Divi's Labs hits 52-week high on robust Q3 earnings; stock gains 5%

The stock gained 5 per cent to Rs 1,617 after the company posted a robust growth of 69 per cent in its net profit at Rs 379 crore in Q3FY19.

Shares of Divi’s Laboratories hit a new high of Rs 1,617, up 5 per cent on BSE in the intra-day trade on Monday after the company posted a robust growth of 69 per cent in net profit at Rs 379 crore in December quarter (Q3FY19). The pharmaceutical company had posted a profit of Rs 225 crore in a year-ago quarter.

Operational revenue during the quarter grew 29 per cent at Rs 1,343 crore, against Rs 1,038 crore in the corresponding quarter of previous fiscal.

Analysts, on an average, had expected a profit of Rs 346 crore on revenue of Rs 1,256 crore for the quarter.

EBITDA (Earnings before interest, taxation, depreciation and ammortisation) margins stood at a 20-quarter high of 42 per cent, (up 9ppt YoY, +2ppt QoQ). The margin improvement in Q3 was led by higher gross margins (+360bps YoY, +100bps QoQ to 64.2 per cent) from the implementation of several backward integration programmes, process optimisation, and a richer product mix.

Analysts at BOB Capital Markets believe Divi’s profitability has largely returned to the normalized levels at around 40 per cent (as seen in both Q2 and Q3FY19) and scope for material earnings upgrades for FY19/FY20 looks unlikely post 15-20 per cent consensus upgrades in the last two quarters.

Following the strong Q3FY19, the brokerage firm raises FY19/FY20/FY21 EPS estimates by 10 per cent/5 per cent/3 per cent – this results in a revised March’20 target price of Rs 1,665 (earlier Rs 1,630), set at an FY21E EV/EBITDA multiple of 16x (25x P/E).

“We continue to like the stock given solid execution over the last few quarters which has been relatively better amongst peers. An improving mix in favour of the synthesis business, supply chain issues in China and progress on new capex are key stock catalysts,” analysts said in result review.

At 11:09 am, Divi’s Labs was trading 5 per cent higher at Rs 1,614 on BSE, as compared to 0.47 per cent decline in the S&P BSE Sensex at 36,296 points. The stock surpassed its previous high of Rs 1,577 recorded on November 19, 2018, on BSE in the intra-day trade. The trading volumes on the counter jumped more than four-fold with a combined 1.42 million equity shares changed hands on the NSE and BSE so far.