Hits & misses: Rs 7 lakh in this stock for 7 years...

Hits & misses: Rs 7 lakh in this stock for 7 years could have made you Crorepati  

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Source : THE ECONOMICS TIMES

NEW DELHI: Ace investor Warren Buffet once said the rear-view mirror is always cleaner than windshield in the business world.

That holds true for the stock market too!

Looking back you feel there were stocks you could have identified much earlier and they could have made your retirement plans easier to accomplish.

Unfortunately, hits and misses are a part and parcel of investing.

For many, one such miss is Granules India. An initial investment of around Rs 7 lakh (Rs 6,88,550) in the stock seven years ago could have made you a crorepati by now.

The stock has been ruling at Rs 130-odd level these days, compared with a price below Rs 10 seven year ago. It has rewarded investors at a compounded annual growth rate (CAGR) of nearly 50 per cent. That said, a few brokerages still hold a bullish view on the stock and expects up to 25 per cent upside on the counter from here on.

The scrip has been in news after the company successfully completed re-inspection of the company’s facility in Telangana by a Portugal agency. The company had in January received eleven observations from Infarmed, the Portuguese drug regulator, for its facility located at Gagillapur, Telangana.

Data showed net sales for the company have grown three-fold in last seven years, while profit has jumped four-fold in the same period.

The company, which is expecting to complete expansion of its API and PFI facilities by April 2017, has reported a profit growth in excess of 20 per cent in last six quarters. Margins have expanded by 170 basis points during FY10-16.

But the stock with a free-float market capitalisation of Rs 1,449.20 crore has not caught the fancy of institutional investors, even as foreign institutional investors’ (FIIs) stake in the company rose to 6 per cent at the end in December quarter from less than one per cent seven years ago.

The stock trades at 20.54 times its trailing 12-month earnings per share.

The company is targeting about Rs 200 crore revenue from the recently commissioned Omnichem JV plant in FY17 and double it by FY19.

In a recent interview to ET Now, Granules India CMG Krishna Prasad said: “FY17 is strong and FY18 will be stronger than that. The first quarter of this year was quite good. The second and third quarters, because of the production cycles, have not been great. But the ongoing quarter is going to see a huge upside and we estimate that OmniChem is going to clock revenues anywhere between Rs 180 crore and Rs 200 crore, with an Ebitda of not less than 20 per cent.”

Brokerage Motilal Oswal believes the stock has the potential to deliver returns in excess of 50 per cent over the next 12-18 months, led by multiple re-ratings to 15 times forward earnings and strong EPS growth of 30 per cent (CAGR). The brokerage has a target price of Rs 160 based on 16 times H1 of FY19E price-to-earnings ratio.

Brokerage Anand Rathi Share and Stock Brokers believes the base business growth (excluding Auctus) is likely to improve once the company starts benefitting from the expanded facility.

Also, a turnaround at Auctus thanks to additional APIs and significant contribution from the Omnichem JV would drive revenue growth and profitability, it said.

“Currently, the stock trades at 17.2 times, 13.6 times and 12 times respective FY17e, FY18e and FY19e earnings. We believe increasing emphasis on finished dosages and greater efficiencies would drive revenue and profit. We maintain a buy rating on the stock with a revised target price of Rs 166,” the brokerage said.