GRANULES INDIA LIMITED - Q3 FY 21 - RESULTS ANALYSIS

 

GRANULES INDIA LIMITED

Q3 FY 21 RESULTS ANALYSIS

 

Management

Krishna Prasad Chigurupati:Chairman & Managing Director

Harsha Chigurupati :           Executive Director

Uma Devi Chigurupati :     Executive Director

Priyanka Chigurupati   :     Executive Director

Q3 RESULTS :

Granules India (in Rs. Cr.)	Dec'20	Sep '20	Dec '19	YOY	QOQ
Net Sales	845	858	704	19.97	-1.59
Raw Materials	413.61	418.02	346.88	19.24	-1.05
Increase/Decrease in Stocks	-22.61	-56.9	0.17	-13400	-60.26
Employees Cost	83.1	79.7	64.75	28.34	4.27
Depreciation	36.85	36.06	38.99	-5.49	2.19
Other Expenses	158.85	160.89	129.01	23.13	-1.27
P/L Before Other Inc., Int., Excpt. Items & Tax		220.35	124.15	-100	-100
Other Income	16.41	3.22	3.51	367.52	409.63
P/L Before Int., Excpt. Items & Tax	174.71	223.57	127.66	36.86	-21.85
Interest	7.24	6.27	6.73	7.58	15.47
P/L Before Exceptional Items & Tax	183.88	217.3	120.94	52.04	-15.38
Exceptional Items	0	--	-32.03	-100
P B T	183.88	217.3	88.9	106.84	-15.38
Tax	37.08	53.67	24.87	49.1	-30.91
N P T	146.81	163.63	64.03	129.28	-10.28
Equity	24.77	24.76	25.42	-2.56	0.04
Basic EPS	5.92	6.6	2.52	134.92	-10.3
Diluted EPS	5.9	6.56	2.51	135.06	-10.06

 

MP	337.15
PE	14.29
VOLUMES	1852579
52 Week Range
114.1
437.95

 

Granules India - Board declares Third Interim Dividend  of 25 paise per share of face value of Re. 1/- each (Record Date : 9th Feb)

Gross Profit Margin increased to 53.7% from 50.7% YoY.

operating Margin increased to 25.1% from 23.2% YoY.

Net profit Margin increased to 17.4% from 9.1% YoY.

API has grown from 209 cr to 252 cr YoY.

PFI has grown from 116 cr to 171 cr YoY

FD has grown from 379 to 422 cr

Higher contribution  from FD as it continues  to  grow in  absolute  terms from INR 379 Crsto  INR 422Crs, up 11%  YoY

❑PFI  is  growing  at  48%  YoY  with  increasing contribution  from  16.4%  to  20.2% YoY,on  account  of increasing penetration of PFIs  as a category

❑API grew 20%  YoY via on  boarding  of new  customers

 

Quarter at a Glance:

 Revenue up 20% YoY,

EBITDA margin expanded 190 bps YoY, followed by PAT growth of 129% YoY in Q3 FY21 on back of new launches and better utilization of Metformin block.

USFDA approval for Penicillamine Capsules 250 mg and Potassium Chloride ER tablets (Klor-ConM), manufactured via MUPS (multi-unit pellet system) Technology.

YoY ROE and ROCE improved to 29% and 32.4%, respectively

Four new launches such as Ramelteon, Dexmethyl phenidate HCIER and Potassium Chloride ER tablets (Klor-Con) from GPI and Guaifenes in ER tablets from GIL

Focused R&D investments in value accretive products emphasize our core strength and backward integrated manufacturing.

R&D spend at INR 223 Mn.

Received 2 ANDA approvals during the quarter

Total 35 ANDA approvals from USFDA (34 Final approvals and 1 tentative approval)

During the quarter, we acquired land in Genome valley near Hyderabad, for the construction of a PFI & FD manufacturing facility for~10 Bn units of solid orals, other finished dosage forms and additional capacity for PFIs. The facility will be operational in early FY24. The expected CAPEX is~INR 4000 Mn, to be incurred over the next 3 years.

 

Net Debt down by 22% YoY and Net debt to EBITDA stood at 0.7x vs. 1.4x as of December 2019

ROCE stood at 32.4%, up significantly on account of higher capacity utilization. Capacity increases came through quickly via addition of new modules and equipment with limited capital expenditure.

