Margin (%) PAT (Rs cr)

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1 4 Recommendation HOLD Reiterating positive outlook CMP (27/7/2015) Rs. 115 Target Price Rs. 125 Sector Stock Details Pharmaceuticals BSE Code NSE Code Bloomberg Code GRANULES GRAN IN Market Cap 2,093 Free Float 51.5% 52- wk HI/Lo (Rs) 105/58 Avg. volume NSE (Quarterly) 19,49,200 Face Value Re. 1 Dividend (FY 15) 50% Shares o/s (Cr) 2.0 Relative Performance 1Mth 3Mth 1Yr GIL 23.7% 11.2% 61.8% Sensex 2.0% 2.3% 8.5% Shareholding Pattern 30 th June 15 Promoters Holding 48.5% Institutional (Incl. FII) 3.1% Corporate Bodies 4.8% Public & others 43.6% Runjhun Jain Sr. Research Analyst runjhun.jain@nirmbang.com Granules India Ltd (GIL) posted good results at profitability levels. Sales came at Rs cr, marginally lower than the street expectations of Rs cr. While EBITDA maintained the positive trajectory and was Rs 61.8 cr vs Rs 49.0 cr in Q4FY15/Rs 52.8cr in Q1FY15. Margins improved (partially due to lower sales) to 17.9% vs 13.8% in Q4FY15/17.0% in Q1FY16. Standalone performance remained strong during the quarter with sales registering growth of 28.4% at Rs cr and EBITDA of Rs 64.2 cr (up 31% yoy) with EBITDA margins of 19.7% (one of the highest in the history of the company) Key Highlights Auctus sales for the quarter were Rs 37 cr (vs Q4 Rs 43.6 cr/q1 Rs 26.1 cr). Auctus sales were marginally impacted as the company used the facility validating new products and due to planned shutdown at GIL s intermediate facility at Bonthapally, which supplies raw material to Auctus Pharma. Despite, this small itch management has maintained its full year sales guidance of Rs 150 cr, which we believe is achievable. Abacavir has done sales of RS 4.7 cr, lower than Q4 sales of Rs 8 cr. The management has launched two new products during the quarter and likely to launch two more during the year. GIL has completed 4000 MT PFI facility, which would be commissioned in Q2 and would drive the PFI revenues. The company has also unveiled an aggressive capex plan for the coming years. It is adding 7000 MT Metformin API facility (Metformin growing in double digits; current capacity 2000 MT) by FY17 (1 st Phase of 3600 MT by Aug 16 with capex of Rs cr). The total capex for FY16 is expected to be Rs 150 cr and for FY17 approx. Rs 250 cr. Omnichem JV commercialization is expected to be start from Aug 15. The company has maintained its JV level sales of Rs 100 cr and expects it to be cash break even by Mar 16. The company had taken enabling resolution for QIP however; it has now stopped the plan and instead issuing Rs 200 cr worth of warrants to promoter group, to fund the capex. It shows the inherent confidence the promoters have on the strength and future prospects of the company. Valuation & Recommendation For the next two years we expect the company s sales to grow by 20% and PAT by 38%, due to higher profitability in Auctus Pharma and change in business mix (higher contribution from formulations and Omnichem s CRAMS). The stock has re-rated in the recent times however we believe there is still further upside left and recommend HOLD for price target of 125 (15x on FY17E EPS). Year Consolidated Sales Growth EBITDA Margin PAT Margin EPS (Rs) P/E (x) RoE FY14A % % % % FY15A % % % % FY16E % % % % FY17E % % % % 1

2 Quarterly Result Consolidated Q1FY16 Q4FY15 qoq Q1FY15 yoy Net sales Cost of Materials Staff cost R&D Exps Other Exps Total Expenses EBITDA margins 17.9% 13.8% 17.0% Depreciation EBIT Interest Other income PBT Tax Tax rate 33.6% 23.4% 33.0% EO PAT Equity Capital FV EPS

3 Financials (consolidated) Consol P&L (Rs. C FY14A FY15A FY16E FY17E Balance Sheet (Rs Cr FY14A FY15A FY16E FY17E Net Sales Share Capital % change 43.4% 18.0% 21.5% 20.4% Reserves & Surplus EBITDA Net Worth EBITDA margin 14.4% 16.1% 17.8% 19.4% Net Deferred Tax Lia Depn & Amort Total Loans Operating income Trade Payables Interest Provisions Other Income Other CL PBT Total Liabilities Tax Net Fixed Assets MI & EO Capital WIP PAT Investments PAT margin 6.9% 7.0% 8.5% 9.9% Cash & Bank Sh o/s - Diluted Inventories Adj EPS Debtors Cash EPS Loans & Advances Qtrly-Consol Sept.14 Dec.14 Mar.15 Jun.15 Misc Exp Revenue Total Assets EBITDA Cash Flow (Rs. Cr) FY14A FY15A FY16E FY17E Dep & Amorz Op CF before tax Op Income Change in WC Interest Tax Other Inc CF from Operation PBT Capex Tax Oth Inc & Investmen EO CF from Investing PAT Financing EPS (Rs.) Diviend Paid Performance Rati FY14A FY15A FY16E FY17E Share Capital EBITDA margin (% 14.4% 16.1% 17.8% 19.4% Loans EBIT margin 11.7% 12.1% 14.1% 15.6% Interest PAT margin 6.9% 7.0% 8.5% 9.9% Others ROE 21.1% 21.2% 19.8% 20.4% CF from Financing ROCE 15.5% 16.5% 19.4% 22.6% Net Chg. in Cash PAT growth 131.0% 20.8% 46.7% 39.7% Cash at beginning Debt/Equity (x) Cash at end Valuation Ratio FY14A FY15A FY16E FY17E Per Share Data FY14A FY15A FY16E FY17E Price Earnings (x) Adj EPS Price/BV (x) BV per share EV / Sales Cash per share EV / EBITDA Dividend per share

4 Disclaimer: Nirmal Bang Securities Private Limited (hereinafter referred to as NBSPL )is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX stock Exchange Limited. NBSPL is in the process of making an application with SEBI for registering as a Research Entity in terms of SEBI (Research Analyst) Regulations, NBSPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst (in case any financial interest is held kindly disclose) NBSPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBSPL /analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. This document, at best, represents Analyst opinion and is meant for general information only. NBSPL, its directors, officers or employees shall not in any way be responsible for the contents stated herein. NBSPL expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities Nirmal Bang Research (Division of Nirmal Bang Securities Pvt Ltd) B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai Board No : /8001 Fax :

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