The company’s main forte is its R&D, with the main focus on developing new processes for the production of Active Pharma Ingredients (APIs) & Intermediates. The company in a matter of short time expanded its breadth of operations to provide complete turnkey solutions to the domestic Indian pharmaceutical industry.
Divis also undertakes FTE/Contract Research on process development for discovering new compounds for leading MNCs across the world and partners with them for the supply of APIs. The manufacturing facilities started much later. It has four R&D centers and two pilot plants
The company’s first manufacturing plant came up on a 300 acre land at Hyderabad, and its second facility is at Visakhapatnam, on a 314 acre site. It has also set up a SEZ at Chippada in Visakhapatnam. It manufactures API's for generics, intermediates, chiral synthesis and carotenoids.
The company recently concluded a successful inspection by the US-FDA, without any observations, for its Unit-1 near Hyderabad. The purpose of this inspection was for product pre-approval and general cGMP (Current Good Manufacturing Practices). The fact that the company did not have a single negative factor mentioned against it in the process of inspection, bodes well. Hopefully we will soon hear the company having secured a USFDA approval for its products, which will mean exports will burgeon.
The manufacture of niche segments such as the peptides and carotenoids products are expected to dominate the earnings in the coming months. Peptide drugs are one of the emerging areas of drug discovery, mainly in cancer medicines, with Western companies completely outsourcing the peptide segment to Asia. Divi’s currently has exposure to around 90 peptide building blocks.
In case of carotenoids, which are basically pigments important in human nutrition as a source of vitamins and preventive agents for cancer and heart diseases, the company’s manufacturing facility has been put up at its Rs.102 crore SEZ. Its two 100% subsidiaries — Divi’s Laboratories (USA) Inc and Divi’s Laboratories Europe AG (Switzerland) are specifically constituted for marketing its nutraceuticals. This again is expected to be a major revenue earner for the company as the key production facilities have been set up recently.
The shareholding pattern of the company also instills a lot of confidence in the company. The promoters hold 53.54%. Institutions hold 29.47% of which 16.78% is held by FIIs like Merrill Lynch, Oppenheimer and JP Morgan. Public holding is just 17%, which is a very big positive in favour of the company.
Now the most interesting part is that 12.63% is held by mutual funds and of this 7.22% is held by Reliance Capital Trustee Company and 4.25% by HDFC Trustee Company. The fact that mutual funds have bought so heavily in the stock, reiterates the potential of the stock.
The financial performance of the company has been more than exuberant. For the third quarter ended 31st December 2007, on a YoY, the consolidated total income for the quarter grew by 90% at Rs.284.13 crore. Custom chemical synthesis vertical (where it provides custom-made compounds) witnessed over a 100% growth, and the generics bulk drugs business clocked nearly a 60% growth.
It earned a PAT of Rs.99 crore on a consolidated basis for Q3 ended 31st December, 2007, as against Rs.31.39 crore in Q3 FY07, an unbelievable rise of 215%. On an equity of Rs.12.91 crore, basic EPS on a face value of Rs.2 per share is at Rs.15.35 for Q3 FY08.
For the 9-month period of the current year, Divi’s earned a PAT of Rs.255 crore on income of Rs.764 crore as against a PAT of Rs.87 crore and income of Rs.482 crore during the corresponding period last year. EPS stands at Rs.39.
Going by the present trend, even on a conservative basis, the company is expected to post a consolidated turnover of around Rs.1000 crore and PAT of Rs.400 crore for the fiscal FY08. This means, that we are looking at a sure EPS of over Rs.60 for FY08.
With more income expected to come from its carotenoids unit, which is high margin, the company, for FY09 is expected to post a PAT of around Rs.600 crore, giving an EPS of over Rs.90 and this discounts the current price of Rs.1355 by just 15 times.
Pharma stocks have been relegated to the background since the past few months. It is only now that analysts and investors are realizing the value of these pharma stocks. Moreso, after the Union Budget of 2008-09, which has been very kind to the pharma units, especially those with R&D facilities. Excise duty was reduced on all pharma goods from 16% to 8% This cut in the duties is expected to benefit Divis further in the coming fiscal.
Currently quoted at Rs.1355, Divis is an excellent buy at this level for some sure 40-50% returns over the next 12 months.
Source: Sptulsian.com
