See a gap of 2-3 days without inventory; material shipments arriving by sea- Krishna Chigurupati, Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY closed marginally higher (+0.2%) at 11,269 after a continuous losing streak in the previous days. The top gainers in NIFTY50 were Yes Bank (+26.9%), Eicher Motor (+2.9%) and Kotak Bank (+2.6%), whereas Zeel (-5.6%), Hindalco (-2.9%) and Infratel (-2.6%) were the top losers. Among sectoral indices, PSU Bank (+1.4%), FMCG (+1.1%) and Pharma (+0.7%) were the gainers while Realty (-1.1%), Metal (-0.8%) and Media (-0.7%) closed in red.

Excerpts from an interview of Mr. Krishna Prasad Chigurupati, Chairman and MD- Granules India with CNBC-TV18 dated – 3^rd March 2020:

• He said, “We just have to apply to the Directorate General of Foreign Trade (DGFT) for permissions and then they would give us permission to export based on past exports”.
• In the worst case, maybe some of the shipments from this month may spill over to next month. Otherwise, two quarters put together he doesn’t see any big impact.
• Most of the intermediates or the raw materials come from China. For example with regards to Paracetamol – the key intermediate comes from China and there has been a disruption or delay for about a week.
• They have inventory for another 10 days but materials are arriving. So, there could be a gap of about 2-3 days without inventory but the shipments are already on the way and they should be getting them by next week. So, there is no issue on the inventories side.
• It depends on how quickly the government acts on awarding permission to exports so there could possibly be little spill over into the next quarter. There could be a little fall in 4QFY20 which will be made up in the next quarter.
• Airlifting of some products is happening. Air freights have gone up, the prices have gone up and there could be an increase in the cost of raw materials.
• As far as their products are concerned there is absolutely no issue, everything is coming by sea. So, he doesn’t see any impact on margins.
• They supply APIs to Indian companies, Paracetamol especially, but formulations are all for exports. They never sell any formulations within India. 

Consensus Estimate: (Source: market screener website)

• The closing price of Granules India was ₹ 178/- as of 05-March-2020.  It traded at 13x/ 11x/ 9x the consensus earnings estimate of ₹ 13.6/ 15.5/ 19.2 for FY20E/FY21E/FY22E respectively.
• The consensus target price for Granules is ₹ 172/- which implies a PE multiple of 9x on FY22E EPS of ₹ 19.2/-.