Monday, April 12, 2010

Stock Idea: Granules India Ltd

Granules India Ltd (Rs97)
(BSE Code- 532482 NSE Code- GRANULES)
(P/E - 7.5, FY10E Sales - Rs475 cr, Market Cap - Rs194 cr)

Granules India Ltd.(GIL) is a fully backward integrated formulation manufacturer. The Company is a large-scale manufacturer of Finished Dosages (FDs), Pharmaceutical Formulation Intermediates (PFIs) and Active Pharmaceutical Ingredients (APIs). Granules has installed capacities of 13,550 tonnes for APIs and 8,400 tonnes of PFIs. GIL is a fully vertically integrated pharmaceutical manufacturing company with three core lines- Active Pharmaceutical Ingredients (APIs) – Granules has 3 factories manufacturing APIs and is amongst the top global manufacturers of Paracetamol and Ibuprofen. Pharmaceutical Formulation Intermediates (PFIs) – Granules pioneered the concept of PFIs and currently has 2 factories manufacturing single and multiple - active PFIs. Finished Dosages (FDs) – Granules recently opened a dedicated FD plant at its Gagillapur facility. Its plant has the capacity to produce 6 billion tablets annually and is scalable up to 12 billion tablets. GIL’s integrated model allows it to provide products throughout the value chain in a cost-effective and efficient manner. It serves over 300 customers in 50 countries through its sales offices in India, U.S., U.K., Colombia and China.
The company, which is into making of Active Pharmaceuticals Ingredients (APIs) and Pharmaceutical Formulations Ingredients, is confident that the foray into tablets would add to its overall growth. The company, which is in the niche area of granulation technology, is eying high volume business in Europe. The company’s business model is based on focusing on a few products which drive high volumes. Granules India is moving up the value chain from being a predominantly bulk drug player to a formulation player.

For the Q3 ended Dec. 2009, Granules posted net sales of Rs. 122.40 Cr., an increase of 24.7% over the same period last year and a net profit of Rs. 6.56 Cr. as compared to the same period last year at Rs. 0.49 Cr. On a standalone basis, GIL achieved sales of Rs. 101.34 Cr. and a net profit of Rs. 5.87 Cr. This is the first time the standalone unit has crossed Rs. 100 Cr. in sales. GIL’s formulation division continues to grow rapidly and now comprises over 9% of its sales. This division will ramp up significantly over the next few quarters as the company commences work on several key contracts. On a equity of 20 cr. (Promoters stake- 34.5%, FII/ Institutional stake- 32%) the EPS for Q3 stands at Rs 3.27. For the nine months ended Dec. 2009, GIL has posted 28% rise in net profit to Rs 22.99 cr. on 28% growth in net sales to Rs 347.82 cr. on consolidated basis. Going forward, it appears that the foundation for growth at GIL is laid and the company is poised to leverage its manufacturing strength in the respective product areas. With product mix tilting towards prescription formulations, GIL is poised for good growth in earnings in the coming years.

At the current market price of Rs 97, the stock trades at 7.4 times expected FY10E earnings(Rs 13) and at 6 times its FY11E earning(Rs 16). Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-45% over the next 6-8 months.
Source: Internet (Valuenotes by Sanjay Chhabria)

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