Initiating Coverage | 28 March 2016
Sector: Healthcare
Granules India
US OTC
US Rx
High value APIs
PFIs
APIs
At a strategic inflection point
Amey Chalke
(Amey.Chalke@MotilalOswal.com); +91 22 39825423
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +91 22 3982 5584
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Granules India | At a strategic inflection point
Granules India – At a strategic inflection point
Summary .........................................................................................................3
At a strategic inflection point ............................................................................6
Formulation business – Key growth driver ........................................................ 7
APIs & PFIs: Captive consumptions to cap upside ............................................ 11
Legacy business: Top 5 molecules covers 85% sales ......................................... 13
Joint ventures (Biocause & Omnichem) ........................................................... 16
Strong regulatory history ................................................................................ 18
Capacity ramp-up progressing well ................................................................. 19
Business fundamentals to improve further ...................................................... 21
Equity infusion – To fund growing capex ......................................................... 23
Valuation and view......................................................................................... 24
Sensitivity analysis indicates favorable risk/reward ......................................... 26
About Granules India ...................................................................................... 27
Story in charts ................................................................................................ 28
Financials and valuations ................................................................................ 29
28 March 2016
2

Initiating Coverage | Sector: Healthcare
Granules India | At a strategic inflection point
Granules India
BSE Sensex
25,338
S&P CNX
7,717
CMP: INR122
TP: INR160 (+32%)
Buy
At a strategic inflection point
Independent entry into OTC market a game changer
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
GRAN IN
216.0
164/75
5/-11/54
26.3
0.4
253
50.5
GRAN's independent entry into the US OTC market is likely to begin contributing
meaningfully from FY19 and double its revenue by FY20.
Along with the US OTC business, ramp-up in Rx product sales in the US and
Omnichem JV sales would also help drive growth and profitability over FY17-20.
We model 38%+ earnings CAGR over the next four years, driven by improving
business mix and higher operating leverage.
The stock is ripe for a re-rating. We initiate coverage with a Buy recommendation
and a target price of INR160 (16x FY18E EPS; 27-28% discount to sector average).
Financial Snapshot (INR b)
Y/E Mar
2016E 2017E 2018E
Sales
EBITDA
NP
EPS (Rs)
EPS Gr. (%)
BV/Sh. (INR)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
14.2
2.7
1.2
5.4
22.4
27.9
22.9
4.5
22.8
23.1
17.0
3.3
1.6
6.9
26.1
38.0
18.2
3.3
21.3
24.4
20.3
4.2
2.2
9.8
42.4
46.0
12.8
2.7
23.3
27.1
US OTC and Rx business to transform business model
Granules India
At a strategic inflection point
On the back of US OTC sales and ramp-up in existing Rx sales (through new
product launches), we project 35%+ revenue CAGR in GRAN's formulations
business over FY16-20E.
Currently, GRAN has five products approvals in the US (2 Rx and 3 OTC). It is
likely to file 10 more ANDAs over the next one year and 7-8 product filings
every year post FY17. These filings would be mostly in OTC products (from
existing molecules), some from Auctus molecules and a few complex
products from the Virginia facility.
We believe GRAN's independent entry into the US store brand OTC segment
is a big game changer. It opens a huge opportunity for GRAN to scale up in a
profitable and sustainable business in the US, currently dominated by only
one player - Perrigo (~45% market share). Upon successful tenders from big
retailers, GRAN's OTC store brand business could grow at over 50% CAGR
beyond FY18.
At present, only 31% of sales come from the high margin formulations
business. We believe this contribution would rise to 48-50% by FY20.
Augmented capacities to support base as well as emerging business
GRAN intends to expand API capacities of Paracetamol, Metfomin and
Guaifenecin by 25-30%, 3.5x and 2.7x, respectively, which will support both
its base and emerging businesses.
In FY16, GRAN has also increased its PFI capacity by 38-40% to 18,400MTPA.
This debottlenecking is likely to support 16-18% PFI revenue CAGR over the
next two years.
The company is coming up with a greenfield multi-product API capacity at
Vizag to support the growing need of internal consumption and new filings.
GRAN has invested heavily in R&D. With the acquisition of the Virginia facility
in the US, it now has two R&D centers - one in Vizag for developing normal
ANDAs and one in Virginia for developing complex ANDAs.
Please click here for Video Link
28 March 2016
3

Granules India | At a strategic inflection point
Omnichem CRAMs JV - entry into high value APIs
With Omnichem CRAMs JV, GRAN would be entering into manufacturing of high
value APIs for innovators and other big MNCs. We project revenue of INR750m
in FY17 and INR1.25b in FY18. At its peak, the facility can generate revenue of
INR2.25b for Granules. Revenue is likely to grow rapidly beyond FY17 post site
approvals for the customers.
This could be a big step ahead for GRAN towards transition from a
commoditized capacity-driven base business to high quality oncology APIs.
Besides de-risking, it will provide a steady revenue stream with healthy margins.
Not only growth, but profitability as well
With US OTC, Rx products and Omnichem JV, the revenue contribution from
high margin businesses is likely to increase to ~75% of sales by FY20 from the
current 56%.
This will also be driven by higher operating leverage in the formulations
business, as capacity utilization increases from 50% presently to 100% by FY19,
with ramp-up in US business.
Driven by changing business mix and higher operating leverage, overall EBITDA
margin is likely to expand from 18.8% in FY16E to 23% in FY20E; EBITDA would
grow at a CAGR of 27% over FY16-20.
Valuations attractive; re-rating likely on execution
GRAN trades at 22.9x FY16E, 18.2x FY17E and 12.8x FY18E EPS. Our target price
of INR160 is based on 16x FY18E EPS (27-28% discount to sector average).
However, we believe, GRAN merits a re-rating upon successful execution of OTC
and Rx business in the US.
Overall, we expect GRAN to report 20% revenue CAGR, 25% EBITDA CAGR and
38% PAT CAGR over FY16-18, supported by growing contribution from finished
dosages and improved product offerings from Auctus and Omnichem JV.
The picture beyond FY18 is rosier, with substantial product approvals expected
in the US for the OTC and Rx business and significant ramp-up in Omnichem JV,
which will drive both revenue and profitability.
Key risks to our estimates are (1) higher competition in products like Metformin
and Paracetamol, (2) low profitability of the Auctus Pharma business, and (3)
regulatory risk to its manufacturing facility.
28 March 2016
4


