Divi's Laboratories - Weak Outlook; New Capex to Commence; Result Update Q3FY15 ::Edelweiss

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Divis Laboratories Ltd. | Q3FY15 Result Update |Lower sales growth adversely affects earnings for the quarter | Maintain HOLD rating with PT of Rs1,868 (from Rs1,802 earlier) ::IndiaNivesh

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Buy Ansal Properties, Sell Divis Laboratories and Wipro -Weekly momentum stock pick 08 Dec :: HDFC Securities

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Divis Laboratories Ltd. | Q2FY15 First Cut Analysis | Higher sales growth drives earnings for the quarter:: IndiaNivesh

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Investment Focus - Divis Labs: Buy :: Business Line

Divis Laboratories Ltd.:HOLD Target : Rs.1,084: IndiaNivesh

Quarterly performance (standalone):
On account of lower revenue growth, Divis lab performance was below expectation
on all fronts; however operating margins were better than previous quarter & ahead
of estimates. Partially linked with higher base in the same quarter previous year,
Divis revenue declined 8.2% y-o-y (increased 21.8% q-o-q) to Rs 6.50 billion in Q4
FY13 (V/s INSPL est= Rs 9.13 billion). Company’s Gross margins increased ~460 bps
y-o-y (~237 bps q-o-q) to 60.9% level in Q4FY13 due to change in product mix.
Adjusting for forex loss of Rs 98 million during the quarter, company’s EBITDA
declined 8% y-o-y (increased 57.6% q-o-q) to Rs 2.61 billion (V/s INSPL est= Rs 3.33
billion) in Q4 FY13. On the yearly basis, decline in material cost was completely
offset by increase in employee cost & other expenses, as a result EBITDA margins
stood almost flat at 40% level. While sequentially, EBITDA margins increased ~910
bps due to decline in material cost & operating expenses (V/s INSPL est=36.5%).
During the quarter, adjusting for forex loss of Rs 98 million in Q4FY13, Divi,s net
profit declined 10.8% y-o-y to Rs 1.92 billion in Q4 FY13 (V/s INSPL est= Rs 2.65
billion). Company reported adj EPS of Rs 14.4 in Q4 FY13 compared to Rs 16.2 in Q4
FY12.
Annual Performance (consolidated):
Divis revenue grew 15.1% y-o-y to Rs 21.40 billion in FY13. Gross margins increased
~366 bps y-o y to 62.7% level. Decline in material cost was partially offset by increase
in employee cost & other expenses, as a result EBITDA margins grew only ~100 bps
to 37.9% level in FY13. Adjusting for forex gain of Rs 115 million during the year,
company’s EBITDA grew 17.7% y-o y to Rs 7.33 billion in FY13. Due to ~38% y-o y
decline in other income & ~160 bps increase in effective tax rate, adj net profit
grew only 10.7% y-o y to Rs 5.91 billion in FY13. Company reported adj EPS of Rs
44.5 in FY13 compared to Rs 40.2 in FY12.
Valuations & Outlook:
In the last two quarters, company has lost the growth momentum, accordingly we
adjust financial estimates & expect company’s revenue to report revenue CAGR of
17% during FY13-15E on the back of worldwide patent expiry & strong pipeline of
key products like Irbesartan (Market Size= $780 mn) Latanaprost ($1.7 billion)
Pregabalin ( $2.8 billion) Valsartan ($ 4 billion).
Assuming slow growth in revenue, we expect company’s operating expenses to
increase going forward. As a result, EBITDA margins may decline 50-70 bps in FY14E
& FY15E. We expect company to report EPS of Rs 53 in FY14E & Rs 60 in FY15E.
At CMP of Rs 1,087, the stock is trading at P/E multiple of 20.6x & 18.1x of FY14E &
FY15E earnings estimates respectively. We had recommended stock since Rs 720
level in our Diwali Picks (2011) with target price of Rs 885. After considering
consistent robust performance in FY12, we upgraded target price to Rs 1,032 and
further to Rs 1,164, which has been achieved. We believe that increasing health
care cost in developed markets, patent expiry of key molecules of MNCs, increase
in genericisation, favorable currency movement would continue to favor Divis Lab
in long term. However, current slowdown in revenue growth is a cause of concern.
The stock has been traded between forward P/E multiple of 18x to 21x depending
on growth prospects of the company. Considering slowdown in revenue growth,
we expect stock to trade at lower side of valuation band. Hence, revise target price
downward to Rs 1,084 and maintain HOLD rating on the stock. (Earlier target price
was Rs 1,164).

