MOSL: DIVI'S LABORATORIES (Buy)-Revenue improves sequentially-margin impacted by forex loss
Divi's Laboratories: Revenue improves sequentially; margin impacted by forex loss
(DIVI IN, Mkt Cap USD4.7b, CMP INR1122, TP INR1100, 2% Downside, Buy)
- DIVI reported healthy revenue growth of 8% YoY and 17% QoQ in 3QFY18 to INR10.4b (v/s our estimate of INR9.9b). It has reported revenue growth after three quarters due to regulatory issues at its Unit-II, which have now been resolved. EBITDA declined ~14% YoY but grew ~18% QoQ to INR3.3b. Margin declined 790bp YoY (flat QoQ) to 31.4%. PAT declined 16.3% (grew 9%QoQ) to INR2.2b, ~3% below our estimate.
- EBITDA margin to improve from FY19: DIVI incurred forex loss of INR160m, adjusting for which margin would have been ~33%. It incurred remediation cost of INR140m, which is expected to decline to INR50m-60m in 4QFY18. Remediation cost will not be incurred from FY19. We expect EBITDA margin to improve by ~400bp to ~36%, with no remediation expenses from next fiscal.
- Capex plan: DIVI spent ~INR4.15b as capital work in progress till end-FY17 to expand capacity at Unit-I and Unit-II. It has already spent ~INR4.5b till 9MFY18 (including INR1b for new Nutraceuticals plant) and plans to capitalize an additional INR1.75b in 4QFY18 for Unit-I new block addition. The company has guided INR3b capex in FY19 for the Kakinada plant (INR350m spent on land purchase) and other opportunities. However, the Kakinada project is stuck due to litigation. DIVI cited that it will evaluate the situation for another 1-2 quarters and might look to shift the plant location.
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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