ICICI Direct Bets on This Multibagger Small Cap Pharma Stock, Suggests Buy For Rs 410 Target Price

Leading brokerage firm ICICI Direct has placed a buy call on Granules India Limited with an estimated target price of Rs 410 per share. The stock is likely to jump 16% from its current level considering the given target price. Granules India is a large-cap pharmaceuticals company having a market cap of Rs 8,800.74 crore.

Granules is a large-scale vertically integrated company that manufactures API, intermediates and finished dosages and has seven manufacturing facilities along with B2B & B2C marketing & distribution. Revenue mix FY22: Formulations - 52%, API (API+PFI) - 48%. The top five products (Paracetamol, Ibuprofen, Metformin, Methocarbamol, and Guaifenesin) contributed 81% to FY22 revenues.

Stock Outlook & Returns

The current market price (CMP) of the stock is Rs 354.30 per share. The stock at the time of writing is trading 0.03% below its previous close. Its 52-week low level is Rs 226.95 recorded on 20 June 2022, and the 52-week high is Rs 362.40 recorded on 14 January 2022, respectively.

The stock jumped 2.07% in the past 1 week and 11.61% in the past 1 month, respectively. Over the past 1 year, the stock has given 10.74% positive return. It has given 182.54% multibagger returns in the past 3 years, whereas, in the past 5 years, it has given a multibagger return of 161.81%.

 

Q2FY23 Results

According to the brokerage, Growth mainly driven by high paracetamol API sales in US market. Sales were up 29.5% YoY to Rs 1150.7 crore. EBITDA margins grew 409 bps YoY to 21.1%. EBITDA grew 60.7% YoY to Rs 243 crore. Adjusted PAT grew 79.9% YoY to Rs 145 crore.

Buy for Rs 410 Target Price

Granules' share price has grown by ~3.55x over the past three years (from ~Rs 98 in October 2017 to ~Rs 348 levels in October 2022). We maintain BUY rating on the back of 1) Focus on diversification of API portfolio, 2) Focus on margin improvement via proposed product mix changes and capex on backward integration, 3) Compelling risk-reward matrix based on FY24E earnings. Valued at Rs 410 i.e. 15x FY24E EPS of Rs 33.8.

 

Key triggers for future price performance

• Ability to pass on input cost inflation and margin improvement through focus on cost management.
• Extending its core products via additional strength/different forms in US, launching in other geographies is likely to provide better operating leverage.
• In the US, it also focuses on select small but high value launches where competition is less, which bodes well in a crowded generics market.
• Timely completion of new block construction in Gagillapur and other expansion activities along with rationalising R&D portfolio.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.