4 Reasons Why Sharekhan Has A “Buy” Rating On This Stock

Broking firm Sharekhan has a "buy" rating on the stock of Granules India with a price target of Rs 475, as against the current market price of Rs 389. Here are 4 reasons why the broking firm has recommended buying the stock.

Strong quarterly performance

Granules India reported a solid performance for the quarter ending Sept 30, 2020. The profit after tax stood at Rs 163.6 crores as against Rs 95.8 crores in Q2FY20 and was ahead of estimates.

"Sales for the quarter grew sturdily by 22.7% y-o-y to Rs 858 crore lead by a strong double digit growth across all segment - FD segment sales grew 22.9% y-o-y, PFI segment up 30.2% y-o-y and the API segment sales up 17.6%. Operating profit reported a sturdy growth of 78% y-o-y to Rs 256 crore. The OPM expanded sharply by 935 BPS to 29.9% during the quarter and are ahead of the estimates. The improvement in the operating margins is on account of marked 930 bps improvements in the gross margins and savings in cost on account of favorable mix and benefits of operating leverage," Sharekhan has stated.

Healthy growth in core molecules

According to Sharekhan the management has revised net profit growth guidance upwards to 30% beyond FY2021.

"Granules reported an impressive performance for Q2FY21 with record all- round performance. A strong demand environment for its drugs, especially in the PFI and FD space has led to the outperformance. Granules expects the sturdy performance to sustain going ahead as well. The core molecules (revenue contribution dropped to 70% from 80-85% as of FY2020) would continue to sustain the robust growth trajectory as Granules looks to launch these products in new geographies of Europe, Canada and South Africa and Australia," Sharekhan has said in its latest report on Granules India.

Product Pipeline

Granules India has a strong product pipeline which would fuel the growth in the times to come, according to the brokerage firm.

"The company looks to add a total of 23 new products in between FY2021 to FY2023 across all dosage forms in FD's. Granules aims to file 7-8 new ANDA's and 2-4 dossiers every year. Further, the management has specified that it had delayed a few launches so as to ensure un-interrupted supply of existing products. Granules is also looking to relaunch Metformin 750 mg in the US markets over the next 1-3 quarters. It had recalled the drug from the US markets a couple of quarters back," Sharekhan has said.

Valuations

Granules is witnessing strong demand tractions across segments, which is expected to sustain, according to the brokerage firm.

"Going ahead, growth for the company would be fuelled by new product launches, increasing geographical penetration, capacity expansion, commissioning of MUPS block by Q3FY22 and fortifying presence in the oncology space. Further, a favorable revenue mix, operational efficiencies would drive the margins. Witnessing a strong demand, Granules has revised its PAT growth guidance upwards to 30% for period beyond FY2021as against earlier guidance of 25%. Based on the sturdy performance in Q2FY2021 and improved growth guidance, we have revised our earnings estimates upwards for FY2022/FY2023. At CMP, the stock is trading at P/E multiple of 15.1x/12.8x its FY22/FY23E EPS. Strong earnings visibility, a sturdy balance sheet and healthy return ratios augur well and could result in multiple re-rating. We maintain our Buy recommendation on the stock with a revised target price of Rs 475," the brokerage firm has stated.

The shares of Granules India were last trading at Rs 389 on the NSE.

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