Divi’s Lab Latest Result Analysis

We are going to examine the Divis laboratories results in wake of Coronavirus pandemic. Divi's Laboratories Ltd is an India based manufacturer of Active Pharmaceutical Ingredients (APIs) and Intermediates. The company is engaged in the manufacture of leading generic compounds Nutraceutical ingredients and custom synthesis of APIs and intermediates for global innovator companies.

Divi's Lab - Q4 FY20 (Audited –Cons)
CMP: 2,460

Total revenue from operations 1,389 Cr
1,267 Cr (9.65%) YoY | 1,396 Cr (-0.50%) QoQ

Year ending revenue: 5,394 Cr Vs. 4,946 Cr (9.04%)

Net Profit of 388.2 Cr
291.9 Cr (32.92%) YoY 359.09 Cr (8.09%) QoQ

Year ending Net profit: 1,376 Cr Vs. 1,352 Cr (1.71%)

EPS (in Rs.) 14.62
11.00 YoY | 13.53 QoQ

Year ending EPS: 51.85 Vs. 50.96

View: Result is line with the expectation. YoY revenue increased and profit also increased. Profit also contributed more than 12% on account of other income as well, other income recorded INR 76.7 Cr in Q42020 Vs. 40.8 Cr in corresponding previous quarter.

Business Updates & Highlights:

Q4FY20 EBITDA is around INR 522 Cr Vs. 457.1 Cr in FY19 Vs. 535.5 Cr in Q3FY20 therefore up by 14% in YoY and declined by 2.4% in QoQ. EBITDA margin in Q4FY20 is 37.5% Vs. 36.1% in Q4FY19 Vs. 38.3% in QoQ.

FY20 EBITDA is INR 2,011 Cr Vs. 2,027 Cr in FY19 therefore slightly declined by 0.8% in YoY. EBITDA margin is 37.2% Vs. 40.9% in YoY.

Forex Gain is around INR 57 Cr during the Q4FY20 Vs. losses on 7 Cr in Q4FY19. FY20 forex gain is around INR 82 Cr vs. 31 Cr in FY19.

The company availed tax incentives for new projects set up in backward districts of Andhra Pradesh and Telangana. There was also a reversal of current tax of earlier years amounting to nearly Rs.33.70 crores. These have been reflected in the accounts for the current quarter.

It was reported in the previous financial year that the Company would be taking up two brownfield projects with an aggregate investment of "1200 crores. During the year, capitalized assets of INR 876 crores for the new projects as well as for expansion at the existing facilities; and an amount of INR 920 crores is carried forward as Capital Work-in-Progress at the end of the year.

There has been some delay in implementing the large capex projects taken by the Company due to torrential rains and COVID-19 which impacted the movement of people and goods.

The Board of Directors of the Company has declared and paid an interim dividend of INR 16 per share for the financial year 2019-20. No final dividend is recommended

Financial ROE and ROCE is around INR 21% and 29% respectively and book value per share is around INR 266 and share is currently trading at 9.7x of its book value. Company is currently trading at annualized PE of around 48 which is high as per industry benchmark. Promoter holding is around 51.9% in the company which is good and stable. FIIs and mutual fund hold around 19.1% and 14.7% in the company. Cash and cash equivalent from operating activities as of March 2020 is around INR 1,215 Cr Vs. 954 Cr as of March 2019. The good thing is the company has very small debt and continuously reduced their debt.

Position: Share strong support price is INR 2,350/2270. Long term investor can continue with the company.

Share View: Share price high 2,537 (52 weeks) and now 2,460. Divi's is the leading manufacturer of APIs(Active pharmaceuticals ingredients), Intermediates and Registered starting materials offering high quality products with the highest level of compliance and integrity to over 95 countries.

Opportunities: Divi's recently reached the milestone of being one among the top 3 API manufacturers in the world and one among the top API companies in Hyderabad. The API business is a rare pool of profitability. Margins remain attractive even in the most commoditized categories, because supply is much more concentrated in APIs, and suppliers have achieved greater scale by operating globally rather than regionally. The company bet on the high-margin chemicals that go into making medicines have more than paid off. And while Indian drugmakers struggle in the U.S., their largest market, as competition squeezed prices and margins, Divi's Labs has seen its revenue, profit and margins improve in the last two years and clocked its best ever sales in the quarter ended Sep 2019.

Risk: The stock is the costliest among index members, it trades at 30 times of its estimated earnings for 2020-21.

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