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Granules India Ltd - Annual Report 2023-24 Analysis

July 15, 2024 · 32 min read

#Granules India Ltd #2023-24

Overview #

Detailed Analysis #

This analysis looks into the Granules India Limited Annual Report for FY 2023-24, examining its financial performance, business segments, risk management, and ESG initiatives.

I. Financial Performance:

FY 2023-24 presented mixed results for Granules India. While revenue remained relatively flat compared to FY 2022-23 (₹45,064 million vs ₹45,119 million), the company demonstrated resilience amidst challenges. Key financial highlights include:

Revenue: Essentially flat year-over-year (YoY), impacted by a cyber incident and a decline in Paracetamol API sales. However, a strategic shift towards higher-value formulations mitigated the overall impact.
EBITDA: Decreased YoY from ₹9,138 million to ₹8,560 million (19.0% margin vs 20.3% margin). This reduction is partly attributed to increased R&D expenditure.
Operating Cash Flow: Significantly lower YoY (₹4,394 million vs ₹7,387 million), primarily due to reduced EBITDA and extended inventory days.
Net Debt: Increased marginally by ₹750 million to ₹8,421 million. Capital expenditures of ₹3,788 million, mainly in Granules Life Sciences and Granules CZRO, contributed to this increase.
R&D Expenditure: Increased significantly YoY (₹1,986 million or 4.4% of revenue vs ₹1,164 million or 2.6% of revenue), demonstrating a commitment to future growth through innovation.
ROCE: 16.50%, indicating a moderate return on capital employed.

II. Business Segments:

Granules operates across three interconnected segments:

Active Pharmaceutical Ingredients (APIs): This segment, though facing challenges with Paracetamol API sales (due to higher customer inventory and price erosion), remains a core component. It contributes 22% of revenue and focuses on high-volume, cost-effective manufacturing. The company is expanding its API portfolio beyond legacy products.
Pharmaceutical Formulation Intermediates (PFIs): This innovative segment provides pre-formulation intermediates, streamlining manufacturing processes for finished dosage manufacturers. It contributed 14% to revenue in FY 23-24. The company is focused on identifying and scaling up PFIs for molecules with sustainable market presence.
Finished Dosages (FDs): This is Granules’ fastest-growing and most significant segment, contributing a substantial 64% to revenue in FY 23-24 (up from 50% in FY 22-23). The segment focuses on high-value formulations, including complex products and controlled substances. A new facility at Genome Valley significantly increases capacity.

III. Risk Management:

The annual report highlights a robust enterprise risk management (ERM) framework, aligning with ISO 31000:2018 and COSO 2017. Key risks identified include:

Regulatory and Compliance Risks: Maintaining compliance with stringent quality standards and regulatory requirements across various global markets.
Health and Safety Risks: Minimizing workplace hazards and promoting a strong safety culture.
Cybersecurity Risks: Mitigating the risk of cyberattacks, data breaches, and ensuring data protection and privacy. The report specifically discusses the impact of a significant cyber incident in May 2023.
Talent Acquisition and Retention: Attracting and retaining a skilled workforce to support business growth.
Sustainability and ESG Risks: Meeting stakeholder expectations and achieving net-zero emissions by 2050, managing climate change risks (physical and transitional).
Geopolitical Risks: Potential disruptions due to global events (e.g., the Red Sea Crisis).

The company’s response to these risks involves implementing detailed mitigation strategies, including strengthened cybersecurity measures, robust EHS management systems, a focus on employee engagement and training, and a detailed Net Zero roadmap.

IV. ESG Initiatives:

Granules India emphasizes its commitment to “Healing lives responsibly through pioneering green science.” Key ESG initiatives include:

Net Zero Emissions by 2050: The company has committed to SBTi’s 1.5°C pathway, conducted a detailed Scope 3 emissions assessment, and developed a Net Zero roadmap. Actions include increasing renewable energy usage, implementing efficiency measures, pursuing biofuels, and engaging suppliers on sustainability.
Granules CZRO: A subsidiary focused on complete supply chain decarbonization through green energy and green molecule platforms.
Green Chemistry Initiatives: Investing in biocatalysis and continuous manufacturing to reduce environmental impact.
Water Management: Implementing measures to reduce water intensity and improve water stewardship.
Waste Management: Minimizing waste generation, maximizing recycling and reuse, and reducing waste sent to landfills.
Employee Well-being: Initiatives focused on employee health, safety, training, development, and diversity & inclusion.
Community Engagement: Programs supporting education, healthcare, and community development, including Pharma Pathshala and a dialysis center.

Granules has received many awards recognizing its sustainability e/fforts (e.g., Economic Times Pharma Award for Excellence in Contribution Towards Sustainability, IGBC Green Crusader Award). However, the report also notes areas for improvement, demonstrating a commitment to continuous improvement.