Divis Labs: Hold ::: Business Line

Divi's Laboratories: Hold :: Business Line

Sizzling Stocks - Divi's Laboratories , Geometric:: Business Line

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Divi’s Laboratories :Target Price: ` 923 Buy: Dolat Capital

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The Art Of Synthesis...
Divi’s Laboratories (DLL) has positioned itself as India’s leading player in CRAMs segment. We like its focus on
high value low competition products. Its key business segments viz. Custom synthesis & APIs (95% of sales) is
expected to register 23% CAGR over FY11-14E. DLL is one of the few CRAMs players that have refrained from
entering the formulation space, to demonstrate its strict adherence to IP policies. This is a reason in itself for its
large MNC clientele (20 innovators) to grow their relationship with Divi’s. The CS division is expected to be the
major growth driver led by ramp up in new Vizag SEZ operations and increased order inflows. The API segment
is expected to sustain growth as it leverages on selective patent expirations in US. Gradual scale up in its
caretonoids portfolio shall aid overall growth momentum. We estimate 24% CAGR in revenue over FY11-14E
aided by turnaround in the CRAMs industry.

Divis Laboratories ::Sharekhan Top Picks -April 2012

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Remarks: Strong M9FY2012 performance (PAT growth 27%) has re-affirmed our confidence in the growth potential of
Divi’s Labs.
The new DSN SEZ facility at Vishakhapatnam that started production from one of its blocks in June 2011 (the
remaining blocks of this facility are likely to get operational over FY2012-13) is likely to bring better economies
of scale and tax benefits.
A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic
investments (biosimilars) and exploit growth opportunities in niche segments like high potency drugs for
oncology and steroids for contraceptives.
With the order inflow picking up and its new plant getting operational, Divi’s has a strong revenue growth
visibility and the operating leverage in the business will boost its margins. At the current market price the
stock trades at a PE multiple of 16.6x discounting its FY2013E earnings. We maintain our Buy recommendation.

Divi's Lab Sustained revenue ramp-up in sight; Buy 􀂄 :: BofA Merrill Lynch

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Divi's Lab
Sustained revenue ramp-up in
sight; Buy
􀂄 Recent underperformance offers a particularly good entry
point; Buy
We believe Divis 14% YTD underperformance (vs market) is overdone noting high
revenue visibility (22%+), healthy Balance Sheet and strong earnings trajectory
(24% EPS CAGR). Our recent interaction with management reinforces our
optimistic view on Divis’ ability to capitalize on CRAMS recovery backed by strong
customer relationships (~70% sales from repeat business) & capex plan. Rate
Divis as our top mid-cap pharma pick and reiterate Buy with PO of Rs940.
Vizag SEZ, Carotenoids uptick to boost revenues
We expect Divis to sustain 22% sales CAGR over FY12-14E driven by (a)
increased volumes in key API products (~35% of sales, 60%+ mkt share) & new
launches from upcoming US patent expirations (like generic Seroquel-Mar’12,
Diovan-Sep’12) to help 20%+ growth; (b) New orderflow in high margin custom
synthesis business to sustain 25%+ growth & (c) Carotenoids business set to
double sales to Rs1.6bn by FY14E. New Vizag SEZ would support company’s
growth plan with 25% incremental capacity being added (peak sales of Rs5bn).
Carotenoids – opportunity to unfold strongly
We expect Divis carotenoid business to grow at fast pace over FY12-14E to clock
revenues of Rs1.6bn (from Rs840mn in FY12E). New customer additions through
distributor (like Omya Intl) would help capture mkt share of ~5% in US$1bn global
mkt over 3-5 years. With only two large players DSM & BASF in the market,
customized solutions would help Divis differentiate and gain market share.
Attractive valuations; PO implies 27% upside potential
Divis is currently trading at 15.8x FY13E & 13.4x our FY14E, at 15% discount to
its historic average and in line with the sector despite stronger return ratios
(~25%) & superior margin profile (37% EBITDA margin vs 20% avg). We expect
4Q PAT to improve 17% QoQ led by 22% sales growth, implying sustained
improvement in revenue run-rate and key to re-rating potential. Reiterate Buy.

