Divi's Labs falls 8% as Q4 profit misses Street estimates

Q4 Ebitda margins were 32.7 per cent against 35.52 per cent in year ago quarter, due to higher raw material price,a weak product mix and higher other expense.

Divi’s Laboratories shares slipped 8 per cent to Rs 1,618 in intra-day trade on the BSE on Monday after the company reported a lower-than-expected 10 per cent year-on-year (YoY) growth in net profit at Rs 289 crore in March quarter (Q4FY19). Total revenue grew 15 per cent at Rs 1,256 crore on YoY basis.

Analysts, on an average, had expected a profit of Rs 382 crore and revenue of Rs 1,326 crore for the quarter.

Q4 Ebitda (earnings before interest, tax, depreciation and amortization) margins came at 32.7 per cent against 35.52 per cent in the year-ago quarter, due to higher material price from China, a weak product mix and higher other expense.

“A large part of the miss was due to increase in raw material prices, which would take 5-6 months to normalise, and a weak product mix. FY20 should be a year of slower growth (after a high base in FY19), with management guiding for 10 per cent revenue growth and steady margins,” analysts at BOBCAPS said in result update.

“We move to REDUCE given rich valuations – the stock is trading at 27x FY21E earnings vs. the 3Y/5Y historical mean of 23-24x, slow growth in FY20 off a high base – we expect 10-12 per cent EPS growth, backended capex benefits – gains from growth capex would largely accrue beyond FY20, and limited scope for earnings upgrades. All this would keep stock performance weak in the medium term,” the brokerage firm said with target price of Rs 1,680 per share.

At 11:22 am, Divi’s Laboratories was trading 7.6 per cent lower at Rs 1,630 on the BSE. In comparison, the S&P BSE Sensex was up 0.51 per cent at 39,636 points. The trading volumes on the counter more than doubled with a combined 1.4 million shares changing hands on the NSE and BSE so far.