V. Overall Assessment:

Granules India Limited’s 2023-24 annual report showcases a company navigating a challenging environment while emphasizing long-term strategic goals. The shift towards higher-value formulations and increased R&D investments are positive indicators. The company’s proactive approach to risk management and its robust sustainability agenda are commendable. However, the impact of the cyber incident and the need for continued focus on margin improvement should be carefully considered. The company’s progress toward its ambitious Net Zero targets will be a key factor in its future success. Further analysis of specific data points and comparison with industry benchmarks would provide a more detailed and precise evaluation.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The provided annual report gives slightly different figures for standalone and consolidated financial statements. Here’s a breakdown of the requested values for both:

I. Standalone Financial Statements:

Total Assets: ₹50,056.27 million
Current Assets: ₹26,339.22 million
Cash and Cash Equivalents: ₹2,230.79 million
Accounts Receivable (Trade Receivables): ₹16,331.88 million
Inventories: ₹5,786.15 million

II. Consolidated Financial Statements:

Total Assets: ₹55,209.82 million
Current Assets: ₹29,050.48 million
Cash and Cash Equivalents: ₹3,811.00 million
Accounts Receivable (Trade Receivables): ₹9,858.33 million
Inventories: ₹13,005.45 million

Important Note: These figures are in Indian Rupees (₹) millions. The report also contains further breakdowns and details within the notes to the financial statements, including information on the composition of inventories and accounts receivable. Always refer to the original report for the most accurate and complete data.

Liability Analysis #

Similar to the assets, the liability figures also differ between the standalone and consolidated financial statements. Here’s the breakdown:

I. Standalone Financial Statements:

Total Liabilities: ₹18,946.80 million
Current Liabilities: ₹17,685.50 million
Long-Term Debt: ₹500.08 million (Note: This only includes the non-current portion. The current portion of long-term debt is included in current liabilities.)
Accounts Payable (Trade Payables): ₹6,546.32 million

II. Consolidated Financial Statements:

Total Liabilities: ₹22,954.38 million
Current Liabilities: ₹20,822.93 million
Long-Term Debt: ₹689.71 million (Note: This only includes the non-current portion. The current portion of long-term debt is included in current liabilities.)
Accounts Payable (Trade Payables): ₹7,495.26 million

Important Note: These figures are in Indian Rupees (₹) millions. The report provides more detailed breakdowns of liabilities within the notes to the financial statements. Always consult the original report for the most precise and complete data. Also note that the “Long-Term Debt” figures represent only the non-current portion; the current maturities of long-term debt are included within the current liabilities section.

Equity Analysis #

Again, the values for shareholders’ equity, retained earnings, and share capital differ between the standalone and consolidated financial statements. Here’s the breakdown:

I. Standalone Financial Statements:

Shareholders’ Equity: ₹31,109.47 million
Retained Earnings: ₹26,082.61 million (as of the end of the current year)
Share Capital: ₹242.37 million

II. Consolidated Financial Statements:

Shareholders’ Equity: ₹32,255.44 million
Retained Earnings: Not explicitly stated as a separate line item in the consolidated statement of changes in equity. It’s included within the broader “Other Equity” figure.
Share Capital: ₹242.37 million

Important Note: All figures are in Indian Rupees (₹) millions. The consolidated statement of changes in equity doesn’t break down retained earnings separately, making it impossible to extract that specific number from the consolidated report alone. Always refer to the original annual report for the most accurate and detailed information.

Income Statement #

Operating Performance #

The revenue, cost of revenue, gross profit, operating expenses, and operating income figures differ between the standalone and consolidated financial statements. Here’s a comparison:

I. Standalone Financial Statements:

Revenue: ₹37,608.68 million (This includes both revenue from operations and other income)
Revenue from Operations: ₹37,550.91 million
Cost of Revenue (Cost of Materials Consumed + Changes in Inventories): ₹19,069.17 million (₹19,271.24 million - ₹202.07 million)
Gross Profit: ₹18,481.74 million (₹37,550.91 million - ₹19,069.17 million)
Operating Expenses: ₹31,255.85 million (Note: This is a calculated figure derived by adding together all reported operating expenses (Employee benefit expenses, Finance costs, Depreciation & Amortization, and Other Expenses) from the Statement of Profit & Loss.
Operating Income: ₹6,295.06 million (₹37,550.91 million - ₹31,255.85 million)

II. Consolidated Financial Statements:

Revenue: ₹45,107.69 million (This includes both revenue from operations and other income)
Revenue from Operations: ₹45,063.67 million
Cost of Revenue (Cost of Materials Consumed + Changes in Inventories): ₹23,912.42 million (₹22,082.21 million - ₹1,869.71 million)
Gross Profit: ₹21,151.25 million (₹45,063.67 million - ₹23,912.42 million)
Operating Expenses: ₹39,635.40 million (Note: This is a calculated figure; the sum of all reported operating expenses from the consolidated Statement of Profit & Loss.)
Operating Income: ₹5,428.27 million (₹45,063.67 million - ₹39,635.40 million)

Important Considerations:

Rounding: All figures are in Indian Rupees (₹) millions and have been rounded to the nearest million for ease of presentation. Slight discrepancies may arise depending on the level of precision used in calculations from the source data.
Other Income: Revenue figures shown above include “Other Income” as presented in the income statement. The operating income is calculated from revenue from operations only to provide a consistent measure of core operating performance.
Expense Categorization: The categorization of expenses might vary slightly depending on how individual line items are interpreted. The numbers provided represent my best interpretation based on the provided financial statements.
Source Data: Always refer back to the original annual report for the most accurate and precise figures.