Hold Divi's Laboratories ; Target : Rs 802 ::ICICI Securities

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M a r g i n s   u n d e r   p r e s s u r e  b u  t   g r o w  t h   i n  t a c t …
Divi’s Q3FY12 results were above our estimates. Revenues increased by
32.5% to | 417.4 crore higher than our expectation of | 386 crore for the
quarter ended December 2011. The growth was triggered by both APIs
and custom synthesis. On a constant currency basis, revenues grew
24.5% YoY. Despite a favourable currency, the EBITDA margin declined
300 bps YoY to 36.2% on account of commissioning of the
Vishakhapatnam facility and spurt in power and freight costs. EBITDA
increased 22.4% to | 151.1 crore, slightly higher than our expectation of |
148.6 crore. Increase in tax rate by 330 bps restricted net profit growth to
20.7% YoY to | 122.6 crore, higher than our estimate | 116 crore. We are
maintaining our HOLD rating on the stock as the company continues to
trade in the premium valuation territory.
ƒ Vizag SEZ clocks sales around | 35 crore
The company has commissioned part of its Vizag SEZ facility in
Q2FY12. The facility has clocked sales of around | 35 crore during
the quarter. Overall capex for the Vizag facility is ~| 200 crore. The
remaining facility will be commissioned by the end of current fiscal.
Divi’s expects USFDA inspection to happen by middle of next fiscal.
ƒ 9MFY12 profits up 27% YoY
For nine months ending December 2011, revenues increased 35.9%
YoY to | 1133.6 crore. However, EBITDA margins declined 150 bps
to 36% on the back of partial commissioning of the Vizag SEZ
facility. Net profit increased 27% YoY to | 331.2 crore.  
V a l u a t i o n
We expect sales, EBITDA and PAT to grow at a CAGR of 25%, 22% and
16%, respectively between FY11-13E. The company is well placed to cash
in on the revival in the global CRAMS space. Its custom synthesis
business is also complementing the overall growth well. We have revised
our price target upwards to | 802 based on 18x revised FY13E EPS of |
44.5 as earlier than expected commissioning of Vizag facility and the scale
of performance justifies upward revision. We maintain  HOLD as we
believe the premium valuation is justified due to virtual debt free status,
hefty cash balance and rekindling of CRAMS industry prospects.

Result Update: Petronet LNG Ltd, Divi's Lab, LIC Housing Finance, Allahabad Bank, United Phosphorus, NTPC, Glenmark Pharma: Emkay

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Result Update

Petronet LNG Ltd

Reco: ACCUMULATE

CMP: Rs 164

Target Price: Rs 180

Volume growth continue

·      Results were above our and street estimates at bottom line, mainly due to higher volume growth of 7.3% to 144.9tbtu during the quarter ·      EBIDTA margin declined marginally by 157bps YoY to 7.9% (-40.4bps QoQ), mainly on account of higher input cost and increase in other expenditure ·      Company is planning to setup 3rd LNG terminal at Gangavaram port, Andhra Pradesh, with the total capacity of 5mntpa, While Kochi terminal will start from end of CY12 ·      The recent news on proposed cap on gas marketing margin which is to be decided by PNGRB would keep the stock under pressure until any clarity emerges. Maintain accumulate with TP of Rs.180

