BSE SENSEX
30,465
S&P CNX
9,429
Granules India
CMP: INR149
TP: INR200 (+34%)
Combination of strong growth and multiple re-rating
From being one of the largest Paracetamol API manufacturers for regulated markets,
Granules India (GRAN) has now ventured into CRAMS and US Rx business, where it can
leverage its competitive advantage of being a high-quality, low-cost producer. Despite
delivering ~40% PAT CAGR over last five years, we expect GRAN to deliver ~35% PAT
20 May 2017
Update
| Sector:
Healthcare
Buy
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
229
157/91
4/28/-6
33.8
0.5
197.0
46.5
CAGR till FY20E. This will be led by (1) capacity expansion in the base business, 2)
doubling of revenues (INR2.3b in FY20E from INR1.0b in FY17) and expansion in EBITDA
margin (>30% in FY20E from ~21% in FY17) in Omnichem CRAMS JV, and 3) new US
generic business sales of ~USD85m in FY20 v/s nil currently.
Base business – augmented capacity to fuel growth; focus on formulations
to boost margins
Financials Snapshot (INR b)
2017 2018E 2019E
Y/E Mar
14.4
17.4
23.9
Net Sales
3.0
3.7
5.2
EBITDA
1.7
2.1
2.9
PAT
7.3
8.1
11.4
EPS (INR)
32.7
12.3
39.9
Gr. (%)
43.5
60.4
69.1
BV/Sh (INR)
20.0
16.4
17.6
RoE (%)
17.0
14.7
16.8
RoCE (%)
20.5
18.3
13.1
P/E (x)
3.4
2.5
2.2
P/BV (x)
Shareholding pattern (%)
As On
Mar-17 Dec-17 Mar-16
Promoter
53.5
51.9
51.1
DII
1.6
1.2
1.2
FII
10
6
6.4
Others
35
40.9
41.3
FII Includes depository receipts
Stock Performance (1-year)
Granules India
Sensex - Rebased
160
140
120
100
80
GRAN is among the largest manufacturers of Paracetamol and Ibuprofen APIs
for the regulated markets. Along with this, it has been supplying Metformin,
Guaifenesin and Methacarbamol API/PFI/formulations. Until FY17, ~85% of its
business has come from these five base molecules. A higher focus on
formulations over past 4-5 years (revenue contribution up >10%) has helped
GRAN expand its EBITDA margin from 11% in FY13 to ~21% in FY17.
Currently, API is running at 100% capacity and PFI at 73% utilization. The
company had planned to increase its API capacity by ~40% and PFI capacity by
>20% by March 2017, which will also help fuel growth in formulations (as the
company is dependent on backward integration). This will help grow the base
business at mid-to-high teens till at least FY20 (~16% CAGR over FY17-20E v/s
~7% in FY17).
US business – plans niche foray into Rx business
GRAN is planning to file ~25-30 ANDAs in the US till FY19E. Of these, ~10
complex ANDAs will be filed from its US-based Virginia facility and the rest
from its India-based facility in Gagilapur. The company has already filed two
complex generic ANDAs from its Virginia facility in March/April-17 (market size
of USD660m), where it expects to be 3
rd
/4
th
player at the time of launch
(2HFY19). We expect own new filings for GRAN to contribute USD50-60m in
FY20E.
The company has also acquired the marketing rights from US Pharma for its
four ANDAs (scheduled to be launched from late FY18E to FY19E). The market
size for these products is >USD4b, and revenue potential could be USD30-35m
in FY19E.
Although we are already building in R&D spend of ~USD12m for FY19E, full-
year revenue from own filings will start only FY20 onward. Despite this, we
estimate an improvement in the consolidated EBITDA margin by 100bp due to
traction in the base business and a shift in product mix toward formulations.
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.