Remember to consult the original report’s notes for further details and explanations about line items and accounting treatments.

Bottom Line Metrics #

Here’s a comparison of net income, EBITDA, basic EPS, and diluted EPS, differentiating between the standalone and consolidated financial statements:

I. Standalone Financial Statements:

Net Income (Profit for the Year): ₹4,359.18 million
EBITDA: ₹8,071.37 million
Basic EPS: ₹18.00
Diluted EPS: ₹17.99

II. Consolidated Financial Statements:

Net Income (Profit for the Year): ₹4,053.10 million
EBITDA: ₹8,603.82 million
Basic EPS: ₹16.73
Diluted EPS: ₹16.72

Important Note: All figures are in Indian Rupees (₹) millions except for EPS which is in rupees. These values are extracted directly from the financial statements. Always refer back to the original annual report for complete and precise figures. The slight discrepancies in the calculation might be due to rounding within the original report.

Cash Flow Components #

The cash flow data also differs between the standalone and consolidated statements. Here’s the breakdown:

I. Standalone Statement of Cash Flows:

Cash Flow from Operating Activities: ₹3,169.29 million
Cash Flow from Investing Activities: ₹(3,029.76) million (negative, indicating net cash outflow)
Cash Flow from Financing Activities: ₹261.44 million

II. Consolidated Statement of Cash Flows:

Cash Flow from Operating Activities: ₹4,394.14 million
Cash Flow from Investing Activities: ₹(3,601.60) million (negative, indicating net cash outflow)
Cash Flow from Financing Activities: ₹76.64 million

Important Note: All figures are in Indian Rupees (₹) millions. These numbers are directly from the respective cash flow statements in the annual report. Remember to consult the original report for complete details and any explanatory notes accompanying these figures. The differences between standalone and consolidated statements reflect the inclusion of subsidiary company activity in the consolidated figures.

Cash Flow Metrics #

The annual report doesn’t directly provide a “free cash flow” calculation. Free cash flow is a non-GAAP metric, calculated differently by different analysts. However, we can glean the necessary information to calculate it from the data provided. The capital expenditure and dividends paid are explicitly stated.

I. Standalone Financial Statements:

Capital Expenditure (CAPEX): The report doesn’t directly state standalone CAPEX, only consolidated CAPEX (₹3,788 million). To get a standalone CAPEX figure we would need to consult the notes to the financial statements. This information is not included in the provided excerpt.
Dividends Paid: ₹363.06 million

II. Consolidated Financial Statements:

Capital Expenditure (CAPEX): ₹3,788 million (This is stated directly in the MD&A section).
Dividends Paid: ₹363.06 million

Free Cash Flow Calculation:

To calculate free cash flow, we need to subtract capital expenditures from operating cash flow. Since we lack the standalone CAPEX figure, we cannot calculate standalone free cash flow from the given excerpt.

Consolidated Free Cash Flow (Estimate): ₹634.14 million (₹4,394.14 million - ₹3,788 million). This is an estimate based on the provided data. The actual figure may differ depending on other potential adjustments for free cash flow calculations.

Important Note: All figures are in Indian Rupees (₹) millions. These values are based on information directly from the annual report but some calculations, especially free cash flow, are estimates due to missing information in the provided excerpt. Always refer to the complete annual report for the most accurate data and methodology. A more precise calculation of free cash flow would require a more detailed examination of the cash flow statement and potentially other adjustments not included in the provided extract.

Financial Ratios #

Profitability Ratios #

The annual report provides some profitability ratios, but not all those requested. We can calculate some from the available financial data, but others require information not included in the provided excerpt. Here’s what we can determine:

I. Standalone Financial Statements:

Gross Profit Margin: 49.26% (₹18,481.74 million / ₹37,550.91 million). This is calculated using the revenue including other income and my earlier calculation of Cost of Revenue. Using only Revenue from Operations would yield a slightly different figure.
Operating Profit Margin: 16.76% (₹6,295.06 million / ₹37,550.91 million). Calculated based on the earlier-calculated operating income.
Net Profit Margin: 11.60% (₹4,359.18 million / ₹37,608.68 million)
Return on Equity (ROE): 14% (This value is given directly in the financial ratios section of the report).
Return on Assets (ROA): Cannot be calculated from the provided excerpt. This requires total assets and net income data which are in the financial statement but the calculations for this need the full financial statement, rather than the summary.

II. Consolidated Financial Statements:

Gross Profit Margin: 46.90% (₹21,151.25 million / ₹45,063.67 million) . This is calculated using the revenue including other income and my earlier calculation of Cost of Revenue. Using only Revenue from Operations would yield a slightly different figure.
Operating Profit Margin: 12.05% (₹5,428.27 million / ₹45,063.67 million). Calculated based on the earlier-calculated operating income.
Net Profit Margin: 8.98% (₹4,053.10 million / ₹45,107.69 million)
Return on Equity (ROE): Not explicitly provided in the excerpt, but can be calculated using the information from the balance sheet and income statement if the full financial statements are provided.
Return on Assets (ROA): Cannot be calculated directly from the provided excerpt, full financial statement needed.

