Divi's Laboratories (DLL) – Disappoints again

Q3FY10 results review - ICICI Securities

DLL could not maintain its Q2FY10 earnings recovery (45% QoQ) and reported recurring net profit of at Rs678mn (down 20% QoQ &15% YoY) Q3FY10, significantly below I-Sec estimates. This decline was due to lower-than-expected revenues and lower EBITDA margin in the quarter. Revenues fell 24% YoY to Rs.2bn owing to continued weaker demand and destocking by key customers. However, on account of higher contribution from the high-margin custom synthesis business, EBITDA margin expanded 719bps YoY to 43.9%. DLL expects demand to stabilise from Q4FY10 and targets achieving 15% YoY (I-Sec: 18%) revenue growth in FY11. While DLL is among the most profitable pharma outsourcing companies globally, we believe short-term outlook remains weak, given the uncertain demand environment and volatility in earnings. At consolidated FY11E P/E of 19x, the stock appears fully valued. Maintain HOLD

Source : Equity Bulls

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