Granules India
Our Initiating coverage report on
Granules India
Omnichem CRAMs JV: FDA approval expected in FY18; margins to reach
>30% in FY19E
Granules-Omnichem is a 50:50 JV between GRAN and Ajinomoto-Omnichem,
Belgium. Omnichem would be transferring large-scale production of
intermediates and APIs to Granules-Omnichem JV. It will also provide full
support for quality, engineering, tech transfer, procurement, sales and
management-related matters.
Revenue is likely to grow rapidly beyond FY18 post site approvals for customers
(US FDA inspection complete). We expect the EBITDA margin to reach >30%
from ~21% currently, as API supply to innovators will start FY19E onward.
Besides de-risking, it will provide a steady revenue stream with healthy margins.
We see revenue potential of INR450m by FY20E.
Return from investments visible; adding legs to growth
GRAN plans to invest INR10.5b over three years starting FY16. Over FY16 and
FY17, it incurred capex of ~INR1.3b and INR3.4b, respectively. Although full-
scale benefit of these investments will be visible from FY19/20E, FY18E will be a
critical year as 1) revenue contribution from capacity expansion in traditional
business will kick in, 2) filings from the US (already done 2 and ~8 by FY18-end)
will provide visibility on areas of investment in the US, 3) FDA approval for the
Omnichem JV plant will provide visibility on API sales (and in turn lead to margin
improvement to >30% from ~21% currently) and 4) oncology plant should be
ready.
The company plans to incur capex of INR5.5-6.0b in FY18. It intends to invest
~INR4.5b in the US (USD10m in FY16, USD18m in FY17 and ~USD40m in FY18),
mainly toward R&D (~60-65% of total) and the rest toward expanding
capacity/buying equipment. Capex of INR2.1b has been incurred on traditional
business capacity expansion (revenue to start 2QFY18 onward), while INR2.6b
will be spent on developing oncology API/formulations plant (to get
commissioned by FY19 beginning).
PAT CAGR of ~35% till FY20, despite full R&D expensing
We expect PAT CAGR of ~35% over FY17-20E. This is after assuming R&D
expense of USD12m (5.5% of FY17E sales). This strong growth will be driven
primarily by ramp-up of the base business (led by capacity expansion), a shift in
product mix, and Omnichem JV and OTC business expansion. Although FY19 will
be the first year of US business sales, the full impact of investments in that
country will be visible from FY20.
Trades at ~13x FY19E PER; US business ramp-up an option value
GRAN trades at ~13x FY19E EPS (despite assuming >10% equity dilution). We
believe the stock has the potential to deliver >50% return over next 12-18
months, led by multiple re-rating (to >18x forward earnings) and a strong EPS
CAGR of ~35% till FY20. At 18x FY19E PER, fair value of the stock is INR200.
Key risks to our estimates:
(1) Higher competition in products like Metformin
and Paracetamol. (2) Delay in ramp-up of the US business. (3) Regulatory risk for
its manufacturing facility.
20 May 2017
2

Granules India
Legacy business: Capacity expansion to fuel growth
GRAN plans to expand its API capacity by ~40% and PFI capacity by >20% by mid-FY18.
This will help it meet growing demand for Paracetamol/Metformin/Guaifenesin
molecules across the globe. At present, the top five molecules contribute 85% of its
total sales.
Strong base business; augmented capacity to fuel growth
GRAN is among the largest manufacturers of Paracetamol and Ibuprofen APIs
for the regulated markets. Along with this, it has been supplying Metformin,
Guaifensin and Methacarbamol APIs. Until FY17, ~85% of its business has come
from these five base molecules. Currently, API is running at 100% capacity and
PFI at 73% utilization.
The company is increasing its API capacity for Metformin, Paracetamol and
Guaifensin by 15,000 TPA, and PFI capacity by >20%. Paracetamol supply will
commence from 2QFY18, while Metformin supply to developed markets will
start from FY19 (as clinical trial will be required). This capacity expansion in
PFI/API will also help fuel growth in formulations (as the company is dependent
on backward integration). This will help grow the base business at high-teens till
at least FY20.
GRAN’s base business covers 75% of the analgesics market (Paracetamol,
Ibuprofen) and ~50% of the 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 2:
Geography-wise share (%)
Paracetamol
5
North America
42
Europe
India
latin America
25
ROW
Exhibit 1:
Molecule-wise share (%)
14
5
3
34
10
Metformin
Ibuprofen
Guaifenesin
Methocarbamol
Others
18
13
30
Exhibit 3:
Product mix changing (%)
Paracetamol
11
4
23
10
53
9
4
25
17
45
Metformin
5
5
21
22
48
Ibuprofen
6
5
22
25
41
Guaifenecin
15
5
16
23
41
16
6
12
26
40
Others
18
5
13
30
34
Source: Company, MOSL
20 May 2017
3