Divi’s Lab

Reco: BUY

CMP: Rs 818

Target Price: Rs 927

Subdued quarter, Growth story remains intact - Maintain Buy

·      Divi’s Q3FY12 performance was below expectations with (a) Revenue at Rs4.2bn (up 33% YoY); (b) EBIDTA at Rs1.5bn (up 22% YoY)  & (c) PAT at Rs1.23bn (up 21% YoY) ·      Top-line growth was aided by INR depreciation, which contri-buted 13% to the top-line growth. Capacity utilization at Vizag plant remained flat QoQ, expected to scale up from Q1’13 ·      EBITDA margins at 36.2% were lower than expectations in spite of INR depreciation led by increase in expenses due to commissioning of Vizag plant & higher proportion of API sales ·      Growth story remains intact – Maintain Buy with a target price of Rs927 on the stock (20x FY13 EPS of Rs46.3)

LIC Housing Finance

Reco: HOLD

CMP: Rs 246

Target Price: Rs 250

Unfavorable base and shrinking spread take toll

·      LICHF’s Q3FY12 NII (Rs3.3bn) and APAT (Rs2.5bn) below our expectations. Lower than expected numbers driven by sharper 20bps contraction in NIMs ·      Individual disbursements at 8.4% yoy, due to unfavorable base effect. However, mgmt still confident of 20% growth in disbursement implying 27% yoy growth in Q4FY12 ·      NIMs at 2.3%, down 20bps qoq (est 12bps). Provisions write back (Rs780mn) helps as RPAT grows 45%. However, PCR dips back to 51%. ·      Intended QIP and teaser rate loan provisions, key upside risk to our numbers. Valuations have seen sharp run up to 2.4x/1.9x FY12E/FY13E ABV. Recommend Hold

Allahabad Bank

Reco: ACCUMULATE

CMP: Rs 156

Target Price: Rs 200

Strong performance; aggressive provs add comfort

·      ALBK results ahead of estimates with NII at Rs13.8bn (est Rs12.7bn). Net profit at Rs5.6bn (est Rs5.6bn) further aided by higher trading gains and lower tax rate of 8% ·      Strong NII growth (31.3%yoy) driven by stable NIMs vs our exp of 20bps dip. Advances grew 5% qoq in line with expectations ·      Slippages at Rs5.9bn vs our est of Rs5.5bn. However, fresh restructuring of Rs10.5bn was a –ve surprise. Net stressed asset stand at 4.8% of advances vs 3.8% in Q2FY12 ·      Upgraded FY12E/FY13E numbers by 17.7%/12.2 for largely lower tax rate. Aggressive provisioning policy provides comfort. Remains our top pick amongst mid-size PSU banks

United Phosphorus

Reco: BUY

CMP: Rs 144

Target Price: Rs 200

Bottomline disappoints, downgrade estimates

·      Q3FY12 revenues / EBITDA were above est driven by currency impact however higher tax outgo squeezed APAT at Rs 1.15bn,4% yoy, below est of Rs 1.5bn ·      58%yoy growth in sales is primarily driven by recent acquisitions in Brazil (~25%) and exchange fluctuation (19%) while organic volume growth remains muted at ~6%  ·      Despite higher revenue growth, EBITDA margins remain subdued at 18.1%. Higher tax rates at 33% and losses from Brazilian JV (SIPchem) suppressed PAT growth at mere 4% ·      Downgrade FY12/13 est by 10%/7% to Rs 16 / 19.9 and subsequently downgrade price target to Rs 200 (10xFY13 EPS), however maintain BUY due to attractive valuations

