Pharmaceuticals
November 03, 2014
Divi's Lab
India Research
Bloomberg: DIVI IN
Reuters: DIVI.BO
RESULT REVIEW
HOLD
Robust Revenue Growth
Recommendation
CMP:
Rs1,876
Divis Labs Total revenues are up by 47% YoY to Rs 8.3bn against our
expectation of Rs 6.9bn during the quarter. Operating margins were at
36.8% lower than our estimate of 38.9% due to lower gross margins. Net
Profit was up by 12.1% to Rs 2,296mn higher than our estimates of Rs
1,911mn.
Target Price:
Rs2,090
Previous Target Price
Rs1,927
Margins Impacted: Company's EBITDA Margins were at 36.8% (our
estimates 38.9%) lower than 43.9% reported in Q2FY14 due to lower gross
margins. Raw material cost was at 42.2% of revenues as against 31.8 % in Q2
FY14. Generics and Nutraceuticals constituted 54% of revenues. The
Company's net profit was at Rs 2,296mn in Q2FY15 compared to Rs 2,049mn
in Q2FY14. Divis Labs had a forex gain of Rs 43.2mn as against a gain of Rs
310mn in Q2FY14.
Outlook and Valuation: We upgrade our FY15E revenues by 0.7%/2.1%/2.1%
for FY15E/FY16E/FY17E respectively due to better traction and guidance
given by company. We lower our EBDITAM by 60–230 bps for FY15-17E due
to lower gross margins. We downgrade our EPS by 3.3% to Rs 64 for FY15E
due to lower EBDITAM and upgrade EPS by 1.4% to Rs 82.3 for FY16E and
by 1.1% to Rs 103.5 for FY17E. We upgrade our price target by 8.5% to Rs
2090 based 22.5x on average of FY16E-17E EPS of Rs 92.9. We reiterate our
‘HOLD’ rating on the stock.
11%
Stock Information
Market Cap. (Rs bn / US$ mn)
249/4,058
52-week High/Low (Rs)
1,888/965
3m ADV (Rs mn /US$ mn)
298/4.9
Beta
0.5
Sensex/ Nifty
27,866/8,322
Share outstanding (mn)
133
Stock Performance (%)
Absolute
Rel. to Sensex
1M
4.2
3M
27.1
12M
92.9
YTD
53.6
(0.4)
18.1
46.5
16.7
Performance
29,500
27,500
25,500
23,500
21,500
19,500
17,500
15,500
2,050
1,850
1,650
1,450
1,250
1,050
850
Nov-13
Dec-13
Jan-14
Mar-14
Apr-14
May-14
Jun-14
Aug-14
Sep-14
Oct-14
Revenue Details: Divi’s standalone revenues increased by 47% YoY to Rs
8.33bn compared to Rs 5.67bn in Q2FY14. Customs Synthesis grew by 40.5%
to Rs 3.82bn as against our estimates of Rs 3.26bn while Generics were up by
54.7% to Rs 4.04bn as against our estimates of Rs 3.14bn. Neutraceuticals
revenues were up 33.3% at Rs 440mn against Rs 330mn in Q2FY14.
Upside (%)
Sensex (LHS)
Divis Labs. (RHS)
Source: Bloomberg
Earnings Revision
(%)
Key Financials
Y/E Mar (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
Net Sales
21,448
25,321
30,699
37,469
44,977
EBITDA
8,152
10,145
11,574
14,541
17,717
Net Profit
6,020
7,733
8,490
10,918
13,734
EPS (Rs)
45.4
58.3
64.0
82.3
103.5
EPS Growth (%)
12.9
28.5
9.8
28.6
25.8
EBITDA margin (%)
38.0
40.1
37.7
38.8
39.4
PER (x)
41.4
32.2
29.3
22.8
18.1
P/BV (x)
10.0
8.4
7.1
5.9
4.8
Price/sales (x)
11.6
9.8
8.1
6.6
5.5
EV/EBITDA (x)
30.5
24.5
21.1
16.5
13.2
ROCE (%)
33.5
35.5
34.3
36.3
36.7
ROE (%)
26.0
28.3
26.2
28.2
29.3
Source: Company, Karvy Stock Broking
FY15E
FY16E
FY17E
Revenue
0.7
2.1
2.1
EBITDA
5.1
0.7
0.7
EPS
3.3
1.4
1.1
Source: Karvy Stock Broking
Analysts Contact
Rahul Sharma
022 - 6184 4310
[email protected]
November 03, 2014
Divi's Lab
Key Takeaways
Revenues from DSN have been Rs 2.33bn for the quarter and Rs 3.7bn for the six
month period. DSN SEZ had contributed Rs 4.5bn revenues last year.
Generics revenue traction has been on account of Valsartan scale up in various
markets including supplies to key player in US markets.
