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Divis Laboratories (DIVI)
Pharmaceuticals
In line quarter. PAT excluding forex gain at Rs989 mn was in line with our estimate of
Rs973 mn with sales 5% higher although margin was lower than our estimate. Strong
sales growth at 38% in 1HFY12 leads us to believe that sales growth guidance of 25%
is achievable. Divis expects margin in FY2012E to be maintained at FY2011 levels, which
implies a sequential improvement in margin in 2HFY12E, this is possible on account of
operating leverage and a pick-up in the custom synthesis business. We leave our
estimates unchanged. Maintain ADD with our target price at Rs845 (earlier Rs830), 18X
FY2013E EPS.
2QFY12 revenues at Rs3.5 bn, up 40% yoy, 5% higher than our estimate.
Revenues at Rs3.5 bn or US$77 mn grew 40% yoy, however, they dipped qoq from US$81 mn in
1QFY12 as expected. Revenues from carotenoid were Rs230 mn, up from Rs150 mn in 1QFY12,
versus Rs300 mn in 1HFY11. Divis now expects carotenoid sales at Rs850 mn in FY2012E versus
Rs1bn earlier. Pick-up in carotenoids has been slower than expected as even though Divis has been
signed as a qualified supplier the switch from existing supplier is taking time. However, Divis
expects sales to double to Rs1.5-2 bn in FY2013E from Rs850 mn in FY2012E
PAT at Rs1 bn was 9% higher than our estimate of Rs973 mn
Reported EBITDA margin at 36% in 2QFY12, was down 110 bps qoq and lower than our estimate
of 37% due to (1) lower gross margin at 60% versus 61% in the last quarter due to a higher
proportion of sales from generics this quarter (2) however, staff costs and manufacturing expenses
were in line with our estimates and (3) other expenses declined qoq to Rs292 mn from Rs336 mn
in 1QFY12, 17% lower than our estimate. EBITDA at Rs1.26 bn was in line with our estimate,
while PBT was 9% higher than our estimate due to higher other income of Rs227 mn which
comprised Rs90 mn of forex gain due to translational gains on receivables and other current assets.
Tax rate at 20% was in line with our estimate.
Divis expects sales growth of at least 25% in FY2012E
Divis expects at least 25% sales growth with (1) new SEZ adding to revenues from 2HFY12E
(2) carotenoids sales increasing by 30% to Rs850 mn from Rs650 mn in FY2011. Divis sales
guidance implies revenues of US$188 mn in 2HFY12E versus US$158 mn reported in 1HFY12.
There were certain high-margin contracts in FY2010, while FY2011 (1) witnessed pick up in large
volume business which was hit in FY2010 and (2) did not have one-off high-margin contracts, this
implies that the 38% margin in FY2011 is a base business margin. Divis expects FY2012E margin
to be maintained at similar levels of FY2011. We estimate sales growth of 25% in FY2012E with
margin at 38%in FY2012-13E, versus 37.7% in FY2011 and 36% in 1HFY12 as we expect
benefits of operating leverage to kick in on account of continuing sales growth and higher share
from custom synthesis.
Maintain BUY with PT at Rs830 (unchanged), 18X FY2013E EPS
We value Divis at (1) 18X FY2013E EPS (5-year historical average multiple is 18X) and (2) cash/share
of Rs70.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Divis Laboratories (DIVI)
Pharmaceuticals
In line quarter. PAT excluding forex gain at Rs989 mn was in line with our estimate of
Rs973 mn with sales 5% higher although margin was lower than our estimate. Strong
sales growth at 38% in 1HFY12 leads us to believe that sales growth guidance of 25%
is achievable. Divis expects margin in FY2012E to be maintained at FY2011 levels, which
implies a sequential improvement in margin in 2HFY12E, this is possible on account of
operating leverage and a pick-up in the custom synthesis business. We leave our
estimates unchanged. Maintain ADD with our target price at Rs845 (earlier Rs830), 18X
FY2013E EPS.
2QFY12 revenues at Rs3.5 bn, up 40% yoy, 5% higher than our estimate.
Revenues at Rs3.5 bn or US$77 mn grew 40% yoy, however, they dipped qoq from US$81 mn in
1QFY12 as expected. Revenues from carotenoid were Rs230 mn, up from Rs150 mn in 1QFY12,
versus Rs300 mn in 1HFY11. Divis now expects carotenoid sales at Rs850 mn in FY2012E versus
Rs1bn earlier. Pick-up in carotenoids has been slower than expected as even though Divis has been
signed as a qualified supplier the switch from existing supplier is taking time. However, Divis
expects sales to double to Rs1.5-2 bn in FY2013E from Rs850 mn in FY2012E
PAT at Rs1 bn was 9% higher than our estimate of Rs973 mn
Reported EBITDA margin at 36% in 2QFY12, was down 110 bps qoq and lower than our estimate
of 37% due to (1) lower gross margin at 60% versus 61% in the last quarter due to a higher
proportion of sales from generics this quarter (2) however, staff costs and manufacturing expenses
were in line with our estimates and (3) other expenses declined qoq to Rs292 mn from Rs336 mn
in 1QFY12, 17% lower than our estimate. EBITDA at Rs1.26 bn was in line with our estimate,
while PBT was 9% higher than our estimate due to higher other income of Rs227 mn which
comprised Rs90 mn of forex gain due to translational gains on receivables and other current assets.
Tax rate at 20% was in line with our estimate.
Divis expects sales growth of at least 25% in FY2012E
Divis expects at least 25% sales growth with (1) new SEZ adding to revenues from 2HFY12E
(2) carotenoids sales increasing by 30% to Rs850 mn from Rs650 mn in FY2011. Divis sales
guidance implies revenues of US$188 mn in 2HFY12E versus US$158 mn reported in 1HFY12.
There were certain high-margin contracts in FY2010, while FY2011 (1) witnessed pick up in large
volume business which was hit in FY2010 and (2) did not have one-off high-margin contracts, this
implies that the 38% margin in FY2011 is a base business margin. Divis expects FY2012E margin
to be maintained at similar levels of FY2011. We estimate sales growth of 25% in FY2012E with
margin at 38%in FY2012-13E, versus 37.7% in FY2011 and 36% in 1HFY12 as we expect
benefits of operating leverage to kick in on account of continuing sales growth and higher share
from custom synthesis.
Maintain BUY with PT at Rs830 (unchanged), 18X FY2013E EPS
We value Divis at (1) 18X FY2013E EPS (5-year historical average multiple is 18X) and (2) cash/share
of Rs70.
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