Deven Choksey Research has issued a BUY recommendation for Granules India Limited, setting a 12-month target of Rs 612 from the current market price of Rs 527, implying a potential upside of 16.2%. The Q4FY25 results reflect a deliberate pivot from commoditized APIs to high-margin, complex generics, with robust growth in the Finished Dosage (FD) segment offsetting declines in API and PFI revenues. Regulatory remediation costs and paracetamol oversupply weighed on short-term margins, but strategic capacity expansions and entry into peptide CDMO signal strong long-term growth. The report highlights a 16% revenue CAGR and 20.1% PAT CAGR projected for FY25–FY27.

Granules India: A Strategic Transformation in the Making

Granules India Ltd., a leading Indian pharmaceutical player, is at a pivotal juncture. Deven Choksey Research, a respected institutional research house, has reaffirmed its BUY call, projecting a 12-month target of Rs 612 for the stock, which currently trades at Rs 527. This recommendation is anchored in the company’s evolving business model, which is increasingly focused on high-value, complex generics and vertical integration.

The research note emphasizes that while near-term results have been muted due to regulatory headwinds and commodity API pricing pressures, the long-term thesis remains robust. Granules is shifting away from low-margin, price-sensitive APIs—especially paracetamol—toward internally consumed, high-margin formulations. This transition, though temporarily impacting top-line growth, is expected to bolster profitability and resilience in the medium term.

Q4FY25 Performance: A Mixed Bag with Silver Linings

Granules India reported Q4FY25 revenue of Rs 11,974 million, up 1.8% year-on-year, but below Deven Choksey’s estimates by 9.6%. EBITDA for the quarter stood at Rs 2,524 million, down 1.3% year-on-year, and net profit was Rs 1,213 million, a 6.5% annual decline. The underperformance was attributed to weak growth in API and PFI segments, higher operating expenses, and increased remediation costs related to FDA compliance.

Finished Dosage (FD) Segment:
The FD segment, which now accounts for 77.3% of total revenue, grew 7.1% year-on-year to Rs 9,259 million. This growth was driven by successful U.S. launches of specialty products, including lisdexamfetamine capsules for ADHD, and the ramp-up of manufacturing at the Genome Valley facility.

API and PFI Segments:
API revenue declined 9.2% year-on-year to Rs 1,483 million, while PFI sales fell 16.9% to Rs 1,232 million. These declines were largely intentional, as Granules redirected more API and PFI output toward internal FD manufacturing to capture higher value and insulate itself from volatile external markets.

Margin Dynamics: Short-Term Pain, Long-Term Gain

Gross margins expanded by 333 basis points year-on-year to 63.4%, reflecting the favorable shift toward high-margin formulations and reduced exposure to price-sensitive APIs. However, EBITDA margins contracted 67 basis points to 21.1%, weighed down by elevated remediation costs and higher R&D expenses. The company incurred Rs 600 million in FDA remediation costs in FY25, with a portion booked in Q4. These costs are expected to taper off by Q3FY26, paving the way for margin normalization as new capacities come online and operating leverage improves.

R&D investment continues to rise, with Q4FY25 spend at Rs 665 million, up 9% year-on-year. This underscores Granules’ commitment to building a robust pipeline of complex generics and specialty products.

Growth Catalysts: Genome Valley and Peptide CDMO

Granules is making significant strides in capacity expansion and portfolio diversification. The Genome Valley facility, now operational with Phase I (2.5 billion dosage units), has commenced commercial dispatches. Phase II, which will add another 7.5 billion dosage capacity, is in the commissioning stage. Once fully operational, this will materially enhance Granules’ FD manufacturing capabilities and support future growth in regulated markets.

The acquisition of Senn Chemicals AG marks Granules’ formal entry into the high-growth peptide CDMO segment, with an initial focus on GLP-1 receptor agonists used in obesity and diabetes treatments. This move positions the company to capitalize on a $2+ billion addressable market and diversify its revenue streams beyond traditional generics.

Regulatory and Market Risks: Navigating Headwinds

Granules faces near-term regulatory risks, most notably a warning letter from the FDA for its Gagillapur site. This has temporarily impacted the review of pending product submissions, though commercial supply of approved products remains unaffected. The U.S. market, which accounts for 79% of Granules’ revenue, is also exposed to potential import tariff risks. Management has indicated it will pass on any additional costs to customers if tariffs are imposed.

Paracetamol API, once a major revenue driver, is now a drag due to global oversupply and price erosion. Granules is deliberately reducing external sales of paracetamol API, focusing instead on internal conversion to higher-value formulations.

Financial Outlook and Valuation

Deven Choksey Research has revised its FY26 and FY27 EPS estimates downward by 6% and 12.4%, respectively, to reflect weaker H1FY26 performance and ongoing regulatory risks. However, the long-term outlook remains positive, with projected revenue and PAT CAGRs of 16% and 20.1% over FY25–FY27.

The stock is currently trading at 21.0x and 17.5x FY26 and FY27 earnings, respectively, below its three-year average P/E of 24.1x. The research house values Granules at 20.5x FY27 EPS, implying a target price of Rs 612. Key valuation metrics are summarized below:

Stock Levels and Investment Strategy

Current Market Price (CMP): Rs 527
Target Price: Rs 612 (16.2% upside)
52-Week Range: Rs 401 – Rs 721
Market Cap: Rs 148,149 million
Recommendation: BUY

Investors are advised to accumulate the stock on dips, especially below Rs 500, as near-term headwinds are expected to abate over the next 12 months. The company’s strategic pivot, capacity expansion, and entry into high-growth segments like peptide CDMO position it well for sustained value creation.

Conclusion: A Compelling Opportunity for Long-Term Investors

Granules India’s transformation from a commodity API player to a high-value, vertically integrated pharmaceutical company is well underway. While regulatory and market risks persist in the near term, the company’s strategic initiatives—capacity expansion, complex generics, and entry into peptide CDMO—are expected to drive robust growth and margin expansion over the medium to long term. Deven Choksey Research’s BUY recommendation and Rs 612 target price reflect confidence in Granules’ ability to navigate current challenges and capitalize on emerging opportunities in the global pharmaceutical landscape.

Investors with a 12–18 month horizon and an appetite for moderate risk should consider Granules India as a core holding in their healthcare portfolio.

Disclaimer: The views expressed herein are for informational purposes only and not a solicitation to buy or sell any securities.