NTPC

Reco: BUY

CMP: Rs 172

Target Price: Rs 204

90%+ PAF structurally coming down; maintain Buy

·      3Q12 PAT of Rs21.3bn is below est. due to higher R&M expenses & under recovery on water charges. Adjusted net profit stood at  Rs21.7bn (assuming PY sales as recurring) ·      Has commissioned 1320MW (Sipat) and commercialized 1,160MW in YTD12. Mgmt has retained its capacity addition target ·      Highlights - (1) PAF of coal plants low at 85.3% and 86.2% for 3Q12 and 9M12 period and (2) Revised PAF and COD assumption, FY12E/FY13E EPS reduced by 3.4%/3.9% ·      Valuations still remain reasonable. Positives to continue (1) COD of another 1160MW, (2) FY12/13 grossing & (3) acquiring distressed plants in medium term. Maintain Buy;

Glenmark Pharma

Reco: HOLD

CMP: Rs 312

Target Price: Rs 360

Margins under pressure – Downgrade to Hold

·      Q3FY12 Results - Revenues at Rs10.3bn (up 38%YoY), b) Adj. EBITDA at Rs1.8bn (up 35% YoY), and c) APAT at Rs1.33bn (up 41% YoY) ·      Revenue growth was driven by 11% in India, 56% in US, 58% in Europe and 48% in Latam ·      Despite INR dep. by 13%, gross margins declined 300bps YoY & 120bps QoQ due to higher growth in Latam, Europe, US where margins are lower and lower growth in high margin India business ·      On account of near term growth pressure in India business & margin pressure overall, we downgrade the stock to Hold with a TP of Rs360 (15x FY13 Base EPS of Rs21+ Adj NPV of Rs47)

Divi's Laboratories : Revival on cards:ICICI Securities

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R e v i v a l   o n   c a r d s …
We met the management of Divi’s Laboratories (DLL) to get insight of
business model and growth plans. DLL is engaged in manufacture of
generic APIs, custom synthesis of  active ingredients for innovator
companies and other speciality chemicals like peptides and
nutraceuticals. DLL’s product portfolio comprises of two broad segments-
(i) Generic APIs including Nutraceuticals and (ii) Custom Synthesis of
APIs, Intermediates and Speciality ingredients for innovator pharma
giants. It also includes peptide building blocks. The sales break-up
between these two segments is almost 50:50 (FY11). The company
remains committed to only few research driven opportunities as was the
case when it started commercial operations in the early nineties. This is
why so far it has filed just 39 odd DMFs and doesn’t want to increase its
count drastically. To enter custom synthesis space in the nineties, the
company made its own case to the innovators which, until then were
relying on services provided by major players such as BASF, Degussa
etc. As these players grew and became as big as the innovators
themselves, companies like DLL on  account of their capabilities and
commitment towards strict IP regime, started getting assignments. DLL
currently owns 3 manufacturing facilities- One in Nalgonda near
Hyderabad and two in Vizag. It is in the process of setting up 4th
manufacturing facility also in Vizag.
Business model
Generic APIs
The company manufactures generic APIs and advanced intermediates for
off patented APIs. So far it filed 39 DMFs with the USFDA and 10 DMFs
with the EDQM. Generic APIs account for nearly 50% of total sales. The
key APIs are Naproxen, Dextromethorphan Hydrobromide, Lopamidol &
Phenylephrine. DLL enjoys more than 70% market share across the globe
for APIs like Naproxene and Dextromethorphan hydrobromide.
Naproxen is a non-steroidal anti-inflammatory drug (NSAID) used in the
treatment of arthritis, spondilitis and other inflammatory conditions.
Around 18% of DLL’s total revenues come from Naproxen. Its DMF was
approved by both USFDA and by EDQM. Other players which
manufacture Naproxen API are Roche, Teva, Albemarie, Farchemia and
Dr Reddy’s Laboratories. Around 9% of the total revenues come from the
Dextromethorphan Hydrobromide API. The API is a cough suppressant,
which is a widely used ingredient in the formulation of cough syrups and
tablets. Other players which manufacture this API are Roche, Dr Reddy’s
Laboratories and Wockhardt

Divi’s Labs: Buy :: Business Line

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Improving growth prospects, likely expansion in margins and negligible debt on books make the stock of Divi's Laboratories an attractive buy for the long term. An established player in the global pharmaceutical outsourcing market, Divi's seems to have come off well from the phase of inventory destocking by MNC pharma.

