MOSL: DIVI'S LABORATORIES (Neutral)- Regulatory issues impact revenues
​Divi's Laboratories:Regulatory issues impact revenues
(DIVI IN, Mkt Cap USD3.8b, CMP INR920, TP INR800, 13% Downside, Neutral)
- Revenue declined 10% YoY (~4% miss), while EBITDA of INR2.8b was ~8% below our estimate. Apart from loss of sales due to the import alert, lower volumes due to batch-by-batch testing at Unit-2 (for exempted product list) contributed to muted revenue performance. EBITDA margin contracted ~600bp YoY to 31.1% due to lower turnover, and remediation expense of ~INR170m related to the import alert at Unit II. PAT of INR2.1b (down ~32% YoY) was ~4% below our estimate.
- Remediation over at Unit-2: DIVI has already completed remediation for observations highlighted by the USFDA in a re-inspection. Management too has met the USFDA in late Oct-17. The company believes that till the import alert resolution does not happen, the sales run-rate will remain at 2Q levels.
- Capex plan: DIVI spent ~INR4.5b as capital work in progress till end-FY17 to expand capacity at Unit-1 and 2. The company plans to spend ~INR3.65b in FY18 (~INR1.6b already spent in 1H) for capacity expansion. This expanded capacity will be ready for commercial use in FY19.
- Unit-1 USFDA inspection is due: Unit-1 accounts for 35% of total revenue, and its US exposure stands at ~11% of total revenues. This plant was last inspected in June 2014, and an inspection is due over the coming few days. It will be critical for the company to come out clear in the USFDA inspection (particularly since the FDA had cited data integrity issues at Unit-2).
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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