Granules India
API capacities:
GRAN’s existing API business is primarily driven by higher capacities,
which augment production yield for the five APIs and improve profitability.
Over the years, GRAN has increased Paracetamol capacity from 8,000MTPA to
18,000MTPA, becoming the second largest Paracetamol producer in the world for
the regulated markets (behind Mallinckrodt). Due to growing demand for internal
and external consumption of Paracetamol in the regulated markets, GRAN has
expanded its API capacities via de-bottlenecking.
Similarly, it intends to expand Metformin capacities in two phases (from 2,000MTPA
to 9,000MTPA) by FY19E. Post expansion, GRAN would become one of the top three
Metformin API producers in the world. The Metformin API market is growing at 8-
10%/year, reflecting healthy demand for Metformin molecules due to combination
products.
Exhibit 4:
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
FY18E
24,000
9,000
4,800
3,200
360
Source: Company, MOSL
PFI capacities:
GRAN has one of the largest PFI capacities globally 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 a significant edge over competitors in terms of
scale and profitability. GRAN already expanded its PFI capacity to 18,400MTPA in
FY16 from 13,200MTPA in FY15. These PFI capacities are operating at 70-75%
utilization, which is enough to support 17-18% growth in the existing PFI business
over next two years.
Exhibit 5:
PFI capacities at 18,400MTPA
PFA
18400
13200
7200
13200
22400
FY08
FY12
FY15
FY16
FY18
Source: Company, MOSL
Finished dosages capacity:
GRAN had set up its first formulations facility in FY08,
with 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 next two years.
20 May 2017
4

Granules India
Exhibit 6:
Finished dosage capacity at 18b tablets
FD
18
18
18
18.5
6
FY08
FY12
FY15
FY16
FY18
Source: Company, MOSL
Exhibit 7:
Utilization levels of the base business (%)
100
75-80
~55
API
PFI
FDs
Source: Company, MOSL
Exhibit 8:
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
360
250
1,200
800
Source: Company, MOSL
20 May 2017
5

Granules India
US business: Plans niche foray into Rx business
Full potential will be visible in FY20
GRAN is planning to file ~25-30 ANDAs in the US till FY19. Of these, ~10 complex
ANDAs will be filed from its US-based Virginia facility and the rest of them from
the India-based facility in Gagilapur. In FY18, GRAN plans to file 10-12 ANDAs, of
which six will be filed from Gagilapur and the rest from Virginia.
Virginia facility – focus on complex filings:
GRAN acquired the Virginia-based
facility for a consideration of USD1.5m. Through this plant, GRAN can focus on
products with specific release properties, ODTs and DEA-controlled substances.
The company plans to invest ~USD70m in this facility toward capacity expansion
(currently capacity of 0.5b tablets), R&D and employee addition.
The company has already filed two complex generic ANDAs from its Virginia
facility in March/April-17 (market size of USD660m), where it expects to be
3
rd
/4
th
player at the time of launch (2HFY19). We expect own new filings for
GRAN to contribute USD50-60m in FY20E.
US Pharma product acquisition to drive growth from FY19:
GRAN has also
acquired marketing rights from US Pharma for four ANDAs (scheduled to be
launched from late-FY18 to FY19). The market size of these products is >USD5b,
with revenue potential of USD30-35m in FY19E.
Costs to be built in P&L from FY19E, but revenue potential to be visible from
FY20:
Although we are already building in R&D spend of ~USD12m for FY19E,
full-year revenue from own filings will start only FY20 onward. Despite this, we
estimate an improvement in the consolidated EBITDA margins of 100bp due to
traction in the base business and a shift in the product mix toward formulations.
Revenues from US formulation business will start contributing from FY19 (~20% of sales)
US Formulations (USD m)
85
50
FY19E
FY20E
Source: Company, MOSL
20 May 2017
6

