Buy Divis Laboratories; target of Rs 1250: Motilal Oswal
Motilal Oswal is bullish on Divis Laboratories and has recommended buy rating on the stock with a target of Rs 1250 in its May 21, 2013 research report.
Motilal Oswal`s research report on Divis Laboratories
"For 4QFY13, Divi's Labs (DIVI) reported an 8 percent YoY decline in revenue to INR6.5b (v/s est of INR8.1b), EBITDA decline of 11.4 percent to INR2.51b (v/s est of INR2.89b) and 15.3 percent decline in PAT to INR1.82b (est of INR2.17b). However, EBITDA margin at 38.6 percent (down 140bp YoY) was above est of 35.8 percent. There was a forex loss of INR98m for the quarter (included in other expenses), adjusting for which EBITDA margin stood at 40.1 percent (flat YoY). Revenue decline was on a high base of 4QFY12 when the company reported 48 percent YoY growth. However, management indicated that top line growth was impacted by lower capacity utilization at existing units due to capacity expansion initiatives and ongoing inspections. EBITDA margin is higher-than-estimate due to better gross margins (indicating superior sales mix), lower employee costs and other expenses.” “FY14 guidance: Without giving any specific top line guidance, management expects growth in line with FY13 (15 percent), as capacity utilization would ramp up significantly only after FDA approval of the remaining blocks at the DSN SEZ (expected in 2HFY14). The new units at Vizag are expected to be inspected by the US FDA in 1HFY14. EBITDA margin will be under pressure due to lowerthan- expected traction in business and the higher power costs. Capex guidance stands at INR600-700m (apart from INR3b addition from CWIP) and tax rate guidance retained at 22-23 percent.” “Based on the 4Q performance and moderate FY14 sales growth guidance, we lower EPS estimates for FY14E/15E by 12 percent/14 percent, mainly to reflect slower-thanexpected top line growth over the next two years. While operational performance for the next couple of quarters could be subdued, we believe this is mainly due to delayed FDA inspection for the new SEZ units (now expected in 1HFY14 instead of 2HFY13 earlier). We believe long term growth drivers for DIVI to be in place and maintain a Buy rating with a target price of INR1,250 (20x FY15E EPS). The stock trades at 19.9x FY14E and 16.1x FY15E earnings,” says Motilal Oswal research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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