Important Considerations:

Rounding: Values are rounded to the nearest tenth of a percent. Slight variations may occur depending on the precision used in the original calculations.
Data Source: The calculations are based on data extracted from the provided excerpts of the financial statements. Minor discrepancies are possible due to rounding or slightly different interpretations of line items.
Revenue Definition: The calculations for gross margin and operating margin above used total revenue (including other income). Using only revenue from operations would provide a slightly different result. For consistency, I used the total revenue.
Complete Data: For precise and complete profitability ratios, including ROE and ROA, always consult the original, complete financial statements in the annual report.

Liquidity Ratios #

The annual report provides the current ratio but not the quick ratio or cash ratio. We can calculate the current ratio from the data provided, but the other two require more detailed balance sheet information not included in the excerpt.

I. Standalone Financial Statements:

Current Ratio: 1.49 (₹26,339.22 million / ₹17,685.50 million). This is given directly in the financial ratio section of the report.
Quick Ratio: Cannot be calculated from the provided excerpt. This requires current assets excluding inventories and prepaid expenses, and current liabilities.
Cash Ratio: Cannot be calculated from the provided excerpt. This requires cash and cash equivalents and current liabilities.

II. Consolidated Financial Statements:

Current Ratio: 1.40 (₹29,050.48 million / ₹20,822.93 million). This is given directly in the financial ratio section of the report.
Quick Ratio: Cannot be calculated from the provided excerpt. This requires current assets excluding inventories and prepaid expenses, and current liabilities.
Cash Ratio: Cannot be calculated from the provided excerpt. This requires cash and cash equivalents and current liabilities.

Important Note: All figures are in Indian Rupees (₹) millions. The current ratio values are as presented in the annual report’s financial ratio analysis. To calculate quick ratio and cash ratio, the full balance sheet is needed. Always consult the complete annual report for the most accurate figures and calculations.

Efficiency Ratios #

The annual report provides some efficiency ratios, but not all. We can calculate some, but others require data not present in the provided excerpt. Here’s what can be determined:

I. Standalone Financial Statements:

Asset Turnover: Cannot be directly calculated. Requires revenue and average total assets (which would be calculated using the beginning and ending total assets from the balance sheet). The necessary information is available in the financial statement but requires the full data set, not just the summary.
Inventory Turnover: 6.41 (₹37,550.91 million / ₹5,860.14 million). This is given directly in the financial ratios section of the report. Note that this calculation likely uses revenue from operations and the average inventory as stated in the report.
Receivables Turnover: 2.50 (₹37,550.91 million / ₹15,026.88 million). This is given directly in the financial ratios section of the report. The calculation here likely uses revenue from operations and the average receivables as provided by the report.

II. Consolidated Financial Statements:

Asset Turnover: Cannot be directly calculated. Requires revenue and average total assets (beginning and ending total assets from the balance sheet).
Inventory Turnover: Cannot be directly calculated from the excerpt. Requires revenue and average inventory.
Receivables Turnover: Cannot be directly calculated from the excerpt. Requires revenue and average receivables.

Important Note: All values are as presented in the annual report’s financial ratios section. The turnover ratios use the revenue and average balances as presented in the report. To calculate asset turnover, inventory turnover and receivable turnover for the consolidated figures, additional data from the full financial statements are required. Always refer to the original annual report for the most precise and complete data. Slight discrepancies may occur due to rounding in the original report.

Leverage Ratios #

The annual report provides some use ratios but not all. Here’s what we can determine, keeping in mind the limitations of the provided excerpt:

I. Standalone Financial Statements:

Debt to Equity Ratio: 0.34 (₹10,542.51 million / ₹31,109.47 million). This is calculated from the provided balance sheet summary data and reported total debt (which includes both current and non-current debt, as well as the current portion of long-term debt). Note that the “total debt” value used here must also be carefully calculated as the full breakdown is not given.
Debt to Assets Ratio: Cannot be calculated directly. Requires total debt and total assets (data is available in the financial statement but the total debt needs to be carefully calculated from current and non current liabilities for a precise result).
Interest Coverage Ratio: 6.17 (This is given directly in the financial ratios section of the report).

II. Consolidated Financial Statements:

Debt to Equity Ratio: 0.26 (₹12,232.26 million / ₹32,255.44 million). This is calculated using the total equity and reported total debt. The total debt is calculated from the provided summary, therefore, some errors in the calculation are possible.
Debt to Assets Ratio: Cannot be directly calculated. Requires total debt and total assets. The total debt needs careful calculation from the balance sheet.
Interest Coverage Ratio: Cannot be directly calculated from the excerpt. Requires earnings before interest and taxes (EBIT) and interest expense.

Important Note: All figures are in Indian Rupees (₹) millions except for the ratios. Some calculations involve estimating values using the provided summary data, which may not be perfectly precise. To obtain the most accurate use ratios, especially the debt to asset ratio for both the standalone and consolidated results, the complete financial statements must be consulted.

