MOSL: DIVI'S LABORATORIES (Neutral)-US FDA lifts 99-32 clause – a sentiment positive-But import alert under another clause remains
​Divi's Laboratories: US FDA lifts 99-32 clause – a sentiment positive; But import alert under another clause remains
(DIVI IN, Mkt Cap USD3.0b, CMP INR735, TP INR600, 18% Downside, Neutral)
- Divi's Laboratories (DIVI) has been informed by the US FDA that it will lift the import alert under clause 99-32 on the company's Unit-II at Visakhapatnam. The US FDA had issued an import alert under clauses 99-32 and 66-40 in March 2017, and then a warning letter in May for its Vishakhapatnam facility.
- Sentiment positive for the company: Import alert under clause 99-32 typically comes when a company has not co-operated with the US FDA during inspection. Lifting of this clause may be seen as a sentiment positive; however, since the plant remains under import alert under clause 66-40, our estimates will not change. We believe that the facility will need to go through a re-inspection before coming back on track.
- Management expects revenue impact to be much lower: Although exposure to the US market from Unit-2 stands at ~22% of total sales, management expects revenue loss to be restricted to ~5% of total sales because of the exempted product list and the increase in supply to ex-US markets. We expect revenue loss of ~15%, given: 1) risk of import alert from smaller regulators (including Health Canada, which has already asked for additional information post the US FDA inspection), 2) risk of loss of business from existing clients, 3) restricted supply from the Unit-2 products exempted list due to batch-by-batch testing requirement from third-party auditors.
- Unit-1 US FDA inspection is due: Unit-1 accounts for 35% of total revenue, with its exposure to the US market 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 this inspection (particularly since the US 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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