11 August 2014
1QFY15Results Update | Sector:
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
M.Cap. (INR b) / (USD b) 200.7/3.3
Financials & Valuation (INR Million)
2015E 2016E 2017E
29,492 35,472 42,613
11,840 14,224 17,002
8,570 10,395 12,495
Divi’s Labs 1QFY15 results were above estimates. Revenues grew 24% YoY to
INR6.4b (7% beat), while EBITDA grew 19% YoY to INR2.3b (9% beat). PAT
declined 4% YoY to INR1.7b (6% beat). There was a forex gain of INR10m included
in other income compared to INR430m in 1QFY14, resulting in a YoY decline in
PAT. Adj for the forex gains, PAT growth is 24%.
Growth was led by healthy performance in both CRAMS as well as API business.
All the five blocks at the DSN SEZ have been inspected by the US FDA and the
capacity utilization has increased to 75%. Divi’s is seeing a sequential
improvement in volume growth over the last few quarters.
EBITDA margin contracted 170bp YoY to 36.3%, but was higher than our est.
35.7%. The revenue mix continued to be skewed towards low-margin API
business. This led to 450bp YoY decline in gross margins. However, lower
employee costs and other expenses as % of sales brought in benefits of operating
The management has maintained the FY15E revenue growth
guidance at 20% (on constant currency basis) and EBITDA margin guidance at
40%. Revenue would grow as capacity utilization at DSN SEZ is expected to
increase from current 75% to 80-85% by end of the year. The capex guidance
stands at INR700-800m (apart from INR1940m addition from CWIP), while tax
rate guidance is maintained at 22%.
Post the 1QFY15 results, we have largely retained our earnings estimates for FY15-
FY17. Divi’s has a robust business model with significant barriers to entry. While this
model is likely to have q-q lumpiness, the longer term outlook is very encouraging.
Though current valuations have limited upside to our target price, we believe Divi’s
estimate may surprise positively over the next two quarters as it is likely to be a key
player in the generic supply of Diovan in US. We re-iterate Buy with a revised TP of
INR1,575 (20x FY16E EPS).
22 3982 5584
22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.