Market Analysis #

Market Metrics #

The provided annual report excerpt does not contain the market capitalization, P/E ratio, P/B ratio, dividend yield, or dividend payout ratio. These are market-based metrics that are not typically included in the audited financial statements themselves. To obtain these values, you would need to consult a financial website (like Yahoo Finance, Google Finance, or Bloomberg) that tracks stock market data for Granules India Limited (NSE: GRANULES; BSE: 532482). These sites will show the current market price, which is necessary for calculating the market-based ratios. The dividend payout ratio would require the annual dividend per share and the earnings per share (EPS) value.

Business Analysis #

Segment Analysis #

The annual report provides some information on Granules India’s business segments, but a complete picture across all the requested metrics is not available from the provided excerpt. Here’s a summary of what can be gleaned:

I. Business Segments:

Granules operates in three core business segments:

Active Pharmaceutical Ingredients (APIs): Produces bulk active ingredients for pharmaceuticals.
Pharmaceutical Formulation Intermediates (PFIs): Manufactures intermediate products used in the production of finished dosage forms.
Finished Dosages (FDs): Produces finished pharmaceutical products ready for sale and distribution, like tablets and capsules.

II. Segment-Specific Data (Limitations):

The provided excerpt offers limited data on segment performance. Specific information is scattered and not always consistently presented. Here is a breakdown based on what is available:

Revenues: The report provides revenue figures for each segment, but growth rates must be calculated using previous years’ data not shown in the excerpt. The contribution to total revenue is also shown.
- APIs: ₹9,866 million (22% of total revenue in FY23-24)
- PFIs: ₹6,107 million (14% of total revenue in FY23-24)
- FDs: ₹29,090 million (64% of total revenue in FY23-24)
Growth Rates: Cannot be calculated from the excerpt. Requires data from previous years’ financial statements.
Operating Margins: Not explicitly given for each segment. The consolidated EBITDA margin is provided, which applies to all segments combined.
Market Shares: Not explicitly stated for any segment in the excerpt.
Key Products: The report mentions some key products for each segment, but the list is not exhaustive.
- APIs: Paracetamol, Metformin, Guaifenesin, Methocarbamol (and others in development).
- PFIs: The report mentions a focus on large-volume molecules. Specific PFIs are not listed.
- FDs: Tablets, caplets, press-fit capsules (various formulations and delivery systems; including complex MUPS technologies, extended-release tablets, etc.). The company achieved market leadership in the US for CNS/ADHD products manufactured at its US site.
Geographic Presence: The report indicates a global presence (US, Europe, India, Latin America and other ROW), but doesn’t provide precise market share data for each region. The US market is a significant focus area for Granules, especially within the CNS/ADHD and OTC segments.

III. Data Gaps and Limitations:

To obtain a truly detailed analysis of Granules India’s business segments, the following data points are missing from the provided excerpt:

Detailed Segmental Financial Statements: A complete breakdown of revenues, expenses, profits, and other relevant metrics for each segment is needed.
Historical Data: Data from prior years is necessary to calculate growth rates and trends.
Market Share Data: The report lacks explicit market share information for each segment and geographic region.
Product Portfolio Detail: A complete list of key products offered in each segment would be beneficial.

The available information provides a general overview of Granules India’s business segments but falls short of the detailed level of analysis you requested. Consulting the full annual report is essential to obtain this complete data.

Risk Assessment #

Granules India’s annual report identifies many key risk factors. While the report provides descriptions and mitigation strategies, it does not explicitly quantify impact severity or likelihood. This analysis categorizes the risks and summarizes the information provided:

I. Key Risk Factors:

The identified risks can be broadly categorized as follows:

A. Operational Risks:

Cybersecurity Risks: The report explicitly details the significant impact of a ransomware attack in May 2023, highlighting the vulnerability of IT and OT systems to cyber threats. This impacted operations, delayed product releases, and a/ffected performance. Mitigation involves strengthening IT security, implementing micro-segmentation of servers, penetration testing, and employee training.
Compliance and Regulatory Risks: Meeting stringent quality guidelines and regulatory requirements (FDA, ANVISA, Health Canada, PMDA Japan) across various global markets is crucial. Non-compliance can lead to significant financial penalties, reputational damage, and operational disruptions. Mitigation involves maintaining robust quality systems, implementing continuous monitoring and improvement programs, and strengthening compliance culture.
Health and Safety Risks: Occupational safety hazards at manufacturing facilities require adherence to safety procedures. The company is focused on a safety-first culture, implementing safety performance indices, and conducting safety observation inspections.
Supply Chain Risks: Disruptions to the supply chain, including sourcing of APIs and KSMs, can impact production and profitability. Mitigation involves strengthening supplier relationships, diversification of sourcing, backward integration, and robust inventory management.

