Granules poised for stronger earnings cycle, says Elara; starts with 'Buy'

Brokerage firm Elara Capital has turned bullish on Granules India and initiated coverage on the pharmaceutical company with a ‘Buy’ rating, citing that the firm is at the start of a structurally stronger earnings cycle.

 

Over the past decade, Granules India, the brokerage said, has transitioned from a bulk API-led model to a US-focused formulations platform, with rising exposure to complex and differentiated products. 

Backward integration, cost efficiency and scale economics underpin GRAN’s competitive positioning, analysts Bino Pathiparampil and Kashish Thakur of Elara Capital said. Increasing contribution from low-competition products is also structurally improving the quality of the business, they added.

 

“Remediation of regulatory issues at the Gagillapur plant is likely in the near term, in our assessment. Additional capacity commissioned at the Genome Valley facility will also support growth. We project mid- to high-teen topline growth with around 100 basis points EBITDA margin expansion for GRAN over the next two years,” the analysts wrote in a research note.

 

According to Elara, GRAN trades at 16.7x FY28E core EPS, adjusted for cash per share, at a 10–20 per cent discount to most generics pharma peers.

 

The brokerage has initiated coverage on Granules India with a ‘Buy’ rating and a target price of ₹775, valuing the company at 24x FY28E core earnings plus cash per share.

 

Amid this, the company’s shares were seen trading at ₹564.75, up 1.88 per cent on the National Stock Exchange of India at 11:54 AM on Thursday, March 5.

Strategic levers strengthening growth visibility

According to Elara, GRAN has evolved from a high-volume API manufacturer into a vertically integrated formulations player with growing exposure to regulated markets. While legacy APIs helped build scale and cost leadership, forward integration into PFIs and finished dosages, the brokerage said, has improved value capture and customer stickiness.

 

“The US formulation business will enhance margin visibility and strengthen overall business quality. The Senn & Ascelis acquisition adds peptide CDMO capabilities and exposure to high-growth segments such as GLP-1, enhancing diversification and earnings durability,” said Elara.  READ | Coal India jumps 4% as Iran war lifts global coal prices; analysts upbeat

Capacity expansion, regulatory resolution to unlock growth

GRAN’s growth visibility, analysts said, is supported by capacity expansion, regulatory normalisation and portfolio upgradation. The brokerage expects remediation of regulatory issues at the Gagillapur facility to restore approval momentum, removing a key launch bottleneck.

 

“The Genome Valley facility adds incremental capacity of around 10 billion doses, with accelerating ANDA commercialisation and expansion into controlled substances, CNS and oncology expected to add to growth,” said Elara.

Earnings inflection underway

Analysts at Elara see GRAN at the start of a structurally stronger earnings cycle.

 

“Lower remediation costs, better operating leverage, higher contribution from complex and differentiated formulations, and a turnaround in the recently acquired Senn & Ascelis subsidiary should help expand margins. We project around 15 per cent revenue CAGR and 17–18 per cent Ebitda CAGR in FY26E–FY28E,” the brokerage said.  READ | Antique turns positive on Cochin Shipyard as LNG, Navy wins lift order book

Improving cash flow and capital efficiency

With peak capex largely behind and utilisation expected to rise, free cash flow (FCF) should strengthen meaningfully from FY27, the brokerage believes. Integrated operations support better asset turns and return on invested capital (ROIC), while declining leverage enhances balance sheet flexibility and opportunities for inorganic growth.

 

However, Elara cautioned that a delay in resolution of the USFDA warning letter and worsening competition in the US generics market remain key risks to its call.    ========================== 

(Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)