Granules India | At a strategic inflection point
At a strategic inflection point
Independent entry into OTC market a game changer
From being one of the largest Paracetamol API manufacturers for regulated markets,
GRAN has ventured into US OTC/Rx business where it can leverage its competitive
advantage of high quality-low cost producer.
The scale up in US OTC/Rx business would double the top line by FY20E (INR31b)
andmargins are likely to expand 420bp over FY16-20, driven by improving business
mix (~75% high margin sales), and higher operating leverage. We estimate EPS CAGR
of 38% over FY16-20E.
Strong track record
GRAN is among the largest manufacturers of Paracetamol and Ibuprofen APIs for
regulated markets. Along with Paracetamol and Ibuprofen, it has also been
supplying Metformin, Guaifensin and Methacarbomol APIs. Till FY16, almost 85% of
its business has come from these five base molecules. Revenue has grown at a CAGR
of 25% over FY11-16. EBITDA margin has expanded from 12% in FY11 to 19% in
FY16, driven by better product mix and higher utilization levels.
Scale up in US business to transform the business mix
Going ahead, we believe 35% growth in formulations business (US OTC/Rx) and the
scale up in Omnichem JV would drive 22% revenue CAGR over FY16-20E. With
improving business mix EBITDA is also likely to grow 27%CAGR over FY16-20E.
Overall we project ~38% earnings CAGR over FY16-20E, led by increasing financial
leverage.
Exhibit 1: Contribution from high margin business rising
Very low margin sales (%)
Medium margin sales (%)
33
31
29
67
40
29
27
44
27
37
36
44
40
2
38
4
56
58
Low margin sales (%)
High Margin sales (%)
58
Exhibit 2: Revenue to grow at 22% CAGR over FY16-20E
Revenues (INR b)
59
6
34
70
74
4.8
6.5
7.6
11.0 12.9 14.2 17.0 20.3 24.9 31.0
30
26
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: EBITDA margin to expand 420bp till FY20E
EBITDA (INR b)
16.1
EBITDA margin (%)
21.9 23.0
19.4 20.6
18.8
7
Exhibit 4: Earnings to grow at 38%CAGR over FY16-20E
EPS (INR/share)
11.8 12.1 11.1
1
1
1
14.4
2
2
3
3
4
5
1.0
1.5
1.6
3.7
4.5
5.4
6.9
9.8
13.8 19.1
Source: Company, MOSL
Source: Company, MOSL
28 March 2016
6

Granules India | At a strategic inflection point
Formulation business – Key growth driver
We believe the formulations segment would be the key growth driver, as GRAN
receives OTC/Rx approvals for the US market.
Over the years, GRAN has substantially changed its business mix from 61% PFI and
39% API to 31% FD, 27% PFI and 41% API in FY16.
With significant ramp-up in US sales, we could see the contribution of finished dosages
rising to ~50% in FY20.
Exhibit 5: Formulations to contribute ~ 50% of FY20E sales
Formulations (%)
PFI (%)
API (%)
2
39
45
51
46
40
31
29
FY12
44
29
27
FY13
39
29
32
FY14
44
24
32
39
27
31
Omnichem (%)
4
38
26
32
6
34
25
34
7
30
22
41
7
26
19
48
61
0
FY08
52
3
FY09
41
8
FY10
33
21
FY11
FY15 FY16E FY17E FY18E FY19E FY20E
Source: Company, MOSL
OTC/RX products to drive US business (finished dosages)
Over the last five years, the formulations segment has grown at a CAGR of 62%
on the back of CMO contracts and US product launches. In FY15, GRAN reported
revenue of INR4.2b from finished products, contributing 32% of total revenue.
Almost half of this business was driven by CMO contracts given to global
innovators and large generic players. The remaining half of the business came
from the sale of own products in regulated markets like the US and the EU.
Currently, GRAN has four product approvals for the US market.
Going ahead, the OTC business is likely to be the biggest growth driver. GRAN
has three OTC product approvals and the company would be supplying these
OTC products to the retail part of the OTC market (store brands). We expect
formulation sales to pick up from FY19, with 6-7 more approvals for OTC/Rx
products.
Exhibit 6: Post FY18E, we see 45%YoY growth due to ramp up in OTC/Rx business
Formulation sales (INR b)
1
FY11
2
FY12
2
FY13
3
FY14
4
FY15
4
FY16E
5
FY17E
7
FY18E
10
FY19E
15
FY20E
Source: Company, MOSL
28 March 2016
7

Granules India | At a strategic inflection point
OTC market presents large opportunity
Over-the-counter (OTC) drugs are medicines sold directly to a consumer without
any prescription. In 2014, OTC drugs in the US reached USD31b sales, with ~4%
growth. Despite being competitive market, it provides sustainable cash flows
and profitable business.
Going ahead, switch from Rx to OTC products would be a primary growth driver
for the OTC market, besides an aging population and need for cheaper drugs.
Major OTC players in the US include Novartis, Sanofi, J&J, Bayer, and Perrigo.
Exhibit 8: Therapy-wise break-up (%)
Exhibit 7: US OTC market (USD b)
Sales (USD b)
% YoY growth
63.7
28
2.0
15
4.4
(9.3)
14
(0.7)
6.4 2.0 4.65.0
11.6
2.5 2.8 3.7
29 30 31
Upper Respiratory
Analgesics
27%
24%
Anitperspirants
Toothpaste
5%
6%
8%
8%
9%
Heartburn
13%
First Aid
Oral Antiseptics
Others
Source: Company, MOSL
(8.1)
14 14 15 15 16 17 28 31
Source: Company, MOSL
Pie of OTC market to become bigger
An Rx-to-OTC switch refers to the transition of approved prescription drugs, or Rx
drugs, to nonprescription, OTC status. According to Perrigo, branded prescription
drugs with sales potential of USD10b are likely to take on OTC status over the next
five years primarily on account of the following reasons: (1) lower cost of OTC drugs
delivers greater healthcare efficiency, (2) insurance programs are encouraging the
use of OTC drugs, and (3) population in the US is growing and aging.
Exhibit 9: Potential prescription (Rx) to OTC switches
Source: Company, MOSL
28 March 2016
8

Granules India | At a strategic inflection point
OTC store brands: Perrigo dominates the market
Store brands account for nearly 40% of total OTC sales and 60% of total OTC
volumes in the US. These are typically sold through multi-brand retailers like
Walmart, Walgreens, CVS, Krogger, etc. Currently, Perrigo dominates this market,
with 45% market share (second best ‘LNK’ at 15%). Branded OTC drugs help
consumers to save 6-7x more than branded prescription drugs. However, store-
brand OTC drugs help deliver savings of 8-9x over branded prescription drugs. (On
an average, the cost of store brands is ~36% lower than branded OTC drugs).
Exhibit 10: National OTC brand v/s Store brands
Source: Perrigo, MOSL
Granules to enter independently in OTC store brand market
Until FY14, GRAN used to supply three OTC products to Perrigo, which sold these
through its retail chain. However, in FY15, the company terminated this supply
arrangement with Perrigo (loss of sales of INR1.1b/USD16m in FY16) and entered
the store brands market with its own marketing field force.
What is working in favor of Granules India
1. GRAN is a vertically integrated company, with large capacities to produce OTC
products like Paracetamol, Ibuprofen, and Guaifenecin. It has the ability to offer
large discounts.
2. GRAN has substantial experience in the store brands business; it was present in
the supply chain with Perrigo for more than five years.
3. Large retailers like Walmart and Walgreens are aware of GRAN and its
manufacturing capabilities due to the Perrigo contract.
4. Till date, GRAN has not faced regulatory issues. In the last eight US FDA
inspections, GRAN received minor 483 observations in only three instances.
28 March 2016
9