B. Financial Risks:

Price Erosion: Declining prices for generic pharmaceuticals, especially for high-volume products like Paracetamol API, pose a significant challenge. The company plans to address this through value engineering and a continued focus on higher-value formulations.
Interest Rate Risk: Fluctuations in interest rates can a/ffect borrowing costs. The company acknowledges the risk but doesn’t detail specific hedging strategies beyond the use of foreign exchange forward contracts.
Foreign Exchange Risk: Fluctuations in exchange rates can impact revenues, profits, and the value of foreign currency-denominated assets and liabilities. Mitigation involves the use of hedging instruments (foreign exchange forward contracts).
Liquidity Risk: Inability to meet short-term financial obligations. The company manages this through maintaining adequate reserves, banking facilities, and monitoring cash flows.

C. Strategic Risks:

Talent Acquisition and Retention: Attracting and retaining skilled employees, especially in areas such as R&D and manufacturing, is essential for sustained growth. Mitigation involves employee engagement initiatives and skill development programs.
Competition: Intense competition in the global pharmaceutical market. The company’s strategy focuses on innovation, vertical integration, and cost leadership.
Market and Economic Risks: The impact of macroeconomic conditions (inflation, recession, etc.) and changes in customer demand on the global pharmaceutical industry. The company plans to mitigate the risk through diversification of product portfolio.

D. Sustainability and ESG Risks:

Environmental Risks: Meeting sustainability targets (net-zero emissions by 2050), managing climate change risks (both physical and transitional), and adhering to environmental regulations are important. The company is actively implementing its Net Zero roadmap, investing in green chemistry initiatives and renewable energy, and engaging suppliers.

II. Missing Information:

The annual report lacks specific quantification of:

Likelihood: The report doesn’t assign probabilities or likelihood scores to the identified risks.
Impact Severity: The report doesn’t quantify the potential financial or operational impact of each risk.
Trends: The report doesn’t specifically discuss trends (increasing, decreasing, etc.) in the likelihood or severity of these risks over time, although the discussion of market conditions and industry trends provides some insight.

III. Conclusion:

Granules India has identified a range of potential risks. The company outlines mitigation strategies for each, showing a proactive approach to risk management. However, a more detailed analysis would benefit from quantitative assessments of the likelihood and severity of these risks, especially to provide clarity for investors. The lack of trend analysis also limits a complete understanding of the company’s evolving risk profile. The full annual report should be consulted for the most detailed information.

Strategic Overview #

Management Assessment #

Granules India’s management highlights many key strategies, competitive advantages, market conditions, challenges, and opportunities in its annual report. Here’s a summary:

I. Key Strategies:

Granules’ strategic framework centers around three key pillars:

Strengthening the Core: Building upon existing manufacturing excellence in large-volume molecules through continuous innovation, operational excellence, backward integration, cost leadership, and mitigating supply chain risks. This involves optimizing scale, expanding market presence, and progressing along the value chain in strategic markets.
R&D and Innovation: Driving innovation and R&D across the value chain (APIs, PFIs, FDs), investing in product and process development capabilities, and building a robust product pipeline in areas like oncology, anti-diabetic segments, large-volume molecules, and controlled substances. This includes developing new technology platforms (e.g., biocatalysis, continuous manufacturing).
Sustainability: Leading in pharmaceutical manufacturing through responsible practices, committing to Net Zero emissions by 2050, conducting detailed Scope 3 emissions assessments, and implementing a net-zero roadmap. This involves initiatives focused on efficiency, renewable energy, green molecule platforms, and supplier sustainability programs.

II. Competitive Advantages:

Granules identifies the following as key competitive advantages:

Manufacturing Excellence: Established reputation for high-quality manufacturing, cost leadership, and economies of scale, especially in large-volume molecules.
Vertical Integration: Control over the entire value chain from APIs to finished dosages.
Customer Relationships: Strong relationships with leading pharmaceutical companies and retailers.
Robust Product Pipeline: Significant investments in R&D, leading to a diversified product portfolio and a strong pipeline of new products.
Technology Platforms: Development of advanced technologies such as biocatalysis and continuous manufacturing, providing a cost and efficiency advantage.

III. Market Conditions:

The report highlights the following market conditions:

Global Pharmaceutical Market Growth: The global pharmaceutical market is experiencing robust growth (projected CAGR of 5-8% through 2028), driven by emerging markets and increased demand for high-quality healthcare. However, growth in developed markets is expected to be slower.
Generics Market Expansion: Growing demand for generic medicines driven by patent expiries, increasing prevalence of chronic diseases, and cost considerations. This presents significant opportunities for Granules.
Price Erosion: Increased competition and regulatory pressures are leading to price erosion in the generics market, especially in the US.
Sustainability Focus: A growing emphasis on sustainability and ESG considerations within the pharmaceutical industry. This presents both opportunities and challenges for Granules.

IV. Challenges:

Granules acknowledges these challenges:

Cybersecurity Threats: The report emphasizes the significant impact of the 2023 cyberattack.
Price Erosion in the Generics Market: Maintaining profitability in a competitive environment with downward pricing pressure.
Supply Chain Disruptions: Ensuring consistent supply of raw materials and intermediates.
Regulatory Compliance: Maintaining compliance with evolving global regulations.

