INVESTMENT PICK

DIVIS LAB
Present Price – Rs.646.75, Projected price – Rs.720

Divis Lab is involved in the manufacture of APIs & intermediates for generics, custom synthesis of APIs and advanced intermediates for discovering new compounds in collaboration with global pharma majors. It is also involved in developing building blocks for peptides, nucleotides and carotenoids. Divis is the largest producer of naproxen (NSAID used for the treatment of arthritis) the world (~70% of total consumption) & it is working almost at 20 products in API segment, which would drive its growth in future.

Long-term prospects of pharmaceutical outsourcing to India has great potential and we expect Divi’s to be a key beneficiary of this trend given its inherent competencies and leadership in certain complex molecules. The high growth prospects in the Caretonoids segment would further add to the growth momentum. Divis is setting up R & D unit in Visakhapatnam (SEZ facility), which is expected to contribute to revenue from FY12 onwards. Further, it has plans to expand its high potency chemistry biosimilar and biopharmaceutical products.

In Q3 FY11 Divis Lab reported increase in revenue by 57.8% y-o-y & 21.3% q-o-q to Rs 3.10 billion. Its EBITDA grew 34.4% y-o-y & 37% q-o-q to Rs 1.20 billion and reported adj net profit of Rs 917 million was up by 40.4% y-o-y & 38.3% q-o-q.

We expect the company to report EPS of Rs.22 plus for FY12 which makes Divis and excellent investment bet at current levels.