Granules India
Omnichem CRAMs JV – entry into high-value APIs
Partner profile:
Hubei Biocause is a public listed company involved in the
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 eight APIs registered with the FDA and four APIs with CEP.
Joint venture details:
The JV between Biocause and GRAN had set up a facility in
Wuhan, China to manufacture Ibuprofen for the regulated markets. Currently, it is
operating at 4,800MTPA capacity, making it among the five largest Ibuprofen
suppliers in the world.
Granules-Omnichem JV: Established in FY15
Partner profile:
Ajinomoto-Omnichem is a Belgium-based company specializing in
the manufacture of pharmaceutical products and fine chemicals. It is a wholly
owned subsidiary of Japan-based Ajinomoto Co Inc (known for amino acids and food
products). Omnichem, a division of Ajinomoto-Omnichem, focuses on development
and manufacture of intermediates and active ingredients for the pharmaceutical
industry (CRAMs). Each project is supported by an R&D team of ~80 people, who
work on integrating the first lab experiments and pilot trials to full industrial
production while maintaining confidentiality.
Omnichem JV sales expected to reach INR4.5b by FY20
Granules-Omnichem is a 50:50 JV between GRAN and Ajinomoto-Omnichem,
Belgium. Omnichem would be transferring large-scale production of intermediates
and APIs to Granules-Omnichem JV. It will also provide full support for quality,
engineering, tech transfer, procurement, sales and management-related matters.
Inspection at this facility is already completed in 3QFY17, and we expect EIR to come
in 1HFY18. API supply to developed markets will start from FY19. Till the time FDA
approval is not granted, the JV will continue to manufacture various intermediates
for Omnichem. Once approvals are in place, the JV would start manufacturing high-
value APIs for Omnichem’s CRAMs customers. These APIs are likely to be sold to
innovators and MNCs, helping them compete with generic players.
In FY17, this business generated revenue of ~INR2b. However, upon required
regulatory approvals for products, Omnichem JV sales are expected to reach a peak
of INR4.5b by FY20. These product approvals should kick in from FY18. Until then,
the JV would continue supplying intermediates to Omnichem from this facility,
which reported sales of INR1,000m in FY17. It is likely to achieve >30% EBITDA
margin by selling high-value APIs (Oncology, CVS, etc.) to innovators.
20 May 2017
7

Granules India
Exhibit 9:
Expect significant ramp-up in FY19
Omnichem (INR m)
2250
1750
1250
0
250
750
Omnichem sales (INR m)
To supply
intermediate
till FY17E
Scale up
expected
on API approvals
0
71.5
1000
1250
1750
2250
Source: Company, MOSL
20 May 2017
8

