MOSL: DIVI'S LABORATORIES (Neutral)-Impact of import alert to be visible in FY18
​Divi's Laboratories: Impact of import alert to be visible in FY18
(DIVI IN, Mkt Cap USD2.3b, CMP INR547, TP INR600, 10% Upside, Neutral)
- Revenues declined 3% YoY (~4% miss), while EBITDA of INR3.6b was 7% below our estimate due to lower-than-estimated gross margin of 60.4% (~200bp below est.). EBITDA margin contracted ~250bp YoY to 33.7% due to forex loss of ~INR290m. PAT of INR2.6b (-20% YoY) was ~10% below our estimate. Divis received an import alert at Unit-2 at end-March 2017, the impact of which will be visible 1QFY18 onward. For FY17 sales, EBITDA and PAT stood at INR40. 5b (+7.6%YoY), INR14. 3b (+1%YoY) and INR10.5b (-5.3%YoY) respectively.
- Proportion of generics remains similar: API generics (56% of sales) declined 2% YoY to INR6b in 4Q. CRAMS business (44% of sales) declined ~4% YoY. Nutraceuticals reported sales of INR570m v/s INR470m in 4QFY16.
- Guides for minimal impact from Unit-2 import alert: DIVIS expects loss of <5% of sales due to the Unit-2 import alert. Divis has already hired a third-party consultant to enact remediation measures and help the company to prepare for Unit-1 inspection. We have witnessed with DRRD and SUNP that batch-by-batch testing of products leads to a delay in supplies and an increase in cost.
Divi's Laboratories is a manufacturer of Active Pharmaceutical Ingredients and Intermediates. The major portion of its turnover is on account of export of its products to European and American countries. Co.'s product portfolio comprises two segments i) Generic APIs (active pharma ingredients) and Nutraceuticals and ii) Custom Synthesis of APIs, intermediates and specialty ingredients for innovator pharma giants. Co. has two Subsidiaries viz., Divis Laboratories (USA) Inc., and Divis Laboratories Europe AG looking after manufacturing and marketing of Neutraceutical products in North American and European Countries.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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