Granules turns net cash while projects lower reported ROCE

Granules India Limited entered Q2 FY27 with Rs 828 crore of net cash after receiving balance warrant proceeds, while reported return on capital employed (ROCE) was 17.6%. Management said that excluding ramp-up investments at Genome Valley and Senn Chemicals AG, ROCE would be about 25%, compared with the consolidated reported level.

How did Granules move from debt to net cash?

Granules moved from Rs 101.2 crore of net debt in Q1 FY27 to Rs 828 crore of net cash in Q2 FY27 after receiving balance warrant proceeds during the quarter. The shift followed net debt of Rs 948 crore in Q1 FY26 and Rs 1,024.1 crore in Q2 FY26, showing a substantial balance-sheet change over five quarters.

Net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) moved to negative 0.61 times in Q2 FY27 from 0.07 times in Q1 FY27 and 0.98 times in Q2 FY26. The negative ratio corresponds with the net-cash position disclosed in the presentation.

Net working capital (NWC) was 30% of sales in Q2 FY27, compared with 29% in both Q1 FY27 and Q2 FY26. Management said NWC stayed within its 29% to 30% range, with planned investment intended to support business growth and supply continuity.

What were Granules’ operating cash flow and capital expenditure?

Granules generated Rs 65 crore of cash flow from operations in Q2 FY27 and spent Rs 130.4 crore on capital expenditure, compared with Rs 387.4 crore and Rs 89 crore, respectively, in Q1 FY27. Management attributed the lower operating cash flow to a planned working-capital increase for growth and supply continuity.

Q2 FY27 capital expenditure exceeded the Rs 100 crore incurred in Q4 FY26 and the Rs 113.7 crore incurred in Q1 FY26, but was below Rs 211.2 crore in Q2 FY26. Management said the spending was directed towards strengthening manufacturing capabilities.

For H1 FY27, Granules reported Rs 219.4 crore of capital expenditure, equal to 7% of revenue. The company also reported Rs 2,760.7 crore of cumulative capital expenditure and inorganic acquisition between FY22 and FY26, while average capital expenditure was about 10% of revenue in that period.

Which projects are weighing on Granules’ reported capital efficiency?

Granules reported ROCE of 17.6% in Q2 FY27, compared with 18.0% in Q1 FY27 and 16.2% in Q2 FY26. Management said the 138-basis-point year-on-year increase reflected higher operating profit, despite additional investment in working capital and capital expenditure; one basis point is one-hundredth of a percentage point.

Genome Valley, a key FY24 to FY26 project, was operating at about 25% capacity utilisation. The plant has capacity for 10 billion doses, is approved by the US Food and Drug Administration and certified under European Union Good Manufacturing Practice standards, adds about 40% to formulation capacity and has adjacent land for expansion.

Senn Chemicals AG was acquired in April 2025 at an enterprise value of Rs 450 crore. The Swiss peptide contract development and manufacturing organisation, or CDMO, marked Granules’ entry into peptide CDMO, but peptide CDMO recorded an EBITDA loss of Rs 15.2 crore in Q2 FY27, versus losses of Rs 12.4 crore in Q1 FY27 and Rs 20 crore in Q2 FY26.

Management said that excluding ramp-up investments at Genome Valley and Senn Chemicals AG, gross fixed-asset turn would be about 1.8 times and ROCE about 25%. Those calculations compare with consolidated reported levels of 1.4 times and 17.6%, respectively, and are management-presented exclusions rather than reported consolidated measures.

What operating results support Granules’ investment programme?

Granules reported Q2 FY27 revenue of Rs 1,560 crore, up 20% from Rs 1,297 crore in Q2 FY26 and 6% from Rs 1,476.8 crore in Q1 FY27. EBITDA rose 21% year on year to Rs 337.6 crore but was marginally below Rs 338.9 crore in Q1 FY27, while the EBITDA margin was 21.6% against 21.5% a year earlier and 22.9% in the preceding quarter.

Finished dosages contributed Rs 1,141.7 crore, or 73%, of Q2 FY27 revenue, while active pharmaceutical ingredients contributed Rs 209.1 crore, pharmaceutical formulation intermediates Rs 160.4 crore and CDMO Rs 48.8 crore. CDMO revenue increased 77% year on year but declined 19% quarter on quarter, leaving it at 3% of total Q2 revenue.

Complex generics revenue grew 38% year on year, and its mix share increased to 47% in Q2 FY27 from 40% in Q2 FY26. Profit after tax rose 39% year on year to Rs 181.8 crore, although its margin fell to 11.7% from 12.2% in Q1 FY27.

Research and development expenditure was Rs 88.5 crore in Q2 FY27, up 26% from Rs 70.5 crore in Q2 FY26 and equal to 5.7% of sales. Gross margin declined 134 basis points year on year to 64.4%, as Granules cited higher input and logistics costs associated with the ongoing West Asia conflict.

Conclusion

Granules’ Q2 FY27 capital allocation combined a warrant-proceeds-driven move to Rs 828 crore of net cash with Rs 130.4 crore of quarterly capital expenditure. Reported ROCE was 17.6%, up from 16.2% a year earlier but below 18.0% in Q1 FY27, while management’s exclusion of Genome Valley and Senn Chemicals AG produces a cited ROCE of about 25%.

The next disclosed measures to watch are utilisation at Genome Valley, which was about 25% in Q2 FY27, and peptide CDMO profitability after its Rs 15.2 crore EBITDA loss. Granules also has adjacent land at Genome Valley for potential expansion, while H1 FY27 capital expenditure of Rs 219.4 crore indicates that the investment programme remains active.