7 33.4 28.2

-1.4 7.4 41.1

19.4 -6.8 -19.4

13.4 10.4 14.7

12.2 25.4 36.7

1.7 61 65

1.4 69 103

1.4 60 112

1.5 57 115

1.6 57 106


Exhibit 5: Ratio Analysis INR Mn EPS CEPS BVPS DPS Payout (%) Valuation (x) P/E P/BV EV/EBITDA Dividend Yield (%) Return ratio (%) EBIDTA Margin PAT Margin ROAE ROACE Leverage Ratios (x) Long Term D/E Net Debt/Equity Debt/EBITDA Interest Coverage Current ratio Growth Ratios (%) Income growth EBITDA growth PAT growth Turnover Ratios F.A. Turnover x Inventory Days Payable days Source: Company, KRChoksey Research






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Granules India Ltd Granules India Ltd Date CMP (INR) 29-May-18 80 9-Feb-18 119 10-Nov-17 127 17-Aug-17 127 31-Jan-17 116 26-Oct-16 124 16-Aug-16 134 02-May-16 134 28-Jan-16 113 02-Nov-15 148 14-Oct-15 154 24-Jul-15 102 29-April-15 79

Rating Legend TP (INR) 98 133 146 146 145 160 160 160 160 170 144 112 112

Recommendation ACCUMULATE ACCUMULATE BUY BUY BUY BUY BUY BUY BUY ACCUMULATE HOLD ACCUMULATE BUY

Our Rating

Upside

Buy

More than 15%

Accumulate

5% - 15%

Hold

0 – 5%

Reduce

-5% – 0

Sell

Less than -5%

ANALYST CERTIFICATION: We Dhavan Shah [B.Com, MS(Finance)], research analyst and Dhara Patwa (BBA,MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. 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