Sharekhan Upgrades Multibagger Mid Cap Pharma Stock, Target Price Rs 400, Buy

1. Stock Performance & Return

The last trading price of the stock is Rs 329 apiece with an intraday surge of 0.63%. The stock's 52-week high is Rs 381 apiece and 52-week low is Rs 227 apiece, respectively. The stock has given 168% return in last 3-years and 139% return in last 5-years.

2. Raw Material Concerns To Be Offset By Alternative Supplies And Lower Energy & Freight Costs

The management believes that increase in API prices from China should not affect them severely as they have secured diversification away from Chinese supplies of PAP by engaging with alternate sources for the same over the last 2 quarters. We believe this coupled with its ability to pass on price increase to few customers will help the company to maintain its gross margins over short to medium term.

3. APIs Sales Growth To Stay Stable In The Short Term

API sales grew at a whopping 73.4% YoY to Rs. 3,303 million in Q2FY23. This was largely driven by paracetamol sales recovering back with improved availability of Key Starting Raw Materials (KSMs) such as PAP. The management believes that the paracetamol sales will continue at stable levels over the short term.

4. Valuation

According to Sharekhan, "We maintain the CAGR earnings growth estimate at 25.9% over FY22-FY25E. The stock price has fallen by 12% since its Q2FY23 update. Hence, at CMP, the stock trades at a relatively attractive valuation of 11.7x/10.0x its FY2024E/FY2025E EPS. We continue to value the company's shares at 12.0x while applying it on FY25E EPS."

As such, we maintain the PT at Rs. 400 and upgrade the rating to BUY from HOLD, as at the CMP, the stock indicates an upside potential of 22%.

Key Risks: Delay in product approvals or the negative outcome of facility inspections by the USFDA can affect future earnings prospects, and delay easing of input prices.

5. About Granules India

Granules is a vertically integrated pharmaceutical company, headquartered in Hyderabad, India. The company manufactures Active Pharmaceutical Ingredients (APIs) - 29.7% of sales, Pharmaceutical Formulation Intermediates (PFIs) - 20.2% of sales and Finished Dosages (FDs) - 50.1% of sales and supplies them to both regulated and semi-regulated markets. The regulated markets constitute around 73% of revenues, while LATAM accounts for 11% of revenues and RoW markets constitute around 16% of revenues.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. 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 taking any investment decision.