Divi's focus on international business to boost bottom line

Divi's Laboratories, a Rs.3,100 crore leading custom manufacturer pharma major from Hyderabad, has put up a strong performance and rewarded its shareholder with liberal bonus equity shares in the ratio of 1:1 on the eve of 25th year of formation as well as hefty dividend of Rs.20 per share (1000 %) for the year ended March 2015. After the bonus issue, its equity capital increased to Rs.53.09 crore from Rs.26.55 crore and currently its market capitalization worked out to Rs.29,918 crore on BSE. The Rs.2 face value scrip is moving around Rs.1,130 on BSE.

As at the end June 2015, Promoters were holding 49.03 per cent equity stake followed by foreign institutional investors 19.07 per cent, financial institutions/banks 13.91 per cent, bodies corporate 6.75 per cent and Indian public 6.22 per cent and others 5.02 per cent.

For the first quarter ended June 2015, Divi's net profit increased sharply by 44.8 per cent to Rs.243.18 crore from Rs.167.93 crore in the corresponding period of last year. Its net sales improved by 16.1 per cent to Rs.807 crore from Rs.640 crore. EPS improved sharply to Rs.18.32 as against Rs.12.65 in the last period.

EBDITA improved by 34.7 per cent to Rs.333.84 crore from Rs.247.86 crore. Its employees cost went up by 33.5 per cent to Rs.80.33 crore from Rs.60.18 crore. However, its other income went up to Rs.33.99 crore from Rs.12.69 crore basically due to forex gain of Rs.21.22 crore as against Rs.1.35 in the last period. Its tax provision moved up to Rs.61.52 crore from Rs.46.31 crore.

With the help of four manufacturing units and four R&D centres, Divi's Labs is moving ahead strongly and has set to grab upcoming opportunities. As the generics space continues to grow in the US, Europe as well as the emerging markets, Divi's, with its cost effective positioning, is well equipped to play a significant role. It started off during 1990 as an R&D and consultancy company for development of commercial processes for active pharmaceutical ingredients (API) and intermediates and crossed a Rs.3,000 crore revenue mark in the year 2015.

Its first facility comprising 13 multi-purpose production blocks with clearly defined finished product areas for APIs is located at Hyderabad and its second facility is located at Bheemunipatnam Mandal with 8 production blocks totaling a capacity of 1581 m3. Its third unit with capacity of 2,717 m3 went into commercial production in November 2006 in SEZ area of Visakhapatnam district. It has set its fourth manufacturing unit DSN SEZ with capacity of 2,480 m3 in Vizag. It has triple certifications ISO 9001, ISO 14001 and OHSAS 18001 for its manufacturing facilities. All the manufacturing sites have been inspected by US FDA.     

Divi's Laboratories is engaged predominantly in export markets and has a broad product portfolio under generics and custom synthesis. The company's consolidated net sales for the year ended March 2015 improved by 22.8 per cent to Rs.3,103 crore from Rs.2,526 crore in the previous year. Its export constituted over 87 per cent to its gross sales. Highly regulated markets like USA and Europe accounted for 73 per cent with sales of Rs.1,069 crore and Rs.1,167 crore respectively. Its domestic sales reached at Rs.407 crore and worked out to 13.3 per cent of its gross sales.

The R&D expenditure is negligible as compared to its overall business and it spend only Rs.27.67 crore during 2014-15 as against Rs.35.04 crore in the previous year. This work out to only one percent of its gross sales. It received contract research fee of Rs.7.33 crore as compared to Rs.6.39 crore. It has 39 DMFs with US FDA and 197 DMFs with Europe and 19 Certificates of Suitability with various European Union authorities. It filed 11 patents for generic products.

Its product portfolio comprises of two broad segments viz., generic APIs and nutraceuticals, and custom synthesis of APIs, intermediates and specialty ingredients for innovator pharma giants.

Earnings before interest, depreciation, taxation and adjustments (EBIDTA) improved by 11.5 per cent to Rs.1,210 crore from Rs.1,085 core. Its other income declined to Rs.44.70 crore from Rs.70.60 crore due to lower foreign exchange gain of Rs.1.86 crore as against Rs.37.12 crore in the previous year. Though the company is almost debt free entity, its depreciation provision increased to Rs.136 crore from Rs.92 crore. The net profit improved only by 10.2 per cent to Rs.852 crore from Rs.773 crore and EPS worked out to Rs.64.15 as compared to Rs.58.26.Its debt equity ratio is only 0.01 and return on net worth worked out to 24 per cent.

The company has two subsidiaries viz., Divi's Laboratories (USA) Inc and Divis Laboratories (Europe) AG in Switzerland for marketing its nutraceutical products and greater reach to customers within these regions. Its US based subsidiary posted net sales of Rs.100 crore during 2014-15 and reduced its net loss at Rs.1.55 crore. Similarly, Its European subsidiary registered net sales of Rs.68.33 crore and turned the corner and earn a net profit of Rs.6.02 crore as against a net loss of Rs.10.21 crore

As against the equity capital of Rs.53.09 crore (post bonus issue), its reserves & surplus stood at Rs.3,469 crore as compared to Rs.2,937 crore in the previous year. Its capital work in progress reached at Rs.218.18 crore as at the end of 2014-15 and likely to commence operation during the next financial year. The company has investments of Rs.732 crore in the SBI Mutual Fund - short term direct fund and it earned a dividend income of Rs.36.12 crore during 2014-15.

Thus, the strong financial position, investment in capex, lower borrowings and improvement in working of subsidiaries will boost the business operations in the coming years and investors may get better returns in future.


Divi's Labs financial highlights