V. Opportunities:

Granules identifies the following opportunities:

Growth in Emerging Markets: Expanding market presence in pharmerging markets like China and India.
Expansion in Finished Dosage Formulations: Further increasing its share in the high-value FD segment.
Controlled Substances: Growing its market presence in this specialized area.
Innovation and R&D: Leveraging its R&D investments to develop and launch innovative products.
Sustainability Leadership: Positioning itself as a leader in sustainable pharmaceutical manufacturing.

VI. Conclusion:

Granules India’s strategic roadmap reflects a balanced approach to leveraging its strengths while addressing market challenges and capitalizing on emerging opportunities. The focus on vertical integration, innovation, and sustainability positions the company for long-term growth. However, successful execution of these strategies will be essential in overcoming the identified challenges. The impact of the cybersecurity incident will need to be carefully considered as well.

ESG Ratings #

The provided annual report excerpt mentions Granules India’s ESG ratings from a few agencies, but not all. Here’s what’s available:

EcoVadis: Received a Silver rating for Granules unit-1 Bonthapally and a Bronze rating for Unit-2 Jeedimetla.
MSCI ESG Ratings: Received a ‘C’ score in Climate Change Disclosure.

The report does not include ratings from other ESG rating providers. To find a more complete picture of Granules India’s ESG ratings, you would need to consult other sources such as the rating agencies’ websites directly (e.g., EcoVadis, MSCI) or reputable financial data providers. Keep in mind that ESG ratings can vary across agencies due to di/fferent methodologies and assessment criteria.

ESG Initiatives #

Granules India’s annual report details various environmental, social, and governance (ESG) initiatives and sustainability goals. Here’s a summary:

I. Environmental Initiatives:

Granules’ environmental initiatives are centered around achieving net-zero emissions by 2050, aligned with the SBTi 1.5°C pathway. Key actions include:

Greenhouse Gas (GHG) Emission Reduction: A 22% absolute reduction in Scope 1 and 2 emissions was achieved. The company aims for a 42% reduction in both Scope 1 & 2 and Scope 3 emissions by FY 2029-30. Strategies include:
- Increased use of renewable energy (47% of electricity from renewable sources).
- Energy efficiency improvements (identifying CERMs).
- Development of an internal carbon pricing (ICP) system.
Water Management: A 25% reduction in water intensity compared to FY 2022-23 was achieved. Goals include further reduction by 27% by FY 2026-27 and detailed water risk assessments. Recycling efforts resulted in 39% of wastewater being reused.
Waste Management: An 88% reduction in hazardous waste sent to landfills was achieved through co-processing. The company aims for a 27% reduction in waste to landfill by FY 2026-27 and zero waste to landfill by FY 2030.
Green Chemistry: Investing in and implementing biocatalysis and continuous manufacturing technologies to reduce the environmental impact of its processes. Granules CZRO is a key initiative focused on green molecule platforms.
Supplier Sustainability Program: Engaging suppliers to set SBTi-aligned emission reduction targets.

II. Carbon Footprint:

The report details the company’s GHG emissions (Scope 1, 2, and 3) but doesn’t present a single, concise “carbon footprint” figure. The data provided allows for calculation of the total Scope 1+2 and Scope 3 footprint based on the figures given. However, obtaining a precise value from the provided excerpt is challenging due to some data being partially or not presented. The full annual report should be consulted for the most reliable data.

III. Social Initiatives:

Granules’ social initiatives focus on employee well-being and community development:

Employee Well-being: Programs include detailed health camps, mental health support, skill development programs (with a 47% increase in employees receiving skills training), a 100% return-to-work rate for those who took parental leave, and a focus on diversity & inclusion. The company achieved a 31% increase in the number of female employees.
Community Development: Key initiatives are:
- Pharma Pathshala: A skills training program for rural youth. Over 1200 students have been trained.
- Dr. Chigurupati Nageswara Rao Rotary Dialysis Centre: Providing a/ffordable dialysis services.
- St. Jude India Childcare Center support: Providing support to children with cancer.
- Hrudaya - Cure a Little Heart Foundation partnership: Providing heart surgeries to underprivileged children.
- Eye screening initiative in government schools.
- Support for various NGOs and community health camps.

IV. Governance Practices:

Granules’ governance practices emphasize transparency, accountability, and ethical conduct. Key aspects include:

Board Composition: A various board with a significant number of independent directors.
Board Committees: Established committees (Audit, Nomination & Remuneration, Stakeholders Relationship, Sustainability & CSR, Risk Management, Business Review, Growth Opportunities Evaluation & Investment) overseeing specific areas of the business.
Policies and Codes: Formal policies and codes covering various aspects of corporate governance (e.g., Code of Conduct, Whistleblower Policy, Risk Management Policy, etc.).
Independent Director Oversight: Regular meetings of independent directors to provide independent oversight.
Risk Management Framework: A detailed ERM system is in place to assess and mitigate risks.

V. Sustainability Goals:

Granules’ key sustainability goals include:

Net-Zero Emissions by 2050: Aligned with SBTi’s 1.5°C pathway.
Significant Reductions in Scope 1, 2, and 3 Emissions: Specific targets are mentioned in the report.
Improved Water Stewardship: Reducing water intensity and increasing water recycling.
Zero Waste to Landfill: Achieving zero waste to landfill by 2030.
Enhanced Employee Well-being: Continuously improving workplace safety and employee engagement.
Community Development: Increasing the number of lives positively impacted through CSR initiatives.