Increased contribution from higher margin FDs, Generics, while remaining backward integrated in APIs.

Strong Growth momentum witnessed across Geographies - led by North America

Finished Dosage and PFI segments grew 11% and 48%YoY

Contribution from PFI increased to 20.2% YoY

Higher-margin FD continues to grow in absolute terms from INR 3,794 Mn to INR 4,221 Mn, up 11% YoY

PFI is growing at 48% YoY, with increasing contribution from 16.4% to 20.2% YoY, on account of increasing penetration of PFIs as a category

API grew 20% YoY, via on-boarding  of new customers

QOQ

Revenue declined 1.6% QoQ due to MEIS(Merchandise Export from India Scheme) benefits withdrawal.

The Centre has decided to discontinue the MEIS scheme from January 1, 2021, as it is not compliant with World Trade Organization norms. Exporters will then be reimbursed the duty paid on inputs through the new Remission of Duties or Taxes on Export Products Scheme, the rates for which are under formulation.

PAT declined 10% QoQ due to higher material cost and one-time product loss taken during the quarter.

Particulars           Q3FY21  Q2FY21  QoQ

Reported Gross Margin      4,535 4,970

Reported Gross Margin %  53.7%    57.9%-4.2%

Adjustments

Add : One time product loss      1.2%      -     1.2%

Less : MEIS benefits   -     -0.8%    0.8%

Less : On account of Air freight collected from customers                 -0.1%            -0.3%    0.2%

Change in Inventory (Q2 additional inventory build-up is Rs 57 Crs vs Q3 is Rs 23 Crs)   -0.8%    -2.0%    1.2%

Forex rate reduction          0.5%                   0.5%

*Adjusted Gross Margin % 54.4%    54.8%    -0.3%

*The balance impact is from change in product mix

Adjusted EBITDA % 26.2%(Q3FY21) 27.1%(Q2FY21)   -0.9%QoQ

CONTINUOUS IMPROVEMENT IN FINANCIAL METRILCS:

1. Net Debt has fallen from 7,888 cr to 6,121 cr (1.4X to 0.7X)

ROE has risen from 19.8% to 29%.

Free Cash Flow has fallen from 590 to 214 Mn

ROCE% has risen from 22.7% to 32.4%

Granules India Ltd subsidiaries : Granules (USA); Granules Pharmaceuticals, Granules Europe; Granules Lifesciences ;Granules Consumer Health;

•GIL: Presence across the entire pharmaceutical manufacturing value chain from API to finished dosages

•GranulesUSA: B2B Marketing & Distribution arm for APIs, PFIs and FDs (Rx & OTC) from GIL incorporated in 2003

•GCH: B2C Granules Consumer Health; our front end division for private label OTC products incorporated in 2014

•Gr.Pharmaceuticals Inc: R&D, manufacturing and front end division for marketing of Rx products in the US incorporated in 2014

•Gr. Europs Ltd:B2B Marketing & Distribution arm for APIs, PFIs and FDs from GIL incorporated in 2017

•Gr.Lifesciences Pvt Ltd:Manufacturing facility for new product launches

Multiple Drivers Provide Visibility for Long term Growth :Core Business :

Granules India Limited. Multiple Drivers Provide Visibility For Long-Term Growth

Core Business :-

✓Focus on volume-based products such as Paracetamol, Metformin HCl, Ibuprofen(core). Other products include Guaifenesin, Methocarbamol, Gabapentin, Losartan, Cetrizine and Fexofenadine

✓Expanding base business by entering into new geographies (Europe, Canada, South Africa)

✓Large scale manufacturing with sustained competitive advantage & secure supply source for the customers

✓Pioneered the concept of commercializing PFIs─suits large volume drugs

US GENERICS :

✓Fully-integrated infrastructure including R&D, manufacturing and marketing to enable “Make in America”

✓Business-to-Consumer model (B2C) through Granules Consumer Health(GCH)

✓Focus on developing controlled substances and niche/differentiated modified and extended-release products in varied dosage forms.

