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Granules optimistic after poor Q3: "PFI bottleneck will be unblocked"

By Dan Stanton , 29-Jan-2013

Granules India says it expects to be back on track by 2014 following slow sales growth and depressed profitability margins.

The comments come after the publication of the Indian API producer’s third quarter financial results. Sales increased 5% on the same period last year to INR1.95bn ($36.3m), but consolidated net profit fell 27% to INR58m ($1.1m).

Spokesman Vijay Ramanavarapu attributed the drop in profits to higher spending, telling In-Pharmatechnologist.com: “Our margins were depressed this quarter because we were incurring the costs of running our new expanded capacity including hiring manpower and adding to overheads without a concurrent increase in revenue.”

The new facility at Hyderabad, India was part of an expansion project started in 2011 that was driven by customer demand for PFIs and Finished Dosages, which tied up the company’s capacity and creating a backlog of client orders.

An initial delay caused by start-up issues at the Hyderabad plant led to a change of strategy and the construction a new purpose built API facility.

This project faced several setbacks in the ramping up its capacity and in its deployment of new technologies that have affected this quarter’s results. These have now been identified and are currently being addressed.

The constraint has been blamed on the PFI bottleneck and Granules believes that substantial volumes will be produced by April, the start of the next financial year. Customer backlogs will, however, take several quarters to clear.

Outlook

While the increased spending may have impacted profitability, the firm is confident the investment will pay off in fiscal 2014 according to Ramanavarap.

“We have made strong inroads in the PFI and Finished Dosage market and once our expansions are complete, we will be able to capitalize on those opportunities.”

He added that that “PFIs and Finished Dosages have higher profitability margins than APIs, so this will add to the bottom line.”

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