Buy Divis Laboratories: Ventura

Ventura`s research report on Divis Laboratories

"In Q4FY13, Divi’s revenue stood at Rs 650 crore as against Rs 708 crore in Q4FY12 (-8.2 percent YoY) backed by the lower utilisation in existing facilities. Lower utilisation was led by ongoing capacity expansion and inspections in DSN SEZ, impacting the overall growth trajectory. Management has guided that USFDA inspection of the balance three blocks has been pushed to H2FY14 (earlier guidance Q1FY14). In Q4FY13 the company’s EBITDA margin stood at 40.2 percent driven by the improved product mix. FY13 margin was at 38.6 percent, up 100bps YoY, in line with street estimates. The only positive surprise for the quarter was Cartenoids business which recorded a 10 percent yoy growth.”

“The management is confident of achieving Rs 150 crore Carotenoids revenues in FY14 and Rs 200 crore in FY15. Other income for the quarter stood at Rs 7.6 crore, while depreciation for the quarter stood on the higher side backed by the capitalization of Vizag DSN SEZ. We expect full benefit of the capitalization to start accruing by FY14. The company has capitalised two of its blocks at its DSN SEZ (Rs 250 crore) while the remaining 3 blocks will be capitalized at a cost of Rs 303 crore. Additional outlay would be to the tune of Rs 60-70 crore. Further, during the quarter Divi’s has incurred transactional losses of Rs 9.75 crore. Over the same period, power cost was Rs 37 crore."

"Though in the short term the stock will remain range-bound backed by the lack of triggers, in the long term we remain positive on Divi’s. We expect the company to be key beneficiary of enhanced outsourcing opportunities triggered by its expertise in complex chemistry, cost-efficient process and strong relationship with innovators. Additionally regulatory approval for DNS Vizag’s 3 blocks remains the key trigger. At the CMP of Rs. 995 the stock is trading at 18.02x and 15x its estimated earnings for FY14E and FY15E and we recommend a BUY on the stock,” says Ventura research report.

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