Granules India | At a strategic inflection point
What Granules India still needs to do
1. To become a strong OTC store brand player, GRAN will need to increase its
product offerings in this segment.
2. GRAN will need to develop robust supply chain operations, with own
warehouses and field force, and also need to fulfill packaging requirements.
3. Big retailers like Walmart and Walgreens demand product supplies in large
quantities and prefer continuity.
Granules India to leverage existing field force by marketing tie-ups
GRAN has three OTC approvals for Paracetamol, Ibuprofen 200mg, and Naproxen
200mg tablets. We believe it also has the capability to launch OTC products in
Guaifenecin, Cetrizine, and Doxylamine Succinate molecules. To leverage its existing
field force and increased product offerings, GRAN has initiated a tie-up with Par
Pharma to launch generic OTC Zegerid in the US OTC market. The marketing
partnership has sales potential of USD7m-8m in FY17. We believe, going ahead,
there would be more of such tie-ups that will add incremental sales for the
company.
Heavy investment in Rx business to bear fruit from FY19
Currently, half of GRAN’s finished dosage sales come from the Rx part of the
business, largely from the US. Till date, it has launched two products in the Rx
market – Metformin and Ibuprofen. To develop its prescription-based business in
the US, GRAN has been working on many fronts: (1) filing formulations products
from base molecules, (2) product filings from Auctus portfolio, (3) working on new
products at Vizag R&D facility, and (4) developing complex generic products at the
US R&D facility. It has further invested over INR300m to set up a high profile R&D
facility that will focus on large market molecules.
Auctus has strengthened API base to support Rx business
With the Auctus acquisition, GRAN has got access to 14 approved APIs in therapies
like CVS, GI, anti-histamine, etc. Auctus will operate at arm’s length from the
existing base business to nurture the right mindset for the complex Rx business,
which is very different from the existing scale-oriented API business. GRAN would be
filing few ANDAs from the existing Auctus portfolio over the next few years.
Scale up in new ANDA filings to support growth beyond FY18E
GRAN would be filing 10 ANDAs over the next one year and 7-8 ANDAs per year
post FY17. This would include few products from Auctus, few combination
products from base molecules, and 5-6 OTC products.
To facilitate the OTC/Rx business and commence the government contract
business, it has already acquired a small FD facility in Virginia, US. The facility
has best-in-class equipment and is capable of manufacturing superior
formulations. GRAN has invested further to revamp, regain approvals, and set
up R&D facility in Virginia.
It would be used to file complex ANDAs. GRAN aims to file 12-15 ANDAs from
this facility over the next 2-5 years. We believe most of these initial new
products to be launched in FY19 upon approvals. These incremental filings,
ramp up in existing OTC products through tenders is likely to drive 45%YoY
growth over FY18-20E.
28 March 2016
10

Granules India | At a strategic inflection point
APIs & PFIs : Captive consumptions to cap upside
API revenue growth is likely to come down from 21%CAGR over FY11-16E to 9%CAGR
over FY16-20E due to growing captive needs of the formulation business.
Similarly, PFI segment is also likely to grow at 11-12%CAGR over FY16-20E, much lower
than the earlier growth of 20% over last five years. We believe augmented PFI capacity
is only likely to support growth over next 2-3 years.
Auctus acquisition to be key driver over medium term
GRAN is one of the largest producers of APIs in key product categories, with an
installed capacity of 25,760MTPA for APIs, and is a global leader in Ibuprofen,
Paracetamol, Metformin, Guaifenesin and Methocarbamol. Post the Auctus
acquisition, GRAN has expanded its product offerings to 19 molecules. Despite being
in a commoditized business, GRAN grew its API business at a CAGR of 21% over
FY11-16E while maintaining profitability and remaining price-competitive due to
continuous improvement in manufacturing processes and economies of scale. We
believe GRAN would maintain leadership in the top-5 molecules and the key growth
driver would be the Auctus portfolio and new filings. We estimate 10% revenue
CAGR over FY16.
Exhibit 11: API sales
Base business (INR b)
Auctus sales (INR b)
-
2
FY11
-
3
FY12
-
3
FY13
-
4
FY14
1
2
2
3
3
3
5
FY15
4
FY16E
4
FY17E
4
FY18E
5
FY19E
5
FY20E
Source: Company, MOSL
Exhibit 12: Auctus portfolio
Molecules
Cetirizine Di-HCL
Levocetirizine Di-HCL
Losartan Potassium
Olmesartan Medoxomil
Telmisartan
Valsartan
Clopidogrel Bisulphate
Doxylamine Succinate
Fluconazole
Pantoprazole Sodium
Pregabalin
Rifaximin
+
Zidovudine
Therapeutic Category
Antihistamine
Antihistamine
Antihypertensive
Antihypertensive
Antihypertensive
Antihypertensive
CVS
Analgesic
Systemic Antifungal
Anti-ulcerative
CNS
Anti-infective
Antiviral
EU CEP
Filed
.
Filed
Filed
Filed
Filed
Approved
.
Filed
Filed
Approved
Filed
.
US
Filed
Filed
Filed
South Korea
Approved
Approved
Health Canada IDL China
Approved
Approved
.
Approved
.
AIFA (Italy)
Filed
Approved
Filed
Approved
Approved
Approved
Filed
Approved
Filed
Mylan, USDMF .
Filed
Source: Company, MOSL
28 March 2016
11

Granules India | At a strategic inflection point
Exhibit 13: Global market size of Auctus products (formulations)
Valsartan
Clopidogrel
Pregabalin
Olmesartan
Pantoprazole
Losartan
Telmisartan
Cetirizine
Fluconazole
Rifaximin
Levocetirizine
Doxylamine
Market size (USD b)
8.7
5.2
4.8
4.5
3.4
3.2
3.1
1
1
0.8
0.6
0.6
Volume - MT
1054
572
342
97
338
662
259
58
87
85
15
40
Augmented PFI capacities to support two-year growth
A PFI is the intermediate product between an API and a finished dosage. GRAN
has pioneered the concept of commercializing PFIs, enabling customers to
outsource the costliest component (~80% of asset cost) of finished dosage
manufacturing. GRAN offers large capacity and batch sizes, giving price-value
proposition and effective supply chain management. The use of PFIs also
reduces process time leading to substantial reduction in working capital and
vendors.
GRAN grew its PFI business at a CAGR of 20% over FY11-16E. Capacity
constraints had led to growth declining to -3% in FY15. Post the introduction of
additional capacity of 4,000MTPA in FY16, GRAN has delivered 24% growth in
9MFY16 and is running its plant at 70% utilization levels. We believe the
enhanced capacity of 18,400MTPA would only be enough to support 18-20%
CAGR over the next two years. Post FY18E, we believe GRAN would need to
expand its PFI capacities to support growth ahead.
Multiple molecules
Paracetamol and Chlorpheniramine Maleate
Paracetamol and Diphenhydramine HCl
Ibuprofen and Pseudoephedrine HCl
Paracetamol and Caffeine
Exhibit 14: PFI product portfolio
Single molecule
Paracetamol/Acetaminophen
Metformin HCl
Ibuprofen
Guaifenesin
Methocarbamol
Ciprofloxacin
Source: Company, MOSL
Exhibit 15: PFI revenues to grow at 11%CAGR over FY16-20E
PFI sales (INR m)
1.5
FY11
2.0
FY12
2.2
FY13
3.2
FY14
3.1
FY15
3.8
FY16E
4.5
FY17E
5.1
FY18E
5.5
FY19E
5.9
FY20E
Source: Company, MOSL
28 March 2016
12