Granules India
Return from investments visible; adding legs to growth
GRAN plans to invest INR10.5b over three years starting FY16. In FY16 and FY17,
it incurred capex of ~INR1.3b and INR3.4b, respectively. Although full-scale
benefits of these investments will be visible from FY19/20E, FY18E will be a
critical year as: 1) revenue contribution from capacity expansion in traditional
business will kick in, 2) filings from the US (already done 2, and ~8 by FY18E-end)
will provide visibility on areas of investment in that country, 3) FDA approval to
Omnichem JV plant will provide visibility on API sales from this plant (and, in
turn, lead to margin improvement to >30% from ~21% currently) and 4)
oncology plant should be ready.
The company plans to incur capex of INR5.5-6.0b in FY18. It plans to invest
~INR4.5b in the US (USD10m in FY16, USD18m in FY17 and ~USD40m in FY18),
mainly on R&D (~60-65% of total) and the rest on expanding capacity and buying
equipment. Capex of INR2.1b has been incurred on traditional business capacity
expansion (revenue contribution to start from 2QFY18), while INR2.6b will be
spent on developing the oncology API/formulations plant (to get commissioned
by FY19 beginning).
Omnichem (INR m)
1750
1250
750
0
250
2250
Exhibit 10:
Total planned capex of ~INR10.5b over FY16-19E (INR m)
2100
2600
4500
600
700
10500
Source: Company, MOSL
Already secured line of credit to fund investments; equity raising is another
option:
GRAN plans to invest ~INR5.5-6.0b in FY18E and ~INR2.5b in FY19E. It will
generate ~INR3.5b through internal accruals, while the rest can be funded via debt/
equity. The company has already has a line of credit of ~USD60m at an attractive
rate of EURIBOR+2%.
20 May 2017
9

Granules India
Strong regulatory history
At present, the company conducts business via six API/intermediate facilities, two PFI
facilities and two formulation facilities. There is also one API facility under
construction for multi-product APIs in Vizag.
Historically, GRAN has demonstrated a strong regulatory record, with no warning
letter or import alert for any facility in last eight FDA inspections.
Exhibit 11:
List of plants and recent inspections 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,
Paracetamol
Intermediate (Auctus)
Ibuprofen
Approvals
USFDA, KFDA, TGA, EDQM
USFDA, WHO, GMP, EDQM,
Infarmed (EU) approved
USFDA, EDQM, TPD – Canada,
MCC approved
Multiproduct (Auctus)
US FDA approved
Oncology (Omnichem JV)
Yet to approve
Multiproduct (Granules Under Development
Multiproduct small scale USFDA, Australian TGA,
German HA approved
Multiproduct large scale USFDA, German HA, Australian
TGA approved
Tablets
Infarmed (EU), USFDA
Complex product filings
Source: Company, MOSL
20 May 2017
10

Granules India
Building a strong management team
Granule is building a strong management team as it enters the US generic
space.
Name
Mr. Sreekanth Muttineni
Mr. Ganesh K
Mr M Gopi Reddy
Mr. Jaishokan Velusami
Designation
COO
CFO
Sr. VP - Quality
Hear - R&D (Granules Pharma Inc.)
Hired in
16-Sep
17-May
16-Sep
16-Apr
Previous Company
Aurobindo Pharma
Dr. Reddy
Cipla
Actavis & Par Pharma Inc.
Management team profile
Mr Prasad is the founder of Granules and has three decades of experience in the
pharmaceutical industry. In 1984, he set up a Paracetamol manufacturing facility,
focused on capital and process efficiency. Pharmaceutical Formulations
Intermediates (PFIs) as a cost-efficient product for global formulations
manufacturers is a concept pioneered and popularized by him.
Mr C. Krishna Prasad – Chairman and Managing Director
Dr. Prasada Raju – Executive Director
Dr Raju has over two decades of techno commercial experience in the global
pharmaceutical space. His previous experience at Dr Reddy’s encompasses new
product development, fostering strategic partnerships, driving synergies between
Industry and Academia, expanding into newer geographies, IP-driven early product
portfolio development and program management.
Mr Sreekanth Muttineni – Chief Operating Officer
Mr Muttineni joined Granules India in September 2016. During his nine-year tenure
at Lupin Ltd, he was responsible for manufacturing operations. Prior to that, Mr
Muttineni worked at Aurobindo Pharma as general manager – operations, and led
the establishment of generic pharmaceutical facilities and commercialization.
Mr. Ganesh K – Chief Financial Offer
Mr. Ganesh joined Granules India in May 2017. Before joining Granules, he was
associated with Dr Reddy’s for a span of 12 years as senior vice president –
corporate finance. Mr Ganesh is a chartered accountant, having professional
experience of more than 27 years. He specializes in leading large-scale M&A and
treasury operations, with skills in executing business/financial management
strategies and strengthening fiscal efficiency.
Mr M Gopi Reddy – Sr. Vice President (Quality)
Mr Reddy joined Granules India in September 2016. He started his career 1995 as
assistant manager production at GSK Pharma, where he worked for six years. He has
21 years of experience in corporate quality assurance, working with some of the
biggest pharma companies in India. In his previous stint in Cipla as head quality
compliance, he was responsible for developing systems and skills to ensure
compliance at all the company’s manufacturing sites globally.
20 May 2017
11

