Buy Divis Lab - TP Rs.1033 - Emkay

Buy, Target Price Rs 1,033 Growth story remains intact

Strong business outlook: Management has given a guidance of 25% growth in top-line for FY13 and FY14. Caratenoids business is expected to clock revenues of Rs1.5bn for FY13E and Rs2.5bn in FY14E. We expect strong top-line growth led by fresh orders from the US and the EU customers.

Margins to remain at 35-36% : We expect Ebidta margins will remain under pressure due to commissioning of new facility at Vizag and higher growth rate in the API business even though INR depreciation will benefit Lower capex to drive earnings: Company has incurred Rs3bn in capex for FY12 but has commissioned only part of it (Rs800mn) in H2FY12. In Q1FY13, company will commission rest of the plant. Further, company has guided for capex of Rs1.5bn in FY13E.

Ramp-up in Vizag Unit: Company has commissioned its Vizag SEZ plant in Jun'11. Increase in capacity utilization will lead to 21% earnings CAGR over FY12-14E.

Near term catalyst and earnings performance: Divi's continues to maintain strong performance in the CRAMS space visà-vis its peers in terms of best-in-class operating metrics. We expect Divi's to report 23% growth in revenues in FY13E and 21% in FY14E. EBIDTA margins are expected to move from 37% in FY12 to 35% in FY13E and 36% in FY14E. Earnings will grow by 21% CAGR over FY12-14E. Maintain positive bias with a target price of Rs1033.

Source : Equity Bulls

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