Over the last six years, GRAN has reported 39% earnings CAGR on improved profitability, higher operating leverage and superior business mix. It expanded its finished dosages business at a CAGR of 24% over FY12-17, leading to higher profitability and improved utilization of the existing capacity of 18b tablets.
Profitability of the PFI business has also improved substantially, with the implementation of 6MT order capacity. As a result, GRAN has expanded its EBITDA margin from 11.8% in FY11 to ~21% in FY17.
Going ahead, we expect >25% PAT CAGR to continue till FY20, supported by 25% revenue CAGR and ~110bp margin expansion. Our target price of INR200 discounts GRAN’s FY19E EPS at 18x, which is at 5-10% premium to peers.
GRAN is currently trading at 13.7x FY19E EPS. We argue for a P/E re-rating for GRAN, given (a) strong PAT growth outlook of >25% CAGR over FY17-20E, backed by 25% revenue CAGR, and (b) expansion in high-margin CRAMs and US generics business.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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