MOSL: DIVI'S LABORATORIES (Neutral)-Earnings growth on low base-capex benefits to reflect 2HFY21 onwards
Divi's Laboratories: Earnings growth on low base; capex benefits to reflect 2HFY21 onwards
(DIVI IN, Mkt Cap USD6.7b, CMP INR1762, TP INR1590, 10% Downside, Neutral)
- Lower than expected performance across the board: 4QFY19 sales at INR12.5b (our est. INR13b) were up 15.5% YoY. Gross margin (GM) at 60% contracted 250bp/420bp YoY/QoQ due to increased share of generics (~59% v/s 55-56%) in total sales and higher raw material (RM) prices. RM prices have increased due to supply disruption in key starting materials from China on environmental concerns. However, EBITDA margin at 34.9% (our estimate: 39.6%) was marginally down by 60bp YoY compared to the fall in GM. This is due to lower other expenses (excluding one-offs), down 130bp YoY, and employee cost, down 60bp YoY (as % of sales). Other expenses had one-offs due to 1) Forex loss of INR74m and 2) Considerably higher amount of INR300m towards CSR. EBITDA at INR4.3b (our est. INR5.2b) grew 13% YoY. Adj. PAT at INR3b (our est. INR4b) grew at higher rate of 25% YoY due to lower tax rate for the quarter. For FY19, Sales/EBITDA/PAT at INR49b/INR19b/INR13b grew 26%/48%/55% on YoY basis.
- Key highlights: (a) DIVI’s largest product accounted for 18% of revenues in FY19 compared to 15% on YoY basis. Nutraceutical sales for the quarter came in at INR940, up 22% YoY. (b) DIVI has increased capex to be spent at Unit-2 from INR4b to INR6b; it also plans to invest a total of INR6b in Unit-1. DIVI’s has also demarcated capex towards debottlenecking (INR3b) and expansion/ modernization of utilities (INR2b). (c) Compared to FY18, FY19 saw an increase of INR4.2b in inventory due to build-up of raw material and intermediates to avoid supply interruption. (d) FY19 saw strong revenue growth, partly on low base of FY18. DIVI is confident of delivering 12-15% YoY revenue growth in FY20.
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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