Buy Divi's Laboratories - Motilal Oswal

Divi's Laboratories (DIVI IN; Mkt Cap USD1.9b, CMP Rs657, Buy)

Net sales increased by 57.8%YoY to Rs3.1b (v/s our estimate of Rs2.76b), adjusted PAT increased by 45.1%YoY to Rs984m (v/s our estimate of Rs854m).

Topline growth was higher due to lower base and a recovery in the CCS business which reported growth of 50.3% while generic API business grew by 62.9%.

EBITDA grew by robust 77%YoY to Rs1.17b (vs estimate of Rs1.03b) on a low base of 4QFY10 which was impacted due to inventory destocking.

EBITDA margins improved by 420bp to 37.8%. Adj PAT grew by 45%YoY to Rs984m reflecting the strong operational performance and low base effect.

Guidance - Management has upgraded its FY11E guidance marginally to Rs11.5b and has maintained FY12E revenue growth guidance at 20%.

We continue to be positive on prospects of pharmaceutical outsourcing from India, given the unique combination of low costs and chemistry skills which India offers. We expect Divi's to be a key beneficiary of the increased pharmaceutical outsourcing from India, given its strong relationships with global innovator pharmaceutical companies. Maintain Buy with a target price of Rs790 (24x FY12E EPS).

Source : Equity Bulls

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