NEW PRODUCTS :

✓Filing new ANDAs (7-8 ANDAs and 2-4 dossiers per year and value added DMFs/CEPs/EDMFs)

✓Focus on developing controlled substances and niche/differentiated modified and extended-release products in varied dosage forms

✓Average launches 7-8 ANDAs / Dossiers per year

✓Focus on operational efficiencies and process innovation through R&D

CORE BUSINESS : GROWTH DRIVERS :-

1. Expanded to 8 molecules: Losartan, Fexofenadine and Cetrizine added to the existing core portfolio

2. Expanded capacities in high-volume products (API + FD): Paracetamol, Metformin, Ibuprofen, Guaifenesin, Methocarbamol

3. Ramp-up of utilization at new capacities to expand global market shares in these APIs and forward integrated from API to FD

4. Widening existing portfolio into several dosage forms: E.g. Paracetamol 500mg, Paracetamol 650mg, Metformin XR

5. Expanding market to other regions by extending our filings footprints in UK, Europe and Canada for core molecules.

EXPANDING THE CORE BUSINESS TO NON US MARKETS :

New capacity expansion: MUPS technology

What is MUPS technology

•Tablets, Capsules and other dosage forms which are prepared by compaction, encapsulation or blending of modified release coated pellets are based on MUPS (multi-unit pellet system) technology.

•Pellets are produced for the purpose of oral controlled-release dosage form having gastro resistant or sustained-release properties

•For such purposes, coated pellets are administered in the form of MUPS dosage forms. The coating material used is either sustained release or enteric release.

• GIL will invest INR 2,400 Mn over FY21 to FY22; to be funded entirely via internal accruals

•The products that will be manufactured in this block will be integrated with APIs from the Multi API block from Unit 5 in Vizag

•The MUPS block will have a capacity to manufacture 2.5 –5 Bn FDs per annum will be operational by Q3FY22

•Received approval for one product in FY21. This product is under production in an existing facility and will be launched in Q1 FY22.

Key focus areas for FY21:-

Granules India Limited. Key focus areas for FY21-23

Key focus areas for FY21

1.To ensure timely launches of 9 products expected in FY21 while also increasing the market share of existing products by passing on cost benefits realized through operational efficiencies

2. To ensure employee safety while increasing productivity and improve Regulatory compliance

3. To focus on Cash conservation and liquidity management To focus on Free cash flow generation and ensure reduction in gross debt

4. To focus on Working capital management with high focus on inventory management to ensure  supply security

5. To focus on profitability through better capacity utilization and by enhancing product mix and operational cost efficiencies

6. To continue to rationalizing R&D portfolio  while building towards sustainability

To ensure timely progress of the completion of new block construction in Gagillapur and other expansion activities.

 

 

STRENGTHS :

 

    High Piotroski Score - Companies with strong financials

    Rising Net Cash Flow and Cash from Operating activity

    Company with high TTM EPS Growth

    Effectively using its capital to generate profit - RoCE improving in last 2 years

    Effectively using Shareholders fund - Return on equity (ROE) improving since last 2 year

    Efficient in managing Assets to generate Profits - ROA improving since last 2 year

    Growth in Quarterly Net Profit with increasing Profit Margin (YoY)

 

    Company with Low Debt

    Strong cash generating ability from core business - Improving Cash Flow from operation for last 2 years

    Annual Net Profits improving for last 2 years

    Book Value per share Improving for last 2 years

    FII / FPI or Institutions increasing their shareholding

    Recent Results : Growth in Operating Profit with increase in operating margins (YoY)

WEAKNESSES :

    Negative Breakdown First Support (LTP < S1)

    MACD Crossover Below Signal Line

    MFs decreased their shareholding last quarter

    Decline in Net Profit with falling Profit Margin (QoQ)

OPPORTUNITIES :

Companies with current TTM PE Ratio less than 3 Year, 5 Year and 10 Year PE

Highest Recovery from 52 Week Low

THREATS

Degrowth in Revenue, Profits and Operating Profit Margin in recent results (QoQ)

Increasing Trend in Non-Core Income

Insiders sold stocks

3 year CAGR growth      

Revenue       22.90%

Net Profit             26.80%

Operating Profit          20.70%

Shareholding Pattern

Promoters pledge remained unchanged at 8.64% of holdings in Dec 2020 qtr.

Promoters holding remains unchanged at 42.04% in Dec 2020 qtr

Mutual Funds have decreased holdings from 0.14% to 0.11% in Dec 2020 qtr

Number of MF schemes increased from 3 to 4 in Dec 2020 qtr.

FII/FPI have increased holdings from 26.31% to 26.38% in Dec 2020 qtr.

Number of FII/FPI investors increased from 189 to 211 in Dec 2020 qtr.