Pointing at clear signs of recovery is its improved performance in the first half of the current fiscal. At the current market price of Rs 739, the stock trades at about 19 times its likely FY12 per share earnings.

While this is at a slight premium to its peers, the company's financial parameters justify it. Thanks to its established working relationships with a number of the top 20 global innovator firms, Divi's is much better-positioned to grow its revenues and profits than most of its peers.

DIVERSIFIED PRESENCE

Having a diversified revenue basket and customer mix not only spreads the risk, it also opens up growth opportunities for the company.

Divi's derives a good part of its revenues from exports (93 per cent), predominantly from the regulated markets of North America and Europe (45 per cent and 30 per cent of FY11 sales, respectively). In addition, it has a diversified products range, with the largest product making up for 20 per cent of sales (in FY11); top five products made up over 52 per cent of sales last year.

Its customer base too is equally spread out, with the top five contributing to about 47 per cent of its revenues.

What's also encouraging is that, over the year, Divi's has seen a drastic rise in product launches. In FY-11 alone, it added 21 products to its product portfolio, of which eight were generic APIs and intermediates, while 13 were custom synthesis APIs and intermediates.

At the end of March 2011, Divi's had a pipeline totalling 41 Drug Master Files with the US FDA and Certificate of Suitability for 12 products with the European Directorate. Such a robust product pipeline promises to keep its growth momentum going.

GROWTH DRIVERS

Aside of its product pipeline, the company's growing presence in the carotenoids segment too presents a fairly big growth opportunity (market size estimated to be about $1 billion with 2-3 major players only). Though the revenue contribution from this business is not very significant now, the growth prospects make the business attractive. Further, commencement of operations at its new multi-purpose plant at Vizag too would aid growth.

Given that operations started in June 2011, meaningful contributions from the facility can be expected from FY12 onwards. That Divi's is planning to incur a capex of about Rs 175 crore for the year to address capacity shortfalls too reflects the improving business landscape.

RESULT HIGHLIGHTS

For the quarter ended Sep-2011, Divi's managed to grow its sales by about 43 per cent to Rs 366 crore. While a lower base would have helped here, sales growth was helped by a favourable product mix as well as the commissioning of the new SEZ plant at Vizag.

The company reported a decent growth in the Carotenoids business, what with its revenues going up by about 50 per cent to Rs 22 crore during the quarter (Rs 38 crore for the half year).

As a result, operating margins expanded by about 340 basis points to 37.8 per cent. For the coming quarters, margin can be expected to remain at similar levels, given the likely improvement in utilisation and steady up tick in contributions from the high-margin carotenoids segment.

Profit growth for the quarter, however, was capped at 45 per cent to Rs 106 crore, mainly due to a sharp rise in effective tax rate.

The tax outgo increased drastically as the tax exemption for its EOU (export-oriented unit) expired by March-2011; its older SEZ unit is in the 50 per cent tax exemption bracket. The new DSN SEZ unit, however, would be eligible for full exemption of export profits for five years from April 2011 onwards.

The management had earlier given a sales growth guidance of 25 per cent for the year.

Considering that the sales for the first half grew by over 40 per cent, the company seems well-placed to meet its growth target. Consolidation in the global pharma space and currency fluctuations, however, may pose a risk.

Divis Laboratories: In line quarter : Kotak Sec,

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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.

