Emkay Global Financial is bullish on Granules India has recommended buy rating on the stock with a target price of Rs 340 in its research report dated July 17, 2020.
Emkay Global Financial's report on Granules India
GRAN’s Q1 print was solid, with revenue/EBITDA beating our estimates by 9%/18% − the best ever for the company. Gross margins rose 600bps qoq, helped by higher realizations, product rationalization and better mix. Current quarter GMs are largely sustainable, as per management, and should help drive a 30% increase in PAT in FY21. Over the last four quarters, GRAN’s gross margins have improved by ~900bps and we factor in 600bps improvement in GMs yoy in FY21. Balance sheet improvement continued, with leverage further down (net debt/EBITDA at 0.8x vs. 1.2x in FY20), though FCF generation was relatively weak (Rs373mn) due to higher WC. In line with management guidance, promoter pledge fell to ~8% from ~37%.
Outlook
We raise FY21/22/23 EPS by 13%/8%/10%, factoring in higher margins. With strong operating performance and a leaner balance sheet, we expect GRAN to re-rate. We retain Buy with a revised TP of Rs340. GRAN remains our top small cap pick and OW in EAP.
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