Granules India | At a strategic inflection point
Legacy business : Top 5 molecules covers 85% sales
GRAN had begun its business by manufacturing Paracetamol, Ibuprofen and CPM APIs.
From 9,744MTPA capacity in FY08, it expanded its base business to 5 molecules and
total capacity of 25,760MTPA in FY16E.
It plans to expand capacity to 29,760MTPA by FY20 to accommodate the growth in
internal consumption of Paracetamol and meet the growing demand for
Metformin/Guaifenecin molecules across the globe. At present, top five molecules
contribute 85% of its total sales.
GRAN’s base business covers 75% of the overall analgesics (Paracetamol, Ibuprofen)
and 49% of the overall diabetes market (Metformin). Paracetamol, Ibuprofen and
Metformin have maintained their status as the first line of defense in their
respective segments and have no direct replacements in the pipeline.
Exhibit 16: Analgesics molecule-wise share (%)
Paracetamol
Aspirin
Ibuprofen
58
Analgin
Naproxen
Others
27
2
7
49
Exhibit 17: Anti-diabetic molecules-wise share (%)
6 12
16
14
Metformin
GLP -1
Sulfonylurea
DPP-4
Thiazolidine Others
17
Source: Company, MOSL
Source: Company, MOSL
Exhibit 18: Product mix changing
Paracetamol
7
43
24
10
53
Metformin
6
51
23
17
45
2012
Ibuprofen
4
52
21
22
48
2013
Guaifenesin
Methocarbamol
4
2
6
22
25
41
2014
Others
12
52
16
23
41
2015
Source: Company, MOSL
2011
Paracetamol
At present, there are very few players with approved Paracetamol API capacities to
sell in regulated markets. GRAN is the second-largest player in this category and has
expanded capacity to 18,000MTPA in FY16. However, increased Paracetamol API
capacities are likely to be used more for captive consumption (formulations) and for
other CMOs.
28 March 2016
13

Granules India | At a strategic inflection point
Exhibit 19: Paracetamol product revenues grew at 20% CAGR over FY11-15
Paracetamol
24.6
16.9
% YoY growth
22.5
18.0
2,518
2011
2,943
2012
3,667
2013
4,494
2014
5,301
2015
Source: Company, MOSL
GRAN had entered into a JV with China-based Biocause in 2006. As per this JV,
Biocause had transferred its facility for Ibuprofen in Wuhan, China. Currently, it has
4,800MTPA capacity and is among the top five sellers of this product globally.
Exhibit 20: Ibuprofen product revenue grew at 16% CAGR over FY11-15
Ibuprofen
% YoY growth
50.3
31.9
6.7
1,140
2011
1,504
2012
1,604
2013
2,411
2014
2,069
(14.2)
2015
Source: Company, MOSL
Ibuprofen (Anti-analgesic/Pain)
Metformin (Anti Diabetes)
The market for Metformin is growing at 8-9% due to increasing demand for diabetes
drugs across the globe. This is also a first line therapy for diabetes and is unlikely to
see competition over the foreseeable future. GRAN intends to expand its existing
Metformin capacities from 2,000MTPA to 9,000MTPA in two phases. Currently, USV
is the largest Metformin API producer in the world, with 10,000MTA capacity.
Exhibit 21: Base business growth driven by Metformin sales (58% CAGR over 2011-15)
Metformin
134.1
2,974
51.2
63.0
% YoY growth
475
2011
1,112
2012
1,681
2013
2,740
2014
8.5
2015
Source: Company, MOSL
28 March 2016
14

Granules India | At a strategic inflection point
Methocarbamol and Guaifenesin (Cold and Cough)
GRAN is one of the few global companies that supply Methacarbomol and
Guaifenesin. It increased its Methacarbomol capacities from 96MTPA in FY08 to
360MTPA in FY15. Similarly, it has increased its Guaifenesin capacities from
640MTPA to 1,200MTPA in FY15 and plans to add another 2,000MTPA over the next
few years.
Exhibit 22: Guaifenesin revenues (36% CAGR)
Guaifenesin
72.1
% YoY growth
72.1
Exhibit 23: Methocarbamol revenues (16% CAGR)
Methocarbamol
133.6
43.5
% YoY growth
16.8
(1.7)
190
2011
327
2012
382
2013
658
2014
647
2015
143
2011
(54.1)
65
2012
153
2013
219
2014
18.0
259
2015
Source: Company, MOSL
Source: Company, MOSL
Exhibit 24: API capacities of top five molecules
Paracetamol Regulated Market Suppliers (MTPA)
Mallinckrodt
Granules
Novocel
Ibuprofen Suppliers (MTPA)
Shasun
IOL Chemicals
Albemarle
BASF
Granules Biocause
Metformin Suppliers (MTPA)
Granules
USV Ltd
Wanbury
Harman
Methocarbamol Suppliers (MTPA)
Granules
Synthochem
Guaifenesin Suppliers (MTPA)
Granules
Synthochem
25,000
18,000
6,000
6,000
6,000
5,200
5,000
4,800
2,000
10,100
9,000
6,000
200
250
1,200
800
Source: Company, MOSL
28 March 2016
15

Granules India | At a strategic inflection point
Joint ventures (Biocause & Omnichem)
Till date, GRAN has entered into two joint ventures – 1. With Hubai Biocause for
Ibuprofen supplies and 2. With Omnichem for high value API supplies.
We believe Omnichem JV could be a big step ahead for GRAN towards transition from a
commoditized capacity-driven base business to high quality oncology APIs. Besides de-
risking, it will provide a steady stream of revenues with healthy margins.
Biocause JV: Established in FY06
Partner profile:
Hubei Biocause is a public listed company, involved in
Pharmaceuticals, Chemicals and New Energy Fuel businesses. Biocause’s
Pharmaceuticals business involves Contract Research, Contract Manufacturing and
production of APIs, intermediates and formulations including tablets, granules and
capsules.
Biocause is one of the leading pharmaceutical product producers and exporters to
China, with a strong Production, R&D and Quality system. The company has 8 APIs
registered with FDA and 4 APIs with CEP at present.
Joint venture details:
The joint venture between Biocause and GRAN had set up a
facility in Wuhan, China to manufacture Ibuprofen for regulated markets. Currently,
it is operating at 4,800MTPA capacity, putting it among the five largest Ibuprofen
suppliers in the world.
Granules-Omnichem JV: Established in FY15
Partner profile:
Ajinimoto-Omnichem is a Belgium-based company that specializes
in manufacturing pharmaceutical products and fine chemicals. It is a wholly-owned
subsidiary of Japan-based Ajinimoto Co Inc (known for amino acids and food
products). Omnichem, a division of Ajinimoto-Omnichem, focuses on developing
and manufacturing intermediates and active ingredients for the pharmaceutical
industry (CRAMs).
Each project is supported by an R&D team of around 80 people that works on
integrating the first lab experiments and pilot trials to full industrial production
while maintaining the confidentiality.
Joint venture details:
Granules-Omnichem is a 50:50 JV between GRAN and
Ajinimoto-Omnichem, Belgium. Omnichem would be transferring large scale
production of intermediates and APIs to Granules-Omnichem. It will also provide full
support for quality, engineering, tech transfer, procurement, sales and
management-related matters. By FY17, till its facility in Vizag receives FDA approvals
from various authorities, the JV will continue to manufacture various intermediates
for Omnichem.
28 March 2016
16

