Buy Divis Laboratories; target Rs 927: Emkay

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Buy Divis Laboratories; target Rs 927: Emkay

Emkay Global Financial Services is bullish on Divis Laboratories and has recommended buy rating on the stock with a target price of Rs 927 in its January 30, 2012 research report.

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RELATED NEWS Accumulate NTPC; tgt of Rs 182: PINC Research Buy HDFC Bank; target of Rs 503: IIFL Hold Canara Bank; target of Rs 500: Emkay ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about Divis Labs See messages about Divis Labs Divis Labs BSE | NSE 01/06/12 Are Mutual Funds betting on Divis Labs?

Emkay Global Financial Services is bullish on Divis Laboratories and has recommended buy rating on the stock with a target price of Rs 927 in its January 30, 2012 research report.

"Divis Laboratories' Q3FY12 performance was below expectations with (a) Revenue at Rs 4.2bn (up 33% YoY); (b) EBIDTA at Rs 1.5bn (up 22% YoY) & (c) PAT at Rs 1.23bn (up 21% YoY). Top-line growth was aided by INR depreciation, which contributed 13% to the top-line growth. Capacity utilization at Vizag plant remained flat QoQ, expected to scale up from Q1'13. EBITDA margins at 36.2% were lower than expectations in spite of INR depreciation led by increase in expenses due to commissioning of Vizag plant & higher proportion of API sales."

"Revenues increased by 33% to Rs 4.2bn, led by INR depreciation which contributed 13% to the overall growth. Vizag facility (commissioned in Jun'11) contributed Rs 600mn in 9MFY12. Carotenoids sales failed to pick-up in Q3FY12 with revenues of Rs 200mn in Q3FY12 vs. Rs 230mn in Q2FY12 (Rs 580mn in 9MFY12). For the Caratenoids business - management has lowered its guidance to Rs 850mn from Rs 1.1bn earlier for FY12 and to Rs 1.6bn from Rs 2.2bn in FY13. EBITDA margins during the quarter were below expectations even after the INR depreciation. Margins contracted by 300bps YoY and expanded by 48bps QoQ to 36.2% mainly on the back of higher employee cost and other expenses from Vizag & higher proportion of API sales led to decrease in gross margins. PAT grew by 21% YoY to Rs 1.23bn (tax rate for Q3'12 was higher at 23.6% vs. 13% in Q3'11 and 20% in Q2'11). This included one-time gain of Rs 160mn included in other income. Adjusting for this gain, APAT increased by 9% YoY to Rs 1.1bn."

"Divi's continues to maintain strong performance in the CRAMS space vis-à-vis its peers in terms of best-in-class operating metrics. We expect Divi's to report 22% growth in revenues in FY12E and 20% growth in FY13E. EBIDTA margins are expected to increase from 38.1% in FY11 to 38.5% in FY12E and 39.5% in FY13E. Earnings will grow by 20% CAGR over FY11-13E. We value the stock at 20x FY13E earnings to arrive at a target price of Rs 927. At current price, the stock trades at 22x FY12E EPS of Rs 37.5 and 18X FY13E EPS of Rs 46.3. Re-iterate Buy," says Emkay Global Financial Services research report.

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To read the full report click on the attachment