Buy Divis Labs; target of Rs 1250: Motilal Oswal

Motilal Oswal is bullish on Divis Labs and has recommended buy rating on the stock with a target of Rs 1250 in its August 6, 2012 research report.

“Divi's Labs reported 30% YoY growth in revenues to INR4.68b (vs est of INR4.86b), EBITDA growth of 49% YoY to INR1.9b (vs est of INR1.75b) and 63% YoY growth in Adj PAT to INR1.67b (vs est of INR1.33b). EBITDA margins at 40.7% were above our est of 35.9%. Adj PAT growth is higher than topline & EBITDA growth due to higher other income (due to forex gains of INR300m). Topline growth was led by 38% growth in generic APIs and 50% growth for Neutraceuticals (albeit on a low base). CRAMS revenues have grown by 22% and were below our est of 31% growth. EBITDA is higher than estimates and was mainly led by better product-mix and partly due to a favourable currency. Maintains guidance - Management has retained its 25% topline growth guidance for FY13. It has guided for sustaining EBITDA margins at 37-38% (1Q EBITDA margins were at 40.7%).”

“We expect Divi's to be a key beneficiary of the increased pharmaceutical outsourcing from India, given its strong relationships with global innovator pharmaceutical companies. It is targeting a fresh capex of INR1.5-2b for FY13 despite the ~INR4.5b capex undertaken in the past two years. We believe that this reflects mgmt confidence in driving future growth since Divi's generally does not undertake capex without adequate visibility of customer orders. Based on the 1Q performance we have taken a marginal upgrade in our EPS estimates for FY13 and FY14 by 1.3% and 4% respectively. We estimate 24% revenue & 25% EPS CAGR for FY12-14 led by both Generics and CRAMS business segments and ramp-up in Neutraceutical revenues.”

“We estimate 36-37% RoCE and 29% RoE for the next two years, led by traction in the high-margin CRAMS business, sustained profitability in the Generics business and increased contribution from the new SEZ. The stock trades at 21.8x FY13E and 18x FY14E earnings. Maintain Buy, with a revised price target of INR 1250 (20x FY14E EPS),” says Motilal Oswal research report. 

Institutional holding more than 40% in Indian cos

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