Divi’s Laboratories::Sharekhan Top Picks: November 2011

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Coupled with an IPR-respecting and “non-compete with customer” policy, Divi’s has an unstinted focus on the
contract manufacturing (CM) space, thereby edging over its Indian peers.
Its India-centric business model develops and produces all APIs/intermediates with a substantial cost advantage.
Divi’s enjoys an EBITDA margin of about 40%, possibly the highest amongst its peers globally.
After a full year of inventory downsizing, the outstanding results in H2FY2012 have re-affirmed our confidence
in the company’s growth potential. The new facility at Vishakhapatnam started production from one of its
blocks in June 2011. The remaining blocks are likely to get operational in a phased manner over FY2012-13,
which will provide further thrust. The nutraceutical business could become a big opportunity with limited
competition.
A near debt-free balance sheet and a strong cash flow (free cash flow [FCF] likely to reach Rs230 crore by
FY2013E) are likely to help build a war chest for pursuing strategic investments (biosimilars).
The appreciation of the rupee and a slowdown in the research and development (R&D) allocation at the MNC
clientele remain the key challenges for the company.
With the order inflow picking up from H2FY2011 and its new plant getting operational, Divi’s has a strong
revenue growth visibility and the operating leverage in the business will boost its margins. Consequently, we
estimate the company’s revenue and earnings to grow at a compounded annual growth rate (CAGR) of 23% and
21% respectively over FY2011-13. At the current market price the stock trades at a price earning (PE) multiple
of 20.2x and 16.2x discounting its FY2012E and FY2013E earnings respectively. We maintain our Buy
recommendation.


See entire list of 10 companies and details: click link below:

Sharekhan Top Picks: November 2011

Divi’s Lab : Robust performance - Maintain Buy :Emkay,

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Divi’s Lab

Robust performance - Maintain Buy

BUY

CMP: Rs759                                        Target Price: Rs927

---

n     Divi’s Q2FY12 performance was in-line with expectations with (a) Revenue at Rs3.66bn (up 43% YoY); (b) EBIDTA at Rs1.38bn (up 56% YoY)  & (c) APAT at Rs1.1bn (up 45% YoY)

n     Robust performance was on the back of commissioning of new SEZ plant at Vizag during June 2011

n     Going forward, improvement of capacity utilization at Vizag plant and ramp up in its carotenoids business will boost top-line and bottom-line

n     Strong quarter – Re-iterate Buy with a target price of Rs927 on the stock (20x FY13 EPS of Rs46.3)

Divi’s Laboratories :: Mahurat Picks for Diwali 2011 ::ShareKhan

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Divi’s Laboratories
Remarks : Divi's Laboratories (Divi’s) is a leading player in contract research and manufacturing services (CRAMS),
which contributes nearly 50% of its revenue. The remaining portion of its revenues comes from the
export of generic active pharmaceutical ingredients (APIs) and caretenoids. We expect Divi’s to be a key
beneficiary of the increased pharmaceutical outsourcing from India, given its strong relationships with
global innovator pharmaceutical companies.
Its India-centric business model develops and produces all APIs/intermediates with a substantial cost
advantage. Divi’s enjoys an EBITDA margin of >40%, possibly the highest amongst its peers globally.
A near debt-free balance sheet and strong cash flow (free cash flow likely to reach Rs306 crore by
FY2013) are likely to help build a war chest for pursuing strategic investments (in the space of biosimilars).
It has undertaken large capital expenditure (capex) of Rs2 billion to set up a new special economic zone
(SEZ), implying positive prospects for the outsourcing business (generally Divi’s does not undertake capex
without adequate revenue visibility from customers).
With the order inflow picking up from H2FY2011 and its new plant getting operational, Divi’s has a strong
revenue growth visibility and the operating leverage in the business will boost its margins. Consequently,
we estimate the company’s revenue and earnings would grow at a compounded annual growth rate
(CAGR) of 23% and 21% respectively over FY2011-13.



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Mahurat Picks for Diwali 2011 ::ShareKhan