The company believes revenue growth could be in excess of 21% in current year
and 20-25% in FY16E. Divis Labs maintains its revenue guidance of Rs 2bn for the
nutraceuticals business. Margins for the company would be in the range of 37-38%.
Power cost is expected to be higher in the second half. Our estimates were higher,
hence we have cut our power cost for FY15E.
The company’s working capital cycle should even out in H2 FY15E. It has
capitalized assets to the tune of Rs 500mn for the quarter.
The Hudhud cyclone has impacted the company and it has suffered a loss of Rs
100mn which would be recovered from insurance. Q3FY15E would see production
loss for 15 days on account of the Hudhud cyclone.
Company’s depreciation was higher at Rs 293mn in Q2FY15 as against Rs 225mn
in Q2FY14 due to change in depreciation norms on useful life of assets.
Exhibit 1: Quarterly Performance
Year end March (Rs Mn)
Q2FY15
Q1FY15
Q2FY14
Q-o-Q%
Y-o-Y %
Net Revenues
8,331
6,427
5,670
29.6
47.0
Cost
5,263
4,075
3,182
29.2
65.4
EBITDA
3,068
2,352
2,487
30.5
23.4
EBITDA Margin (%)
36.8
36.6
43.9
Other Income
155
127
55
22.5
180.5
4
4
4
19.4
10.3
293
333
225
(12.0)
29.9
2,927
2,142
2,624
36.6
11.5
36.1
9.7
36.7
12.1
Interest Expense
Depreciation
Profit before Tax
Tax
630
463
574
Tax rate (%)
21.5
21.6
21.9
0.0
0.0
0.0
2,296
1,679
2,049
EOI
Net Profit
Source: Company, Karvy Stock Broking
2
November 03, 2014
Divi's Lab
Exhibit 2: Changes in Estimates
Y/E Mar (Rs mn)
FY15E
FY16E
FY17E
New
Old
% change
New
Old
Custom Synthesis
14,062
14,015
0.3
17,015
16,608
2.5
Generics
14,519
14,396
0.9
17,568
17,203
Neutraceuticals
2,000
2,000
-
2,800
Revenues
30,699
30,485
0.7
Raw materials
12,095
11,127
8.7
Raw materials/ sales
39.4
36.5
Other expenses
4,286
4,419
Other expenses / sales
14.0
14.5
Power Cost
1,810
1,951
Power Cost / sales
Old
% change
20,163
19,681
2.5
2.1
21,081
20,644
2.1
2,800
-
3,640
3,640
-
37,469
36,691
2.1
44,977
44,051
2.1
Marginal upgrade in revenues
14,425
13,759
4.8
17,316
16,519
4.8
lower gross margins due to
greater contribution from
Generics
38.5
37.5
38.5
38
5,265
5,256
6,124
6,114
14.1
14.3
13.6
14
(7.2)
2,548
2,568
(0.8)
3,058
3,084
6.8
7.0
6.8
7.0
(5.1)
14,541
14,439
0.7
17,717
17,598
38.8
39.4
39.4
40
(3.0)
% change New
Comments
0.2
0.2
(0.8)
lower power cost in lieu of H1
nos
5.9
6.4
11,574
12,196
EBITDA margin (%)
37.7
40.0
Other income
577
545
6.0
929
958
(3.0)
1,453
1,509
(3.7)
lower excess cash
Depreciation
1,250
1,394
(10.4)
1,366
1,485
(8.0)
1,431
1,553
(7.9)
lower depreciation in lieu of H1
nos
Tax
2,395
2,549
(6.1)
3,170
3,126
1.4
3,987
3,945
1.1
Net Profit
8,490
8,780
(3.3)
10,918
10,768
1.4
13,734
13,590
1.1
EPS (in Rs.)