Granules India | At a strategic inflection point
Once it receives FDA approvals, the JV would start manufacturing high value APIs for
Omnichem’s CRAMs customers. These APIs are likely for innovators and MNCs to
compete with generic players.
Omnichem JV sales are expected to reach INR5.5b by FY20E
At present, this business contributes INR250m to overall Granules sales. However,
upon required regulatory approvals for products, Omnichem JV sales are expected
to reach a peak of INR5.5b by FY20E. These product approvals should kick in from
FY18. Until then, the JV would continue supplying intermediates for Omnichem from
this facility, with expected sales of INR750m in FY17. It is likely to achieve 25%+
EBITDA margins by selling high value APIs (Oncology, CVS, etc) to innovators.
Exhibit 25: Expect significant ramp up post FY17
Omnichem sales (INR m)
To supply
intermediate
till FY17E
Scale up
expected
on API approvals
0
FY15
250
FY16E
750
FY17E
1,250
FY18E
1,750
FY19E
2,250
FY20E
Source: Company, MOSL
28 March 2016
17

Granules India | At a strategic inflection point
Strong regulatory history
At present, the business is operating through 6 API/intermediate facilities, 2 PFI
facilities and 2 formulation facilties. There is also one API facility under construction
for multiproduct APIs in Vizag.
Historically, GRAN has demonstrated strong regulatory record, with no warning letter
or import alert for any facility. Over the last 8 inspections done by US FDA across its
facilities, GRAN has either received no observations or a few minor 483s.
Exhibit 26: List of plants and recent inspection outcome
Locations
API facilities
Jeedimetla
Bothapally 1
Bothapally 2
Wuhan
Vizag 1
Vizag 2
Vizag 3
PFI facilties
Jeedimetla
Gagilapur
FD facilties
Gagilapur
US
Products
Metformin, Methocarbamol,
Guainfenecin
Paracetamol
Intermediate (Auctus)
Ibuprofen
Multiproduct (Auctus)
Oncology (Omnichem JV)
Multiproduct (Granules Life)
Multiproduct small scale
Multiproduct large scale
Approvals
USFDA, KFDA, TGA, EDQM approved
USFDA, WHO, GMP, EDQM,
Infarmed (EU) approved
USFDA, EDQM, TPD – Canada, MCC
approved
US FDA approved
Yet to approve
Under Development
USFDA, Australian TGA, German HA
approved
USFDA, German HA, Australian TGA
approved
Infarmed (EU), USFDA approved
16th March 2015
No observations
Last inspection
21st December
2015
16th June 2014
Result
No observations
No observations
September 2013
21st December
2015
Not Available
Three
observations
Tablets
Complex product filings
16th March 2015
Not applicable
No observations
Source: Company, MOSL
28 March 2016
18

Granules India | At a strategic inflection point
Capacity ramp-up progressing well
Augmented capacities to support base as well as emerging business
GRAN is going to increase the API capacities of Paracetamol, Metfomin and Guaifenecin
by 25-30%, 3.5x and 2.7x, respectively, which will support both base and emerging part
of the business.
In FY16, GRAN has also increased its PFI capacity by 38-40% to 18,400MTPA. This
debottlenecking is likely to support 16-18% PFI revenue CAGR over the next two years.
API capacities:
GRAN’s existing API business is primarily driven by higher capacities
that augment production yield for five APIs and improve profitability.
Over the years, GRAN has increased Paracetamol capacities from 8,000MTPA to
18,000MTPA, becoming the second largest Paracetamol producer in the world for
regulated markets, behind Mallinckrodt. Given the growing demand for internal as
well as external consumption of Paracetamol in regulated markets, GRAN expanded
its API capacities through de bottlenecking.
Similarly, it intends to expand Metformin capacities in two phases from the existing
2,000MTPA to 5,500MTPA in FY18 and to 9,000MTPA by FY20. Post expansion,
GRAN would become one of the top three Metformin API producers in the world.
The Metformin API market is currently growing at 8-10% per year, reflecting healthy
demand for Metformin molecules due to combination products.
Exhibit 27: Growing API capacities
Paracetamol
Metformin
Ibuprofen
Guanfenesin
Methocarbamol
FY08
8,000
960
3,600
640
96
FY12
10,000
2,000
4,800
1,200
180
FY15
14,400
2,000
4,800
1,200
360
FY16
18,000
2,000
4,800
1,200
360
FY18
18,000
5,500
4,800
3,200
360
FY20
18,000
9,000
4,800
3,200
360
Source: Company, MOSL
PFI capacities:
GRAN has one of the largest PFI capacities in the world at Gagilarpur
in Andhra Pradesh, India. It is the only company in the world with capacity to handle
6MT PFI batch size. This gives GRAN significant edge over competitors in terms of
scale and profitability. In FY16, GRAN has already expanded its PFI capacity to
18,400MTPA from 13,200MTPA in FY15. These PFI capacities are operating at 70-
75% utilization – enough to support 17-18% growth in existing PFI business over the
next two years.
28 March 2016
19

Granules India | At a strategic inflection point
Exhibit 28: PFI capacities at 18,400MTPA
PFA
18,400
13,200
7,200
13,200
18,400
FY08
FY12
FY15
FY16
FY18
Source: Company, MOSL
Finished dosages capacity:
GRAN had set up its first formulation facility in FY08,
with an annual capacity of 6b tablets. In FY12, it tripled this capacity to 18b tablets.
It is still operating at 50-55% utilization and can comfortably support 26-30%
revenue CAGR in the existing formulations business over the next two years.
Exhibit 29: Finished dosage capacity at 18b tablets
FD
18
18
18
18
6
FY08
FY12
FY15
FY16
FY18
Source: Company, MOSL
Exhibit 30: Utilization levels of base business (%)
100
73
53
API
PFI
FDs
Source: Company, MOSL
28 March 2016
20

Granules India | At a strategic inflection point
Business fundamentals to improve further
Strong track record
GRAN has recorded 28% revenue CAGR over FY11-15, led by 42% CAGR in finished
dosages, 20% CAGR in PFIs and 27% CAGR in APIs. It has demonstrated strong
performance across segments over the last five years. Its business mix has also
improved substantially, with low margin API contribution declining from 46.4% in
FY11 to 39.6% in FY16, which we believe will further reduce to 34.4% in FY18.
Exhibit 31: Revenue grew at 28% CAGR over FY11-15
Revenues (INR b)
37.6
16.9
3.1
4.8
6.5
7.6
43.4
22.5 24.4
19.0 19.9
10.2
11.0 12.9 14.2 17.0 20.3 24.9 31.0
46
33
21
40
31
29
44
29
27
39
29
32
44
24
32
%YoY growth
Exhibit 32: High margin business contribution increasing
Formulations (%)
PFI (%)
2
39
27
31
API (%)
4
38
26
32
Omnichem (%)
6
34
25
34
7
30
22
41
7
26
19
48
18.0
Source: Company, MOSL
Source: Company, MOSL
Strengthening balance sheet
GRAN has INR958m (USD14m-15m) of cash and INR3.9b (USD57m-58m) of debt on
its books. We expect it to repay INR1b debt over FY17-18, resulting in comfortable
D/E ratio of 0.3x by FY18 (down from 0.7x in FY16E).
GRAN is likely to incur capex of INR4b-4.5b over the next two years to address
existing and future capacity constraints as well as to invest in medium-term R&D
and manufacturing projects. The capex would be funded through equity (INR2b) and
internal accruals (INR2.5b).
Exhibit 33: Likely to incur capex of INR4b-4.5b over two
years
Capex (INR m)
2,649
2,504
1,533
1,063
41.9
2,024 2,115
(37.0) (29.5)
236 -294 -251
(99.2)
-1,570
597
Exhibit 34: Free cash flows to improve, going ahead
Free Cashflows (INR m)
28.6 36.5
(10.2)
977 -337 1,369 1,700 2,745
FCF/EBITDA (%)
32.7 31.2 38.5
1,163
250
550
1,273
Source: Company, MOSL
Source: Company, MOSL
28 March 2016
21

