Granules - Capex Complete, Revenues to Start

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<ul class="">
<li>
<a href="https://www.smartkarma.com/entities/3072" target="_blank" data-smartkarma-citation="entities:3072:1">Granules India (GRAN IN)</a> reported 2QFY19 Revenues better than our estimates. Adjusted EBITDA was Rs 1,056 mn, higher than our estimates of Rs 873 mn. Adjusted EBITDA margins at 18.2% were 90 bps lower than our estimates because higher than expected R&amp;D expense and provision for doubtful debts in 2QFY19. In 2H FY19, we expect EBITDA margins to improve on account of better performance from FD business and new product launches.</li>
<li>We expect FD business revenues to grow at CAGR 32% (FY18-20E). We expect revenue contribution of FD to increase to 47% in FY20E from 45% in 2QFY19. This will primarily come from US market. Over FY18-20E, we expect PAT (without share of JVs) to grow by CAGR 44%.</li>
<li>Over FY18-20E, we expect the share of JV to grow by CAGR 74% as a result of better than expected performance of Biocause and Omnichem. We expect PAT (with share of JVs) to grow by CAGR 48% (FY18-20E).</li>
<li>We have maintained a PE multiple of 15x on the EPS estimate of Rs 12.2 per share for the year ending September-20E to arrive at the fair value estimate of Rs 180 over the next 12 months.</li>
</ul>
<table class="table table-striped">
<tbody>
<tr>
<td>
Particulars (Rs in Mn)
</td>
<td style="text-align: right;">
Net sales
</td>
<td style="text-align: right;">
EBITDA
</td>
<td style="text-align: right;">
PAT
</td>
<td style="text-align: right;">
EPS
</td>
<td style="text-align: right;">
ROE(%)
</td>
<td style="text-align: right;">
ROCE(%)
</td>
<td style="text-align: right;">
PE(x)
</td>
</tr>
<tr>
<td>
FY18
</td>
<td style="text-align: right;">
16,858
</td>
<td style="text-align: right;">
2,836
</td>
<td style="text-align: right;">
1,327
</td>
<td style="text-align: right;">
        5.3
</td>
<td style="text-align: right;">
10.6%
</td>
<td style="text-align: right;">
11.3%
</td>
<td style="text-align: right;">
19
</td>
</tr>
<tr>
<td>
FY19E
</td>
<td style="text-align: right;">
22,206
</td>
<td style="text-align: right;">
4,062
</td>
<td style="text-align: right;">
2,447
</td>
<td style="text-align: right;">
        9.7
</td>
<td style="text-align: right;">
13.8%
</td>
<td style="text-align: right;">
13.4%
</td>
<td style="text-align: right;">
10
</td>
</tr>
<tr>
<td>
FY20E
</td>
<td style="text-align: right;">
25,102
</td>
<td style="text-align: right;">
4,867
</td>
<td style="text-align: right;">
2,904
</td>
<td style="text-align: right;">
      11.4
</td>
<td style="text-align: right;">
14.3%
</td>
<td style="text-align: right;">
14.5%
</td>
<td style="text-align: right;">
9
</td>
</tr>
<tr>
<td>
FY21E
</td>
<td style="text-align: right;">
27,470
</td>
<td style="text-align: right;">
5,437
</td>
<td style="text-align: right;">
3,307
</td>
<td style="text-align: right;">
      13.0
</td>
<td style="text-align: right;">
13.8%
</td>
<td style="text-align: right;">
14.9%
</td>
<td style="text-align: right;">
8
</td>
</tr>
</tbody>
</table>
<div class="content-caption"> Source- Granules Annual Report FY18, Trivikram Consultants Research as on 20/11/2018</div>



Granules India (GRAN IN) reported 2QFY19 Revenues better than our estimates. Adjusted EBITDA was Rs 1,056 mn, higher than our estimates of Rs 873 mn. Adjusted EBITDA margins at 18.2% were 90 bps lower than our estimates because higher than expected R&amp;D expense and provision for doubtful debts in 2QFY19. In 2H FY19, we expect EBITDA margins to improve on account of better performance from FD business and new product launches.
We expect FD business revenues to grow at CAGR 32% (FY18-20E). We expect revenue contribution of FD to increase to 47% in FY20E from 45% in 2QFY19. This will primarily come from US market. Over FY18-20E, we expect PAT (without share of JVs) to grow by CAGR 44%.
Over FY18-20E, we expect the share of JV to grow by CAGR 74% as a result of better than expected performance of Biocause and Omnichem. We expect PAT (with share of JVs) to grow by CAGR 48% (FY18-20E).
We have maintained a PE multiple of 15x on the EPS estimate of Rs 12.2 per share for the year ending September-20E to arrive at the fair value estimate of Rs 180 over the next 12 months.





Particulars (Rs in Mn)


Net sales


EBITDA


PAT


EPS


ROE(%)


ROCE(%)


PE(x)




FY18


16,858


2,836


1,327


        5.3


10.6%


11.3%


19




FY19E


22,206


4,062


2,447


        9.7


13.8%


13.4%


10




FY20E


25,102


4,867


2,904


      11.4


14.3%


14.5%


9




FY21E


27,470


5,437


3,307


      13.0


13.8%


14.9%


8




 Source- Granules Annual Report FY18, Trivikram Consultants Research as on 20/11/2018

Granules - 2QFY19- Better than Expected Performance, Raising Estimates