Divi's Laboratories Ltd. - ZENMoney

Company Profile: Divi's Laboratories Limited is engaged in the manufacturing of generic Active Pharmaceutical Ingredients (API), Nutraceuticals and custom synthesis of active ingredients, intermediates and specialty ingredients (Peptides)for Big pharma and innovator companies. It is the largest manufacturer of peptide reagents and protected amino acids worldwide. Products of the company includes Generics, Intermediates, Protected Amino Acids, Chiral Synthesis based products and Carotenoids. The company is leader in some of it's products in the API business such as Naproxen Sodium (an anti-inflammatory drug) and Dextromethorphan (a cough suppressant). The company has 4 (3 FDA approved) manufacturing units - one near Hyderabad and the other three near Vishakhapatnam. The new two units at DSN SEZ facility at Vishakaptanam are expected to commence by the end of this fiscal year.

Strengths:

- The company focuses on Customs Synthesis (CS) business- a low volume, high margin segment and has entered the global billion-dollar synthetic carotenoids manufacturing in 2008, a space with limited competition.

- Adherence to intellectual Property Rights(IPR) & CGMP practices, active involvement in developing alternate, patent non-infringing processes in APIs for innovators, association with top 20 Global Pharma innovators at the early drug development stage has enabled it to become a preferred supplier

- Has a strong balance sheet with high operating margins compared to it's peers.

Concerns:

- High dependence on few products as the largest product and top 5 products contribute 17% and 48% of sales respectively.

- Any sharp rupee appreciation might adversely impact margins since exports constitute over 90% of the company's total turnover.

Outlook: Divi's has a strong pipeline of late-stage & commercialized products coupled with exceptional capabilities in executing contract manufacturing assignments. Growing trend of Pharma outsourcing from MNC Pharma companies and it's tie-ups with the leading global innovator companies resulting in long term relationships and revenues augurs well for the company's Customs Synthesis business in which it is one of the front runner in India. It's new two units at DSN SEZ facility at Visakhapatnam are expected to commence by end of this fiscal. All of the above factors along with growth in carotenoids business is expected to contribute significantly to the growth of the company in the next few years. The recent depreciation in rupee is also expected to add to the bottom line in the short/medium term.

Source : Equity Bulls

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