Granules India
Mr Jaishokan Velusami – Head R&D (Granules Pharmaceuticals Inc.)
Mr Velusami has over 15 years of extensive multi-disciplinary expertise in drug
development and portfolio management across a broad range of therapeutic areas,
drug delivery systems and novel platform technologies. His extensive experience
includes technology transfer, commercializing R&D assets, strategic planning and
optimizing operation strategy across cross-functional teams. Prior to Granules, he
led R&D programs at Actavis and Par Pharmaceutical Inc., and has also laid the
foundation for successful start-ups (Novel and Kali Laboratories) in drug
development and operational strategy.
Mr. Stefan Lohle – Chief Marketing Officer
Mr Lohle has over two decades of experience in the pharmaceutical industry. He has
been associated with Granules since 2001, and previously was head of Latin
American operations, where he primarily focused on the PFI business. Mr Lohle has
also served at Kimberly Clark Corporation for new project development.
20 May 2017
12

Granules India
Story in charts
Exhibit 12: Revenues to exhibit 27% CAGR over FY17-20E
Revenues (INR b)
Exhibit 13: Revenues from US biz to drive growth
FD (%)
API (%)
Oncology API (%)
39
61
45
52
3
46
33
21
40
31
29
44
29
27
39
29
32
44
24
32
PFI (%)
US Formulations (%)
2
15
32
19
32
3
20
29
17
31
51
41
8
37
29
35
38
24
38
38
23
38
4.8
6.5
7.6
11.0 12.9 14.3 14.4 17.1 23.4 29.4
Exhibit 14: EBITDA margins to expand to 23% by FY20E
EBITDA (INR b)
19.4
EBITDA margin (%)
22.4 23.3
20.8 21.6
Exhibit 15: PAT to exhibit 35% CAGR over FY17-20E
PAT
11.8 12.1 11.1
14.4
16.1
1
1
1
2
2
3
3
4
5
7
Exhibit 16: Geograph- wise revenue break-up
North America
10.0
11.0
42.0
14.0
23.0
8.0
15.0
34.0
12.0
31.0
Latin America
14.0
12.0
29.0
15.0
30.0
Europe
10.0
16.0
31.0
11.0
32.0
India
6.0
21.0
22.0
12.0
39.0
Others
5.0
18.0
25.0
10.0
42.0
Exhibit 17: Product mix changing (%)
Paracetamol
11
4
23
10
53
9
4
25
17
45
Metformin
5
5
21
22
48
Ibuprofen
6
5
22
25
41
15
5
16
23
41
Guaifenecin
16
6
12
26
40
Others
18
5
13
30
34
Exhibit 18: Capex needs to continue with growth
Capex (INR m)
3,609
2,649
550
1,163
1,473 1,335
5,518
Exhibit 19: Return ratios to improve post FY18
ROE (%)
23.9
23.1
21.4
ROCE (%)
20.0
21.1
2,880 2,863
9.9
8.8
15.2
12.9
12.9 12.5
16.4 17.6
20.5
19.8 18.7
21.6
17.0
14.7 16.8
250
Source: Company, MOSL
Source: Company, MOSL
20 May 2017
13

