Divi's Labs gains 3%, hits new high on strong March quarter results

The board has recommended a dividend of Rs 20 (i.e. 1,000 per cent) per equity share of face value Rs 2 each for the financial year 2020-21

Shares of Divi's Laboratories hit a new high of Rs 4,240, up 3 per cent on the BSE in intra-day trade on Monday after the drugmaker reported strong results for the March quarter (Q4FY21), with EBITDA (earnings before interest, taxes, depreciation, and amortization) margins expanding by 807 basis points (bps) to 40.1 per cent year-on-year (YoY), due to better gross margin performance and lower other expenditure.

The board has recommended a dividend of Rs 20 (i.e. 1,000 per cent) per equity share of the face value of Rs 2 each for the financial year 2020-21 (FY21). The stock of the pharmaceutical company surpassed its previous high of Rs 4,203 touched on May 10, 2021.

In Q4FY21, Divi's Labs reported a 25 per cent YoY jump in its net profit to Rs 488 crore, as against Rs 392 crore in Q4FY20. Total revenues rose 20 per cent YoY to Rs 1,741 crore from Rs 1,453 crore in the year-ago quarter. The company benefited from a low base in the year-ago quarter which was hit by the Covid-19-led national lockdown.

The company said it took a capacity expansion with an estimated investment of Rs 400 crore for fast-tracking a customs synthesis (CS) project. A part of the project has been completed and become operational, it said, adding that the rest of the plan will be completed during the early part of the next financial year.

“Q4 topline was in line with I-direct estimates whereas profitability was higher than expected amid better gross margin performance. More than strong quarterly performance (the management stresses in a business like this can be lumpy) important narrative for Divi’s is unprecedented capex to further augment capacities besides preparing for growing opportunities arising from China plus one factor,” ICICI Securities said in result update.

The impact of Divi's aggressive capex of Rs 3,700 crore [Rs 1,800 crore (completed) + Rs 400 crore (custom synthesis blocks) + Rs 1500 crore (greenfield Kakinada plant)] is already visible and expected to reflect in FY22- 23, the brokerage said. It further added that Divi’s stays a quintessential play on the Indian API/CRAMs segment with its product offering, execution prowess.

Brokerage Motilal Oswal Financial Services has raised its FY22E/FY23E EPS estimate for Divi's by 4 per cent each to reflect scale-up in CS projects, enhanced capacity for APIs in the Generics segment and better profitability on account of backward integration. 

"We remain positive on Divi's on the back of sustained volume growth in base molecules, superior performance in niche categories of CS and Nutraceuticals, ability to work on complex Iodine based chemistry, and sufficient cash available to take up new projects," the brokerage said.