Divi's Laboratories slips 9% on subdued June quarter results

Shares of Divi's Laboratories slipped 9 per cent to Rs 1,512 on the BSE in Tuesday's early morning trade after the company reported 1 per cent year-on-year (YoY) growth in consolidated net profit at Rs 272 crore in the June quarter (Q1FY20), due to lower growth in revenue and higher raw material cost. The pharmaceutical company had a profit of Rs 268 crore during the same quarter last fiscal.

Operational revenue during the quarter grew 17 per cent YoY at Rs 1,163 crore against Rs 995 crore in the corresponding quarter of previous year.

EBITDA (earnings before interest, taxes, depreciation, and amortization) margins were at 33.3 per cent in Q1FY20 as against 35.4 per cent in Q1FY19 on account of higher material cost of 39 per cent. Higher raw material cost has, in turn, been due to higher contribution of Generics.

Post the results, analysts at Karvy Stock Broking downgraded the company's revenue estimates for FY20E/FY21E by 2.9 per cent/3 per cent due to downgrade in customs synthesis and generics business. The brokerage firm also downgraded the EBITDA margins by 190 bps/130 bps to Rs 36.2/ Rs 36.7 for FY20E/FY21E.

“Divi's expects margin normalcy to be restored from Q3, while sales run-rate should improve from Q2. We believe the asking rate for the rest of the year is steep given FY20 guidance of 10 per cent revenue growth and 37-38 per cent margins,” analysts at BOB Capital Markets said in their result review.