64.0
66.1
(3.3)
82.3
81.1
1.4
103.5
102.4
1.1
EBITDA
0.7
Source: Company, Karvy Stock Broking
3
November 03, 2014
Divi's Lab
Financials
Exhibit 3: Profit & Loss Statement
Y/E Mar (Rs mn)
Net Revenues
Total Material Cost
Staff
Manufacturing Expenses
Administrative and other expenses
Selling & Dist
Others
Selling, General & Admin Exp
Total Expenditure
EBITDA
EBITDA margin (%)
Other Income
Interest
Depreciation
Profit Before Tax
Tax
Effective tax rate (%)
Net Profit
FY13
21,448
7,986
1,977
2,122
1,085
115
12
1,211
13,297
8,152
38.0
448
18
769
7,812
1,792
22.9
6,020
FY14
25,321
9,142
2,325
2,385
1,143
126
57
1,326
15,177
10,145
40.1
706
21
921
9,909
2,176
22.0
7,733
FY15E
30,699
12,095
2,743
2,915
1,212
141
19
1,371
19,125
11,574
37.7
577
16
1,250
10,884
2,395
22.0
8,490
FY16E
37,469
14,425
3,237
3,822
1,284
159
0
1,443
22,928
14,541
38.8
929
17
1,366
14,087
3,170
22.5
10,918
FY17E
44,977
17,316
3,819
4,588
1,361
175
0
1,537
27,260
17,717
39.4
1,453
18
1,431
17,722
3,987
22.5
13,734
FY16E
265
42,072
42,338
188
16
203
1,150
43,691
20,885
7,801
13,084
613
3,647
13,590
10,272
9,208
81
1,935
35,086
2,371
6,367
8,738
26,348
43,691
FY17E
265
51,161
51,426
226
16
241
1,150
52,818
21,928
9,232
12,696
1,070
3,647
16,437
12,423
14,837
81
2,295
46,073
2,847
7,822
10,668
35,405
52,818
Source: Company, Karvy Stock Broking
Exhibit 4: Balance sheet
Y/E Mar (Rs mn)
Equity
Reserves
Net worth
Short-term Loans
Long-term Loans
Total Loans
Deferred Tax Liabilities
Liabilities
Gross Block
Depreciation
Net Block
Capital work-in-progress
Long-term Investments
Inventories
Debtors
Cash
Other Current assets
Loans and Advances
Total Current assets
Creditors
Other current liabilities
Total current liabilities
Net current assets
Total Assets
FY13
266
24,741
25,006
305
21
326
792
26,124
13,383
4,296
9,087
3,034
4,078
8,357
5,120
409
67
1,236
15,188
1,822
3,441
5,263
9,925
26,124
FY14
265
29,368
29,633
163
16
179
1,150
30,962
17,403
5,185
12,218
1,445
5,019
9,324
7,237
405
61
1,396
18,423
1,675
4,468
6,143
12,280
30,962
FY15E
265
34,871
35,137
154
16
169
1,150
36,456
19,998
6,435
13,563
750
3,647
11,168
8,441
4,357
81
1,628
25,676
1,988
5,192
7,180
18,496
36,456
Source: Company, Karvy Stock Broking
4
November 03, 2014
Divi's Lab
Exhibit 5: Cash Flow Statement
Y/E Mar (Rs mn)
FY13
FY14
FY15E
FY16E
FY17E
EBIT
7,382
9,224
10,324
13,175
16,286
(1,285)
(2,359)
(2,264)
(3,001)
(3,428)
448
706
577
929
1,453
(Inc.)/Dec in working capital
Other Income
Depreciation
Dividends paid (-)
Interest paid (-)
Tax paid (-)
Deferred tax liability
Cash Flow from Operations
Capital Expenditure (-)
Cash from operations
769
921
1,250
1,366
1,431
(1,991)
(2,655)
(2,987)
(3,717)
(4,646)
(18)
(21)
(16)
(17)
(18)
(1,792)
(2,176)
(2,395)
(3,170)
(3,987)
183
358
0
0
0
3,696
3,998
4,489
5,566
7,091
(3,687)
(2,463)
(1,900)
(750)
(1,500)
10
1,535
2,589
4,816
5,591
Inc./(Dec.) in short-term borrowing
(197)
(142)
(10)
34
38
Inc./(dec.) in long-term borrowing
(67)
(5)
0
0
0
Inc./(dec.) in borrowings
(264)
(147)
(10)
34
38
(Inc.)/Dec. in Investments
692
(941)
1,372
0
0
Cash from Financing activities
428
(1,088)
1,363
34
38
(338)
(451)
0
0
0
Opening cash
309
409
405
4,357
9,208
Closing cash
409
405
4,357
9,208
14,837
Others
Source: Company, Karvy Stock Broking
Exhibit 6: Ratios
Y/E Mar
FY13
FY14
FY15E
FY16E
FY17E
EV/EBITDA
30.5
24.5
21.1
16.5
13.2
ROE %
26.0
28.3
26.2
28.2
29.3
ROCE %
33.5
35.5
34.3
36.3
36.7
PE(x)
41.4
32.2
29.3
22.8
18.1
P/S(x)
11.6
9.8
8.1
6.6
5.5
P/BV(x)
10.0
8.4
7.1
5.9
4.8
Source: Company, Karvy Stock Broking
5
November 03, 2014
Divi's Lab
Stock Ratings
Buy
Hold
Sell
:
:
:
Absolute Returns
> 15%
5-15%
< 5%
For further enquiries please contact:
[email protected]
Tel: +91-22-6184 4300
Disclosures Appendix
Analyst certification
The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect
his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be
directly or indirectly related to the specific recommendation(s) or views contained in this research report.
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