Granules India | At a strategic inflection point
Exhibit 35: D/E ratio to decline to 0.3x by FY18E
Cash (INR m)
1.2
0.8
0.6
2,036
123 1,210 322
514
FY11
FY12
2,705
419
FY14
655
FY15
1.0
1.0
0.6
4,417
4,331
3,831
1,345
FY16E
3,331
0.4
1,329
FY17E
FY18E
1,660
0.3
2,831 2,331
0.2
2,218
FY19E
1,831
0.1
FY20E
3,609
Debt (INR m)
D/E (x)
FY13
Source: Company, MOSL
RoCE to improve with better margins
Increasing contribution from high margin businesses, improved productivity, higher
operating leverage from better plant utilization, and currency benefits have resulted
in significant margin expansion over the last two years. This is likely to continue over
the next two years, with entry into the US, increasing contribution from high growth
and high margin finished dosages business, and higher operating leverage from
Auctus and Omnichem. We see RoE improving from 24% in FY16 to 37% in FY20E.
Exhibit 36: Healthy return ratios
ROE (%)
ROCE (%)
19.8
11.2
9.9
15.2
24.4
19.3 23.1
27.1
26.8
29.5
11.8 12.1 11.1
14.4
32.2
36.8
Exhibit 37: EBITDA margin to expand to 20.8%
EBITDA (INR b)
16.1
EBITDA margin (%)
23.0
20.6 21.9
18.8 19.4
22.8 21.3 23.3
12.9
23.9 23.1
12.9 12.5
1
1
1
2
2
3
3
4
5
7
Source: Company, MOSL
Source: Company, MOSL
Dividend policy
In FY16, GRAN distributed INR216m in dividends – a 21% dividend payout. Despite
being in a high growth phase, GRAN has consistently shared profits with investors.
We believe it is likely to maintain its payout ratio in the range of 17 to 20% over the
next few years.
Exhibit 38: Substantial part of profits are shared with investors
Dividend (INR m)
16.7
15.6
Pay out (%)
22.8
17.1
11.0
13.6
18.5
19.4
20.5
14.4
30
FY11
40
FY12
40
FY13
71
FY14
102
FY15
222
FY16E
222
FY17E
342
FY18E
506
FY19E
741
FY20E
Source: Company, MOSL
28 March 2016
22

Granules India | At a strategic inflection point
Equity infusion – To fund growing capex
At the AGM held on 13 August 2015, the Board of Directors and shareholders had
approved the issuance of 4.1m warrants to MD & promoter, Mr Krishna Prasad. On 31
October 2015, all the warrants were converted to equivalent number of shares at
INR85.9/share, on receipt of the full amount of INR352m.
At the EGM held on 24 August 2015, the Board of Directors and shareholders had also
approved the issuance of 18.656m warrants to promoter group company. GRAN is
expected to receive INR1.78b from this conversion at the rate of INR95.3/warrant.
Overall, GRAN will raise INR2.12b funds though promoters. This will be used to fund
capex for the next two years and to reduce existing debt. Rest of the funding for capex
is likely to be through internal accruals.
However, we believe, post FY18, GRAN would need another round of capex to
augment formulations capacities and for additional spend on warehouses and
packaging facility in the US in case of successful ramp-up of the OTC part of the
business.
Exhibit 39: Utilization of funds over next two years
Purpose
Metformin and Guaifenecin capacity addition
R&D spend
Vizag greenfield API facility
US facility upgradation
Maintenance
Total Spend
Spend (INR m)
700
700
1,500
800
800
4,500
Source: Company, MOSL
Exhibit 40: Enough surplus cash flow to fund capex demands
CFO (INR b)
Capex needs (INR b)
Finances Equity & Debt (INR b)
0.9 1.2 0.5 1.1
2.6
1.5 1.9 1.3
-0.4
2.0 1.1
-0.4
FY16E
2.2 2.5
0.2
2.9
3.7
1.5
-1.2
2.0
-1.3
FY19E
4.9
2.1
-1.5
FY20E
FY13
FY14
FY15
FY17E
FY18E
Source: Company, MOSL
28 March 2016
23

Granules India | At a strategic inflection point
Valuation and view
Over the last five years, GRAN reported 45% earnings CAGR on improved
profitability, higher operating leverage and superior business mix. It expanded its
finished dosages business at a CAGR of 42% over FY11-15, leading to higher
profitability and improved utilization of the existing capacity of 18b tablets.
Profitability of the PFI business has also improved substantially, with the
implementation of 6MT order capacity. As a result, GRAN has expanded its EBITDA
margins from 11.8% in FY11 to 18.8% in FY16E.
Going ahead, we expect 39-40% earnings CAGR to continue for next four years,
supported by 22% revenue CAGR and 420bp margin expansion. Our target price of
INR160 discounts GRAN’s FY18E EPS at 16x, which (a) is at 25-30% discount to sector
average, and (b) implies a PEG of 0.4x (FY15-18E EPS CAGR of 39%).
GRAN is currently trading at 22.9x FY16E, 18.2x FY17E and 12.8x FY18E EPS – at 55%
discount to sector average, which is unjustified, in our view. We argue for a P/E re-
rating for GRAN, given (a) strong EPS outlook – 39% CAGR, backed by 22% revenue
CAGR and 25% EBITDA CAGR, (b) RoCE improvement from 19.3% to 29.3% by FY18,
and (c) deleveraging – we expect net D/E to improve to 0.1x by FY18 (v/s 0.9x now).
Key catalysts to drive stock’s performance over the medium term
Finished dosages product approvals from regulated markets.
Greater traction in Auctus portfolio.
Higher than expected realizations from Omnichem JV.
Risks to our investment thesis
Pricing pressure on existing products.
Regulatory risks related to already approved manufacturing facilities.
Exhibit 41: Our TP of INR160 is based on 16x FY18E PER (25% discount to sector average)
FY18E EPS
9.8
Target multiples
16.0
Target Price
160
% Upside
32
Source: Company, MOSL
Exhibit 42: Comparison with peers
Mkt
Granules India
Marksans
Shilpa Medicare
Dishman
Jubilant Life
IPCA
CMP
122
49
423
340
429
570
CAP
375
296
480
404
1,005
1,059
FY17E
17.5
12.0
24.9
13.2
11.3
18.9
P/E
FY18E
12.2
9.5
14.8
10.5
8.8
13.9
EV/EBITDA
FY17E
FY18E
8.6
6.6
7.4
5.7
16.4
10.4
7.4
6.4
7.0
6.0
11.5
9.0
RoE (%)
FY17E
FY18E
22.0
23.3
29.6
29.2
17.4
22.8
13.9
14.9
19.4
19.9
15.2
17.8
Source: Company, MOSL
28 March 2016
24

