Dolat Capital is bullish on Divis Labs and has recommended accumulate rating on the stock with a target of Rs 1233 in its February 4, 2013 research report.
"Divis Labs, Revenues grew 28% YoY to Rs 5.34bn mainly driven by higher contribution from generic API business and scale-up in capacity utilization of DSN SEZ unit. Excluding DSN - SEZ revenues, topline growth was 31% YoY. Growth on account of foreign currency movement was only 3- 4%. Revenue from custom synthesis business (47% of sales) grew 28% YoY to Rs 2.51bn, while API sales (49% of sales) grew 31% YoY to Rs 2.64bn. Carotenoids contributed Rs 190mn of sales against Rs 200mn in Q3FY12. DSN SEZ contribution (four units operational) stood at Rs 640mn and for 9MFY13 at Rs 1.54bn. The management had earlier indicated it had capitalized Rs 1.25bn at the end of Q2FY13. This facility is currently running at 45% capacity utilization. FDA approval is now expected in H1FY14E."
"DSN SEZ is anticipated to achieve 85% capacity post successful FDA approval and shall contribute meaningfully in FY14E. Other income included forex gain of Rs 160mn vis-à-vis fx loss of Rs 210mn recorded in other expenses in Q3FY12. EBITDA margins (excluding fx items) saw a sharp decline of 710bps YoY. Raw material costs stood higher by 250bps YoY at 41.4% of sales led by higher contribution from generic API segment. Increased other expenses (up 470bps YoY) at 16% of sales reflects higher power and manufacturing overheads. Increased power tariffs as a result of power shortage in the state continues to weigh on margin expansion and is expected to remain a near term concern. Depreciation cost increased to Rs 204mn (up 25.7% YoY) on account of capitalisation at new Vizag facility. Tax rate during the quarter stood at 21.5% (23.6% in Q3FY12). Consequently, reported PAT for the quarter grew 17.7% YoY to Rs 1.44bn. Adjusted PAT (excl. fx items) stood at Rs 1.28bn."
"We expect 22% revenue growth over FY13-15E mainly led by increased order flows and ramp up in its new facility at Vizag SEZ. Benefits of operating leverage post FDA approval to its new Vizag facility in H1FY14E shall ease stress on operating profitability which is currently impacted due to increased power & manufacturing costs. Debt free balance sheet and controlled capex enables Divis to generate healthy cash flows which inturn reflects in its high return ratios. At CMP, the stock trades at 17.5x FY14E & 14.7x FY15E earnings. We recommend Accumulate with a revised target price of Rs 1233 (17x FY15E EPS)," says Dolat Capital research report.
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