Granules India complex generics growth lifts FDF and API earnings

Investment View and Earnings Outlook

Motilal Oswal Financial Services Limited (MOFSL) reported that Granules India made a strong start to FY27, supported by growth in formulations (FDF) and APIs, with complex generics increasingly driving the business mix. The broker reiterated its Buy recommendation and raised its FY27E and FY28E earnings estimates by 1.0% and 1.2%, respectively.

The estimate increases reflect expectations of higher off-take of complex-generic products, the scale-up of the CDMO peptide business, improved API sales and operating leverage. MOFSL forecasts approximately 17% revenue CAGR over FY26–28, 18% FDF sales CAGR to Rs 55.3 billion in FY28E, EBITDA margin expansion of 205 basis points over the same period and 30% PAT CAGR.

The broker values Granules India at 23 times 12-month forward earnings to arrive at a target price of Rs 1,010.

Strong 1QFY27 Financial Performance

Granules India reported 1QFY27 sales growth of 22% year on year to Rs 14.8 billion, ahead of MOFSL’s estimate of Rs 14.4 billion. EBITDA increased 37.4% year on year to Rs 3.4 billion, broadly in line with the broker’s Rs 3.3 billion estimate, while adjusted PAT rose 35.5% to Rs 1.8 billion against the estimate of Rs 1.77 billion.

Gross margin expanded 75 basis points year on year to 65.6%, supported by a better product mix. EBITDA margin increased 255 basis points to 22.9%, aided by other expenses declining 230 basis points as a proportion of sales. This benefit was partly offset by employee expenses increasing 50 basis points as a proportion of sales.

FDF, API and Complex Generics Drive Growth

FDF remained the principal growth driver during 1QFY27, with sales rising 22% year on year to Rs 10.9 billion and accounting for 74% of revenue. The ADHD portfolio supported the FDF mix.

• PFI: Sales increased 9% year on year to Rs 1.3 billion.
• API: Sales rose 19% year on year to Rs 2 billion.
• CDMO: Revenue grew 106% year on year to Rs 600 million.
• Europe: Revenue grew 50% year on year, driven by API and FDF products as well as dossiers filed in prior periods.

The share of complex generics increased to 50% of 1QFY27 revenue from 46% in 1QFY26. This reflects Granules India’s transition from a volume-led generics model towards higher-value complex therapies.

Peptide CDMO Emerging as a Growth Lever

MOFSL views peptide CDMO as an emerging growth lever alongside Granules India’s stable integrated-generics business. The CDMO operation remains in ramp-up. The report’s overview notes an EBITDA loss of Rs 24 million, while its detailed discussion refers to an approximately Rs 124 million loss. The losses were attributed to project and product mix, uneven operating expenses and the timing of revenue recognition.

Granules India is adding solid-phase peptide synthesis and lyophilisation capabilities at its Zurich facility. Management expects CDMO performance to strengthen in 2HFY27 compared with 1HFY27, targets CDMO PAT positivity in FY27 and aims to generate approximately US$50 million of CDMO revenue by FY30.

During 1QFY27, the company initiated three customer projects and re-engaged customers on two discontinued products. One of these products could be reactivated in FY27.

Capacity, Pipeline and Capital Expenditure

Management expects overall EBITDA margin to remain approximately 22–23% and plans to launch one to two controlled-substance products over the next roughly 1.5–2 years. R&D spending is expected to be approximately 5.5–6% of sales.

Granules India has 50 dossiers awaiting approval across geographies, including 26 complex generics, and filed five dossiers in 1QFY27. The US facility is operating at 70% utilisation, with capacity being expanded for FY28 requirements.

Operating cash flow increased to Rs 3.8 billion in 1QFY27, helped by lower US receivable days. FY27 capex guidance is approximately Rs 6 billion, of which Rs 890 million was incurred in 1QFY27. Major investments at Genome Valley are largely complete.

Regulatory Progress and Key Monitorable

Regulatory progress has been positive, although the Gagillapur facility remains an important monitorable. Granules India’s Virginia GPI facility received USFDA clearance in June 2026, taking the number of facilities with a clean EIR to seven out of eight.

Remediation at Gagillapur is complete and responses have been submitted, but the outcome of the re-inspection is awaited. Operations and supplies remain unaffected. However, approval of nine pending ANDAs is contingent on successful USFDA inspections.

Key Forecasts and Valuation