Granules India | At a strategic inflection point
Exhibit 43: Valuation metrics
MCap
Name of Company
Sun Pharma
Lupin
Dr. Reddy's Labs
Cipla
Aurobindo
Cadila Healthcare
Divi's Labs
Glenmark Pharma
Torrent Pharma
Alkem
Alembic Pharma
IPCA Labs
Biocon
Granules India
GSK Pharma
Sanofi India
INR b
31
12
8
6
6
5
3.8
3.0
3.2
2.3
1.8
1.1
1.4
0.4
4.0
1.4
FY15
43.0
28.0
23.3
37.3
27.6
27.4
30.3
46.7
40.8
35.8
41.3
30.5
23.8
27.0
58.8
47.9
P/E (x)
FY16E
40.7
30.1
19.9
22.8
22.3
20.9
24.4
27.4
21.2
22.3
23.6
55.4
21.8
22.0
79.6
39.7
FY17E
24.5
20.5
19.7
21.2
17.1
22.0
20.5
20.5
19.0
19.6
21.0
23.3
18.3
17.5
58.5
28.5
FY18E
20.8
16.6
16.6
15.7
13.5
15.2
16.8
16.8
15.1
15.8
17.4
15.1
15.8
12.3
46.9
23.6
FY15
26.4
24.4
16.5
19.1
16.2
19.3
21.7
19.7
22.9
29.6
29.5
14.8
14.2
14.4
41.3
25.9
EV/EBITDA (x)
FY16E
24.2
27.8
13.2
14.1
12.9
15.0
18.3
14.5
8.4
17.8
10.5
21.2
12.6
10.7
58.4
18.8
FY17E
17.2
18.0
12.8
11.7
10.4
14.2
14.8
9.3
12.9
15.0
14.6
12.4
10.2
8.6
38.7
15.4
FY18E
14.3
14.4
10.4
9.0
8.2
10.1
11.9
8.0
10.4
11.6
11.6
8.9
8.4
6.6
30.3
13.3
FY15
21.5
30.4
19.9
13.7
35.4
30.8
26.3
15.8
25.7
18.4
36.3
12.0
12.3
23.1
23.1
13.3
RoE (%)
FY16E
17.5
22.8
19.5
15.7
32.1
31.3
27.9
17.9
34.1
22.4
40.0
6.1
11.8
22.8
24.8
14.2
FY17E
21.7
27.1
17.0
15.8
31.0
25.2
28.5
18.6
28.4
21.2
31.1
13.5
12.8
21.3
37.3
18.0
FY18E
24.0
26.4
17.2
18.5
29.4
29.5
29.7
18.0
29.6
22.1
29.5
18.1
13.4
23.3
47.2
19.5
EPS
CAGR,%
FY15-
18E
26.0
18.9
12.1
33.3
26.8
21.7
21.8
40.8
39.1
31.3
33.3
26.5
14.6
30.0
7.8
26.7
Exhibit 44: Healthcare sector P/E at 22x for last five years
34
28
22
16
10
22.4
Healthcare Sector PE (x)
LPA (x)
Source: Company, MOSL
Exhibit 45: Granules India trades at 15x at CMP
25
20
15
10
5
0
14.5
P/E (x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Source: Company, MOSL
28 March 2016
25

Granules India | At a strategic inflection point
Sensitivity analysis indicates favorable risk/reward
Our sensitivity analysis suggests that in the bull case, there could be an upside of
over >55% to CMP, and in the bear case, there is limited downside.
Bull case assumption shows >55% upside
Earlier than expected ANDA approvals in US.
EBITDA margins at 21.8%, 120bps higher than base case.
Moderate tax rates at 29%.
Bear case assumption suggests limited downside
Lower than expected ramp up in the US.
EBITDA margins at 19.6%, 100bps lower than base case.
Exhibit 46: Sensitivity Analysis
Revenue
EBITDA
EBITDA margin (%)
PBT
Tax rate (%)
PAT
EPS
Multiple
Target Price
% return
Bear Case
18,737
3,673
19.6
2,668
30.0
1,867
8.2
14.0
115
-5.8%
Base Case
20,333
4,189
20.6
3,194
30.0
2,235
9.8
16.0
160
31.5%
Bull Case
21,058
4,591
21.8
3,600
29.0
2,556
11.2
17.0
191
56.6%
Source: Company, MOSL
28 March 2016
26

Granules India | At a strategic inflection point
About Granules India
Incorporated in 1991, the Hyderabad-based Granules India (GRAN) is a vertically
integrated manufacturer of pharmaceutical products. It is among the largest
manufacturers of Paracetamol and Iboprofen in the world. It derives 63% of its
business from Europe and the US. GRAN also has a formulations plant, with a
capacity to produce 18b tablets per annum. It has its own Abbreviated New Drug
Applications (ANDAs) and dossiers. GRAN services more than 300 customers across
60 nations (exports are ~87% of revenues).
Changing business mix
Exhibit 47: Business mix (FY11)
Exhibit 48: Business mix (FY16E)
Omnic
hem
(%)
2%
API (%)
39%
PFI
33%
Exhibit 49: Business mix (FY18E)
Omnic
hem
6%
FD
21%
API
46%
FD (%)
32%
API (%)
34%
PFI (%)
25%
FD (%)
35%
PFI (%)
27%
Source: Company, MOSL
Strong management team at the helm
Mr Krishna Prasad (MD)
is the Founder of Granules India. He has three decades
of experience in the pharmaceuticals industry. In 1984, he set up a Paracetamol
manufacturing facility, which has become one of the world's most reputed
manufacturers of Paracetamol for regulated markets.
Ms Uma Chigurupati (Executive Director)
has rich experience of 29 years in
various fields. She had co-founded Triton Laboratories Private Limited with Mr
Krishna Prasad in 1984. Triton was later amalgamated with Granules India.
Mr Harsha Chigurupati (Executive Director)
has been with Granules India since
2005 and served as CMO from 2006 to 2010. As CMO, Mr Chigurupati was
instrumental in commercializing the Finished Dosage Division and shifted the
company's focus to marquee customers in regulated markets.
Mr VVS Murthy (CFO)
has three decades of experience in Finance across various
industries including nearly two decades in pharmaceuticals. Mr Murthy was
previously Group Chief Financial Officer at Dishman Pharmaceuticals; his role
encompassed Indian operations and nine international operations. Prior to that,
Mr Murthy was VP - Finance at Dr Reddy's, where he helped execute several
international M&A transactions.
28 March 2016
27

Granules India | At a strategic inflection point
Story in charts
Exhibit 50: Revenues to grow at 22% CAGR (FY16-20E)
Revenues (INR b)
37.6
43.4
22.5 24.4
19.0 19.9
10.2
11.0 12.9 14.2 17.0 20.3 24.9 31.0
46
33
21
40
31
29
44
29
27
39
29
32
44
24
32
%YoY growth
Exhibit 51: Formulation contribution to increase
Formulations (%)
PFI (%)
2
39
27
31
API (%)
4
38
26
32
Omnichem (%)
6
34
25
34
7
30
22
41
7
26
19
48
16.9
3.1
4.8 6.5
7.6
18.0
Source: Company, MOSL
Source: AIOCD, MOSL
Exhibit 52: EBITDA margins to expand to 23% by FY20E
EBITDA (INR b)
EBITDA margin (%)
23.0
20.6 21.9
18.8 19.4
Exhibit 53: FCF to scale up from FY18E
Free Cashflows (INR m)
41.9
(37.0) (29.5)
236
-294 -251
(99.2)
597
28.6 36.5
(10.2)
977 -337 1,369 1,700 2,745
FCF/EBITDA (%)
32.7 31.2 38.5
11.8 12.1 11.1
14.4
16.1
1
1
1
2
2
3
3
4
5
7
-1,570
Source: AIOCD, MOSL
Source: AIOCD, MOSL
Exhibit 54: Capex needs to continue with growth
Capex (INR m)
2,649
2,504
1,273
1,533
1,063
2,024 2,115
Exhibit 55: Earnings to grow at 38% CAGR
EPS (INR/share)
1,163
250
550
1.0
1.5
1.6
3.7
4.5
5.4
6.9
9.8
13.8 19.1
Source: AIOCD, MOSL
Source: AIOCD, MOSL
28 March 2016
28

