Hold Divi’s Laboratories; target of Rs 665: ICICI Direct

ICICI Direct recommended hold rating on Divi’s Laboratories with a target price of Rs 665 in its research report dated July 24, 2017.

July 26, 2017 / 16:09 IST

26 Aug, 2025 12:21

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ICICI Direct's research report on Divi’s Laboratories

Revenues declined 19% YoY to Rs 821 crore (I-direct estimate: Rs 1061 crore), mainly due to delay in shipments of exempted products to the US owing to setting up of protocols and procedures as per import alert requirement.EBITDA margins declined 412 bps to 29.8% (I-direct estimate: 34%). EBITDA fell 39% YoY to Rs 245 crore (I-direct estimate: Rs 361 crore).PAT declined 41.5% to Rs 177 crore (I-direct estimate: Rs 263 crore) mainly due to lower operational performance.

Outlook

The impact of import alert was far higher-than-expected as the company undertook setting up of revised protocols and procedures to address the apprehensions raised in the import alert and subsequent warning letter. The management has guided for negative revenue growth and significant dent in margins in FY18 due to ongoing remedial measures and possible loss of business. We believe partial lifting of import alert (clause 99-32) will not have much of a bearing on earnings as cGMP related alert still stays. Hence, the threat of losing clients especially in CS space still looms large. Secondly, the capacity constraint scenario is unlikely to improve in the near term due to a delay in green field expansion at Kakinada. These two fundamental aspects are likely to weigh in the near future. We have valued the stock at Rs 665 based on 16x FY19E EPS of Rs 41.5.

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