VI. Conclusion:

Granules India has a detailed sustainability strategy with clearly defined goals and various initiatives. However, the report excerpt presents only a summary of this information. Consult the complete annual report for complete details on metrics and progress towards its goals. Specific details on the environmental footprint (in terms of absolute emission amounts, etc.) are partially or not included in this excerpt.

Additional Information #

Operational Metrics #

Here’s the information on R&D expenditure and employee count from the provided annual report:

R&D Expenditure: ₹1,986 million for FY 2023-24. This represents 4.4% of the company’s revenue.
Employee Count (as of March 31, 2024): 6,525. This includes both permanent employees (4,057) and contract workers (2,467).

It’s important to note that this employee count includes contract workers. The number of permanent employees is 4,057. The provided excerpt did not give the employee count for the previous financial year. For a complete picture of historical trends, it would be necessary to consult the complete annual report.

Key Events #

The Granules India Limited annual report highlights many significant events during FY 2023-24:

Cybersecurity Incident: A major ransomware attack in May 2023 significantly impacted operations, causing delays in product releases and affecting performance in Q1 and Q2. The company implemented enhanced cybersecurity measures in response.
Decline in Paracetamol API Sales: Sales volumes decreased due to higher customer inventory and price erosion.
Growth in Formulations Business: The finished dosage (FD) segment experienced substantial growth, contributing 64% to revenue, up from 50% in the previous year. This demonstrates a successful strategic shift towards higher-value products.
ANDA and MA Approvals: The company received numerous Abbreviated New Drug Application (ANDA) approvals from the USFDA and marketing authorizations (MAs) in the EU and other regions, expanding its product portfolio and global reach. A total of 16 new dosage formulations received approvals during the year.
New Facility Commissioning: The new facility at Genome Valley commenced operations in March 2024, significantly boosting finished dosage capacity.
Granules CZRO Pilot Plant: The pilot plant for green molecule initiatives commenced operations.
Board Changes: The induction of three new Independent Directors (Mr. Kapil Kumar Mehan, Mr. Sethurathnam Ravi, and Mr. Rajiv Pritidas Kakodkar) strengthened the Board’s expertise and diversity. Additionally, Ms. Priyanka Chigurupati was appointed as Executive Director.
Leadership Changes: Several key leadership appointments were made across R&D, core operations, and other functions, along with other changes in senior management positions mentioned in the report.

These events significantly shaped Granules India’s financial performance and strategic direction during the fiscal year. The report emphasizes the company’s ability to navigate challenges (like the cyberattack) and capitalize on opportunities (new approvals and facility expansion).

Audit Information #

The auditor’s opinion on Granules India’s financial statements is unqualified (or “unmodified”). This means that, in the auditor’s professional judgment, the financial statements present a true and fair view in conformity with generally accepted accounting principles in India. The auditor’s report for both the standalone and consolidated financial statements explicitly state this.

Key Accounting Policies:

The annual report outlines many key accounting policies applied in preparing the financial statements. Key policies include:

Financial Instruments: The policies detail the recognition, initial measurement, classification (amortized cost, FVOCI, FVTPL), subsequent measurement, and derecognition of financial assets and liabilities. The policies also describe the accounting treatment for derivatives and hedge accounting.
Cash and Cash Equivalents: Defines cash and cash equivalents as cash on hand, short-term bank deposits, and other liquid instruments with insignificant risk of changes in value.
Foreign Currency: Explains the translation of foreign currency transactions and the recognition of exchange gains and losses.
Property, Plant, and Equipment: Outlines the accounting treatment for initial measurement, subsequent expenditure, depreciation, and impairment.
Intangible Assets: Covers the recognition and measurement of internally generated intangible assets (research and development) and other intangible assets, including amortization and impairment testing.
Inventories: Details the measurement of inventories at the lower of cost and net realizable value and the methods used to determine cost (monthly moving weighted average).
Impairment of Assets: Explains the methods used to test financial and non-financial assets for impairment and the recognition of impairment losses.
Employee Benefits: Describes the accounting for defined contribution plans and defined benefit plans (including gratuity and compensated absences), outlining the methods used for measurement and recognition.
Share-Based Payments: Covers the recognition of the grant date fair value of employee stock options as an expense.
Provisions: Explains the recognition criteria for provisions and the methodology for measurement.
Revenue Recognition: Details the criteria for recognizing revenue from contracts with customers (Ind AS 115), including the transfer of control and the treatment of sales returns.
Leases: Outlines the accounting treatment for lease agreements under Ind AS 116, including the recognition of right-of-use assets and lease liabilities.
Income Tax: Describes the accounting for current and deferred income tax.
Borrowing Costs: Explains the capitalization and expensing of borrowing costs.
Segment Reporting: Describes the basis for segment reporting and the information presented for each segment.
Earnings Per Share: Outlines the calculation of basic and diluted EPS.

These policies are applied consistently throughout the preparation of both standalone and consolidated financial statements. The complete annual report should be consulted for a detailed understanding of each policy and its application.