Motilal Oswal Reiterates 'Buy' On Granules India; Regulatory Inspection At Gagillapur To Be A Near-Term Hurdle

Motilal Oswal Report

Stocks to Buy: We lower the PE multiple from 20 times to 18 times to factor in the escalation of the regulatory issue and arrive at a target price of Rs 625. Reiterate Buy.

U.S. Food and Drug Administration classified Granules India Ltd.'s Gagillapur site as Official Action Indicated following the recent inspection.  OAI implies that the remediation measures have some lacuna in addressing issues highlighted by U.S. FDA.

Having said that, there are only three abbreviated new drug application pending for approval. Additionally, with the OAI classification, Granules India can continue to supply the approved products.

The temporary disruption in production due to the implementation of remediation measures is already built into our FY25 estimates.

Granules India is not only diversifying its formulation manufacturing capacity at Vizag/Genome Valley/Virginia but also building capabilities to manufacture products in oncology as well as utilizing differentiated technologies such as multiple unit pellet system .

We expect a 29% earnings CAGR over FY25-27, driven by-

1. building a niche pipeline in oncology and innovative tech-based products;

2. large volume products; and

3. backward integration.

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