Granules India
Valuation and view
Over last six years, GRAN reported a 39% earnings CAGR, led by improved
profitability, higher operating leverage and a superior business mix. The company
expanded its finished dosages business at a CAGR of 36% over FY11-16, 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
margin from 11.8% in FY11 to ~21% in FY17.
We expect ~35% PAT CAGR to continue till FY20E, supported by ~27% revenue CAGR
and ~250bp margin expansion. Our target price of INR200 discounts FY19E EPS at
18x, which (a) is at a 5-10% premium to peers and (b) implies a PEG of 0.5x (FY17-
20E EPS CAGR of ~30%).
GRAN is trading at ~13x FY19E EPS. We argue for a P/E re-rating for GRAN, given (a)
strong PAT growth outlook and (b) expansion in its high-margin CRAMs and US
generic business.
Exhibit 20: Peer comparison
Granules India
Marksans Pharma
Shilpa Medicare
Dishman Pharma
IPCA
Suven
Neuland
CMP
149
50
718
299
530
184
1450
Mkt. CAP
(USD m)
535
314
889
743
1040
363
199
FY18E
13.1
25.4
32.9
18.6
21.0
20.2
24.7
P/E
FY19E
9.4
17.7
22.8
14.8
15.8
17.6
16.8
EV/EBITDA
FY18E
FY19E
8.9
6.6
14.2
10.6
22.2
16.5
11.1
9.6
11.8
9.5
13.2
11.4
11.9
9.0
FY18E
16.3
16.0
19.2
14.1
12.4
16.2
23.4
RoE (%)
FY19E
17.2
19.8
23.0
15.9
14.4
16.5
27.1
Key catalysts to drive stock performance over medium term
Finished dosage product approvals from regulated markets
Commercialization of new capacity
Higher-than-expected realizations from Omnichem JV
Pricing pressure on existing products
Regulatory risks related to already approved manufacturing facilities
Risks to our investment thesis
Exhibit 21: P/E band – significant re-rating over
past 30 months
50
40
30
20
10
0
2.6
7.8
12.0
12.0
PE (x)
Median(x)
Peak(x)
Min(x)
45.9
Avg(x)
Exhibit 22: P/E relative to Sensex
150
100
50
0
-50
-100
-34.5
-26.4
Granules India PE Relative to Sensex PE (%)
LPA (%)
Source: MOSL, Company
Source: MOSL, Company
20 May 2017
14

Granules India
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2012
6,540
37.6
793
12.1
207
586
170
14
0
430
130
30.3
0
300
300
43.3
2013
7,644
16.9
851
11.1
231
620
177
21
0
464
138
29.7
0
326
326
8.8
2014
10,959
43.4
1,583
14.4
298
1,285
204
43
0
1,124
371
33.0
0
753
753
130.8
2015
12,929
18.0
2,086
16.1
527
1,560
323
43
0
1,280
371
29.0
0
909
909
20.8
2016
14,295
10.6
2,767
19.4
643
2,124
399
77
0
1,802
617
34.2
0
1,185
1,185
30.3
2017
14,353
0.4
2,988
20.8
715
2,273
323
99
0
2,050
643
31.4
-247
1,654
1,654
39.6
2018E
17,051
18.8
3,683
21.6
1,018
2,664
(INR Million)
2019E
23,390
37.2
5,239
22.4
1,481
3,759
326
140
0
2,479
793
32.0
-375
2,060
2,060
24.6
541
140
0
3,358
1,074
32.0
-600
2,883
2,883
39.9
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
201
2,250
2,451
2,036
230
4,717
3,545
1,041
2,504
293
2
2,914
1,099
950
320
545
996
934
62
1,918
4,717
2013
201
2,547
2,749
2,705
245
5,698
3,874
1,240
2,635
1,088
97
3,007
1,365
710
417
515
1,128
1,061
68
1,879
5,698
2014
203
3,357
3,560
4,417
303
8,280
6,539
1,714
4,825
1,246
2
3,848
1,742
1,109
418
580
1,640
1,517
123
2,208
8,280
2015
204
4,107
4,312
4,872
493
9,676
8,438
2,272
6,166
620
2
5,184
2,245
1,326
653
959
2,295
2,120
175
2,888
9,676
2016
217
6,444
6,660
4,767
580
12,008
9,622
2,941
6,681
766
2
7,080
3,071
1,526
1,419
1,065
2,521
2,399
122
4,559
12,008
2017
228
9,683
9,911
6,517
580
17,008
12,992
3,656
9,336
1,005
2
9,120
2,802
3,932
1,317
1,069
2,455
2,167
288
6,665
17,008
2018E
253
15,035
15,288
6,517
580
22,386
18,492
4,674
13,818
1,023
2
10,398
3,296
4,671
1,160
1,270
2,854
2,373
481
7,543
22,386
(INR Million)
2019E
253
17,241
17,494
7,017
580
25,092
20,992
6,155
14,837
1,403
2
12,539
4,475
6,088
233
1,742
3,689
2,984
706
8,850
25,092
20 May 2017
15