Granules India | At a strategic inflection point
Financials and valuations
Consolidated - Income Statement
Y/E March
Income from Operations
Less: Excise Duty
Total Income from Operations
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
7,838
194
7,644
16.9
851
11.1
231
620
177
21
464
0
464
124
14
29.7
326
326
8.8
4.3
FY14
11,167
209
10,959
43.4
1,583
14.4
298
1,285
204
43
1,124
0
1,124
305
66
33.0
753
753
130.8
6.9
FY15
13,279
350
12,929
18.0
2,086
16.1
527
1,560
323
43
1,280
0
1,280
287
83
29.0
909
909
20.8
7.0
FY16E
14,568
321
14,248
10.2
2,679
18.8
626
2,053
408
85
1,730
0
1,730
554
0
32.0
1,177
1,177
29.4
8.3
FY17E
17,343
382
16,962
19.0
3,291
19.4
731
2,560
358
102
2,304
0
2,304
737
0
32.0
1,566
1,566
33.1
9.2
FY18E
20,791
457
20,333
19.9
4,189
20.6
878
3,311
247
122
3,187
0
3,187
956
0
30.0
2,231
2,231
42.4
11.0
(INR Million)
FY19E
25,462
560
24,902
22.5
5,454
21.9
995
4,459
181
149
4,428
0
4,428
1,284
0
29.0
3,144
3,144
40.9
12.6
FY20E
31,679
697
30,983
24.4
7,126
23.0
1,121
6,005
146
186
6,046
0
6,046
1,693
0
28.0
4,353
4,353
38.5
14.0
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans & Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Deferred Tax assets
Misc Expenditure
Appl. of Funds
E: MOSL Estimates
FY13
201
2,547
2,749
258
2,705
5,712
3,874
1,240
2,635
1,088
97
3,007
1,365
710
417
515
1,128
918
143
68
1,879
14
0
5,712
FY14
203
3,357
3,560
403
4,417
8,380
6,539
1,714
4,825
1,246
2
3,848
1,742
1,109
418
580
1,640
1,355
162
123
2,208
100
0
8,379
FY15
204
4,107
4,312
493
4,331
9,136
8,438
2,272
6,166
620
2
5,184
2,245
1,326
653
959
2,836
1,887
774
175
2,348
0
0
9,136
FY16E
216
5,808
6,024
493
3,831
10,348
9,438
2,898
6,540
684
2
6,257
2,396
1,462
1,343
1,057
3,135
2,014
853
268
3,122
0
0
10,348
FY17E
228.0
8,439
8,667
493
3,331
12,491
11,438
3,628
7,809
1,187
2
7,156
2,831
1,740
1,327
1,258
3,663
2,379
1,015
268
3,493
0
0
12,491
FY18E
228
10,257
10,485
493
2,831
13,809
12,938
4,506
8,432
1,220
2
8,595
3,343
2,086
1,658
1,508
4,439
2,810
1,217
413
4,156
0
0
13,809
FY19E
228
12,790
13,018
493
2,331
15,842
14,688
5,500
9,187
1,494
2
10,645
4,027
2,554
2,216
1,847
5,486
3,385
1,490
611
5,159
0
0
15,842
FY20E
228
16,249
16,477
493
1,831
18,801
16,438
6,621
9,817
1,859
2
14,024
4,940
3,178
3,608
2,298
6,900
4,152
1,854
894
7,123
0
0
18,801
28 March 2016
29

Granules India | At a strategic inflection point
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Cap. Turnover (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
FY13
1.6
2.8
13.7
0.2
14.4
FY14
3.7
5.2
17.6
0.4
11.0
33.7
24.1
7.1
2.8
19.1
0.3
23.9
19.8
1.3
58
36
77
60
2.3
6
1.2
FY15
4.5
7.0
21.1
0.5
13.6
28.1
17.8
5.9
2.3
14.4
0.4
23.1
19.3
1.4
63
36
92
48
1.8
5
1.0
FY16E
5.4
8.3
27.9
1.0
22.8
22.9
15.0
4.5
2.0
10.7
0.8
22.8
23.1
1.4
61
37
96
46
2.0
5
0.6
FY17E
6.9
10.1
38.0
1.0
17.1
18.2
12.4
3.3
1.7
8.6
0.8
21.3
24.4
1.4
61
37
98
47
2.0
7
0.4
FY18E
9.8
13.6
46.0
1.5
18.5
12.8
9.2
2.7
1.4
6.6
1.2
23.3
27.1
1.5
60
37
99
45
1.9
13
0.3
FY19E
13.8
18.1
57.1
2.2
19.4
9.1
6.9
2.2
1.1
4.8
1.8
26.8
32.2
1.6
59
37
100
43
1.9
25
0.2
FY20E
19.1
24.0
72.3
3.3
20.5
6.5
5.2
1.7
0.8
3.4
2.6
29.5
36.8
1.6
58
37
100
41
2.0
41
0.1
0.2
12.5
12.9
1.3
65
33
72
70
2.7
4
1.0
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
CF from Operating incl EO
(inc)/dec in FA
Others
CF from Investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
463
231
165
-112
146
893
912
-1,163
-20
-1,278
6
682
-178
-47
463
97
320
417
FY14
1,124
298
190
-238
-310
1,064
1,080
-2,649
8
-2,546
11
1,709
-205
-47
1,467
0
417
417
FY15
1,280
527
280
-371
95
1,811
1,870
-1,273
43
-1,230
1
-86
-323
-123
-404
236
417
653
FY16E
1,730
626
323
-554
-84
2,040
2,040
-1,063
85
-978
804
-500
-408
-268
-373
690
653
1,343
FY17E
2,304
731
256
-737
-387
2,167
2,167
-2,504
102
-2,402
1,345
-500
-358
-268
219
-16
1,343
1,327
FY18E
3,187
878
125
-956
-331
2,901
2,901
-1,533
122
-1,411
0
-500
-247
-413
-1,159
331
1,327
1,658
FY19E
4,428
995
31
-1,284
-445
3,724
3,724
-2,024
149
-1,875
0
-500
-181
-611
-1,291
558
1,658
2,216
FY20E
6,046
1,121
-40
-1,693
-573
4,860
4,860
-2,115
186
-1,929
0
-500
-146
-894
-1,540
1,391
2,216
3,608
28 March 2016
30

REPORT GALLERY
RECENT INITIATING COVERAGE REPORTS

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Granules India | At a strategic inflection point
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