MOSL: DIVI'S LABORATORIES (Neutral)-Unit-2 plant inspection underway – a positive surprise
​Divi's Laboratories: Unit-2 plant inspection underway – a positive surprise
(DIVI IN, Mkt Cap USD3.6b, CMP INR834, TP INR720, 14% Downside, Neutral)
- According to media reports, the US FDA has been inspecting Divi’s (DIVI) Unit-2 plant since early last week. The plant was last inspected in Dec-16 and was issued an import alert in Mar-17. The current inspection thus comes as a positive surprise as it is happening within six months of the issuance of the import alert (v/s historical trend of 12-18 months). DIVI’s stock has moved up ~15% over the past week on the back of this development. Although early re-inspection (expected to get over next few days) is a positive development, we would wait for the outcome of the inspection (nature of 483 observations, if any) before forming any view on regulatory resolution.
- Import alert resolution to lead to >30% upside from current levels: Assuming that this import alert gets lifted in the next six months, our FY19E EPS will increase by 18-20%. Average one-year forward P/E multiple (over the last 10 years for DIVI (pre-regulatory issues) was ~22x. Considering this, the potential fair value of DIVI could be ~INR1,050-1,100 (~22x FY19E EPS of ~INR48-50).
- Import alert under clause 99-32 was lifted in Jul-17: In Jul-17, the US FDA lifted the import alert under clause 99-32 on the company's Unit-II at Visakhapatnam. The US FDA issued an import alert under clauses 99-32 and 66-40 for the Vishakhapatnam facility in Mar-17, followed by a warning letter in May-17. Import alert under clause 99-32 typically comes when a company has not co-operated with the US FDA during inspection.
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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