Divi's Laboratories, after passing through a bad patch during 2009-10, is set to put up a good performance in the international market and attain a strong financial position. The company management has chalked out an expansion plan by investing Rs 200 crore for setting up a new facility in its SEZ for additional capacities in the current year. It operates predominantly in export market with a broad product portfolio under generics and custom synthesis.
Divi's scrip with face value of Rs 2 each is currently moving around Rs 760 with market capitalization of over Rs 10,000 crore in Bombay Stock Exchange. Recently, the scrip touched its yearly high level at Rs 797 as against its lowest level of Rs 452. With handsome dividend for the year 2009-10, after liberal bonus in the ratio of 1:1, the scrip gets strong support from investors. The company maintained equity dividend at 300 per cent on an enlarged equity base. The dividend provision worked out to Rs 79.29 crore for the year 2009-10 as against 38.91 crore in the previous year. The equity capital after bonus issue went up to Rs 26.43 crore from Rs 12.95 crore.
Divi's Laboratories has created strong financial position and its reserves went up sharply by 21.5 per cent to Rs 1,491 crore from Rs 1,228 crore in 2008-09, despite lower profit. The company transferred huge surplus of Rs 1,190 crore to reserves and Rs 53 crore to its general reserves during 2009-10. Its gross fixed assets touched to Rs 832.93 crore from Rs 782.77 crore. Divi's investment went up sharply by 151 per cent to Rs 441.28 crore from Rs 171.80 crore. It purchased 44.10 crore units of Rs 10 each of SBI Mutual Fund Institutional Plan – Daily Dividend Scheme as compared to 17.17 crore units in the last year. Its book value per share reached at Rs 116.70 after bonus issue as compared to Rs 194.85 in the preceding year.
The company received major setback during the year ended March 2010 and its consolidated net profit declined by 18.3 per cent to Rs 340.34 crore from Rs 416.64 crore in the previous year. The net profit margins worked out to 36.1 per cent as compared to 35.1 per cent. However, return on net worth declined to 22.4 per cent from 33.6 per cent. With fall in profits, its earnings per share, after taking into consideration of bonus share issue, moved down to Rs 26.11 from Rs 32.19. Return on investment i.e. net profit as per cent of total net assets, declined to 18.31 per cent from 26.91 per cent. The profit before interest, depreciation and taxation also dipped by 12.7 per cent to Rs 439.59 crore from Rs 503.32 crore.
The company's consolidated net sales declined by 20.2 per cent to Rs 941.61 crore from Rs 1180.34 crore mainly on account of global economic slowdown. Several of its international customers have cut down their inventories and undertook steps like destocking of inventories across all their stockists as well as suppliers. Divi's major revenues are coming from international market and it also spend huge amounts on imports of raw materials. Thus, the growth is closely connected with the ups and down movements in foreign exchange rates.
Divi's exports on FOB basis declined to Rs 835 crore from Rs 1,103 crore and constituted 91 per cent of total turnover as against 93 per cent in the last year. Its exports to North America region declined by 24.3 per cent to Rs 461.31 crore from Rs 609.08 crore and contribution to overall exports from North America worked out to 49.7 per cent as against 50.8 per cent in the last year. The company's exports to Europe also declined by 33.5 per cent to Rs 247.58 crore from Rs 372.35 crore. Its revenues in India moved up slightly 2.5 per cent to Rs 86.82 crore in 2009-10. It is mainly engaged in producing generics APIs, custom synthesis of active ingredients for innovator companies and other specialty chemicals like peptides and nutraceuticals. Its two units including one EOU unit and one SEZ unit enjoying tax benefits to the tune of 100 per cent.
The company's four manufacturing facilities and three R&D centers are located in Andhra Pradesh. Its R & D centers are focusing on custom synthesis, contract research for MNC companies and also future generics involving several processes. Considering the size of the company, its R&D expenditure is very low and worked out to only 2.31 per cent of sales during 2009-10 as against only one per cent in the last year. Its R&D expenditure amounted to Rs 21.45 crore as against Rs 11.96 crore. The company has filed 38 drug master files with US FDA and Certificate of Suitability with European Directorate for 10 products. It also has dossiers for 20 products with other countries.
Divi's Laboratories has two wholly owned subsidiaries viz., Divis Laboratories (USA) Inc in USA and Divi's Laboratories Europe AG in Switzerland or marketing its nutraceutical products and a greater reach to customers. Both the subsidiaries stabilized operations now and cut down their losses to Rs 0.64 crore and Rs 2.37 crore during 2009-10. These subsidiaries are set to improve their operations in the coming years with full scale marketing operations.
Divi's has significantly improved its performance during the fourth quarter ended March 2010 with completion of inventory rationalization. Its net sales during the fourth quarter went up by 59 per cent to Rs 312 crore from Rs 196 crore in the preceding quarter ended December 2009. Net profit also saw a growth of 167 per cent to Rs 184 crore from Rs 69 crore. According to analysts, the performance in the first quarter ended June 2010 will be in line with fourth quarter of 2009-10 and the company will post better growth.
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