Granules India
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
1.5
2.5
12.2
0.2
15.6
2013
1.6
2.8
13.7
0.2
14.4
2014
3.7
5.2
17.6
0.4
11.0
2015
4.5
7.0
21.1
0.5
13.6
33.4
7.0
2.4
15.0
0.3
12.9
15.2
10.8
1.4
52
61
67
0.7
12.5
12.9
10.6
1.3
33
65
72
0.8
23.9
19.8
15.9
1.3
36
58
77
1.1
23.1
18.7
14.6
1.3
36
63
92
1.0
2016
5.5
8.4
30.7
0.6
13.9
27.2
4.8
2.1
11.0
0.4
21.6
21.4
15.2
1.2
38
78
86
0.5
2017
7.3
10.4
43.5
1.0
16.2
20.5
3.4
2.2
10.8
0.7
20.0
17.0
12.7
0.8
98
71
84
0.5
2018E
8.1
12.2
60.4
1.5
22.2
18.3
2.5
1.9
8.8
1.0
16.4
14.7
10.3
0.8
98
71
75
0.4
2019E
11.4
17.2
69.1
2.2
23.5
13.1
2.2
1.4
6.5
1.5
17.6
16.8
11.7
0.9
93
70
67
0.4
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
793
7
-436
-115
7
256
-550
-294
2
3
-545
0
691
-168
-35
489
200
120
320
2013
851
8
146
-112
19
912
-1,163
-251
-95
-20
-1,278
6
682
-178
-47
463
97
320
417
2014
1,583
29
-310
-238
16
1,080
-2,649
-1,570
95
8
-2,546
11
1,709
-205
-47
1,467
0
417
417
2015
2,086
29
-363
-317
18
1,453
-1,473
-20
0
17
-1,456
11
628
-319
-83
238
236
417
653
2016
2,767
25
-915
-490
51
1,438
-1,335
103
0
53
-1,281
1,059
191
-406
-234
609
766
653
1,419
2017
2,988
0
-2,208
-652
0
128
-3,609
-3,481
0
99
-3,510
1,873
1,750
-323
-21
3,280
-102
1,419
1,317
2018E
3,683
0
-872
-793
-163
1,855
-5,518
-3,663
0
140
-5,378
3,775
0
-326
-83
3,367
-157
1,317
1,160
(INR Million)
2019E
5,239
0
-2,030
-1,074
-203
1,932
-2,880
-948
0
140
-2,740
0
500
-541
-77
-119
-927
1,160
233
20 May 2017
16

Granules India
NOTES
20 May 2017
17

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Granules India
Disclosure of Interest Statement
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No
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