Top Indian Companies: Divi's Laboratories Ltd

Divi's Laboratories Limited is an Indian Pharmaceuticals company and producer of active pharmaceutical ingredients (APIs) and intermediates headquartered in Hyderabad, Telangana, India.

The company manufactures and custom synthesizes generic APIs, intermediates and nutraceutical ingredients. Divi's Laboratories is India's second most valuable pharmaceutical company by market capitalization. It is a Nifty 50 company with a weightage of 0.85% on the index.

Divi's Laboratories was established in 1990 as Divi's Research Centre. The company initially started developing commercial processes for the manufacturing of APIs and intermediates. Divi's Research Centre changed its name to Divi's Laboratories Limited in 1994 to signal its intent to enter the API and intermediates manufacturing industry.

Following this, the company established its first Manufacturing facility in 1995 at Choutuppal, Telangana. In 2002, the company's second manufacturing facility commenced operations at Chippada near Visakhapatnam.

The company went public with its IPO on 17 February 2003. In 2010, the company established a research centre in Hyderabad.

Facilities

The company has six manufacturing facilities and three R&D centres across India:

Manufacturing

• Choutuppal Unit - Lingojigudem village, Choutuppal mandal, Yadadri Bhuvanagiri district, Telangana

• DC SEZ Unit - Lingojigudem village, Choutuppal mandal, Yadadri Bhuvanagiri district, Telangana

• Export Oriented Unit - Chippada village, Bheemunipatnam mandal, Visakhapatnam district, Andhra Pradesh

• Divi's Pharma SEZ Unit - Chippada village, Bheemunipatnam mandal, Visakhapatnam district, Andhra Pradesh

• DSN SEZ Unit - Chippada village, Bheemunipatnam mandal, Visakhapatnam district, Andhra Pradesh

Shareholding Pattern of DIVIS Lab

Holder's Name No of Shares % Share Holding

No Of Shares 265468580 100%

Promoters 137899200 51.95%

Foreign Institutions 51227366 19.3%

Banks Mutual Funds 35446528 13.35%

Others 5344435 2.01%

General Public 23920570 9.01%

Financial Institutions 11630481 4.38%

Divis’ long-term growth levers are intact, and the company is progressing well on these front to harness the opportunities, which would propel growth.

Divis has reported an impressive performance amid a challenging environment. The performance was driven by incremental sales from new facilities and share of COVID-19 drugs. Going ahead, Divis sees the demand for COVID-19 drugs to be volatile.

The legal challenges for the Kakinada greenfield project are almost cleared and the management expects the handover of the land in the near future. Over the next 2-3 years it has lined up capex plans to the tune of Rs 1000-2000 crore.

FY2023 Q4 and Full Year Results

Divi's Labs registered feeble Q4 earnings. Consolidated Q4FY23 PAT stood at ₹320.97 crore, declining by 64.1% from ₹894.64 crore in the same quarter a year ago. Meanwhile, the company also recorded a drop in EBITDA, margins, and revenue. EBITDA stood at ₹487.6 crore in the quarter, falling by a massive 55.8% from ₹1,104.4 crore in Q4 of FY22. EBITDA margins also contracted to 25% in Q4FY23 as against 43.9% in Q4FY22.

Total revenue from operations came in at ₹1,950.8 crore as against ₹2,518.4 crore in Q4FY22, registering a drop of 22.5% YoY.

In the quarter, the company posted a forex loss of ₹3 crore compared to gains of ₹29 crore in the March 2022 quarter.

For the full year FY23, Divi's Laboratories has earned a consolidated total income of ₹8112 crore as against ₹9074 crore during the previous financial year. This financial year, its total income is about 11 % lower than the previous financial year because of a significantly lower volume of covid situational opportunities.

Also, PBT for the current year came to ₹2369 crore in FY23 as against ₹3684 crore for the previous year. PAT for the year amounted to ₹1823 crore as against a PAT of ₹2960 crore in FY22.

The board of directors in a meeting held on Saturday recommended a huge dividend payout for shareholders for the fiscal year FY23. The dividend will be 1500% aggregating to ₹30 per equity share. The company has also announced its financial performance for the quarter and year-ended March 31, 2023 period.

In its regulatory filing, Divi's Labs said. "recommended a Dividend of ₹ 30/- (i.e. 1,500%) per equity share of face value ₹ 2/- each for the financial year 2022-23, subject to approval of the members at the ensuing 33rd Annual General Meeting (AGM)."

It added, "The dividend shall be credited/warrants thereof dispatched within specified timelines from the conclusion of the AGM."

Divi's Lab stated that the AGM date and record date for the purpose of the payment of dividends will be announced in due course.

In FY22, the company also paid a total dividend of 1500% aggregating to ₹30 per equity share. In FY21, the dividend payout was 1000% to ₹20 per share.

At the current market price, Divi's Labs dividend yield is at 0.97%.

Overall, in FY23, the company earned a consolidated total income of ₹8112 crore as against ₹9074 crore during the previous financial year. PAT for the year amounted to ₹1823 crore as against a PAT of ₹2960 crore in FY22.

Dividends are a form of incentive that is distributed by a listed company from their profits to shareholders. Generally, when a company pays a proportion of its profit as a dividend, any amount which is not distributed as dividends are put in the free reserves and surplus of that company.

On Friday, Divi's Lab share price closed at ₹3097.75 apiece down by ₹58.55 or 1.9% on BSE.

Brokerage Outlook

Maintain Buy with unchanged PT of Rs. 5,620: Divis’ growth prospects across businesses stay bright and will propel growth going ahead. Given its established capabilities, backward-integration, focus on quality and benefits of scale coupled with major capacity expansion plans going on stream, the company is best-placed to cater to increasing demand from global big pharma companies.

At CMP, the stock trades at rich valuations of 44.4x/35.3x/29.4x its FY22E/FY23E/FY24E EPS, respectively; and given the strong growth prospects, we expect rich valuations to sustain. Brokerage, Sharekhan, maintain a Buy recommendation on the stock with unchanged PT of Rs. 5,620

Key Risks

1) Adverse regulatory changes;

2) Unfavorable forex movements.

ESG and Sustainability

Divis efforts towards protecting the environment have exponentially increased each year. During the year, Divis planted more than 2 lakh saplings around the sites of their operations. Company provided solar power to street lights, schools, gram panchayats, offices and other government offices. Divis conducted several programmes for their team and nearby communities and promoted clean and green energy. Being in the business of chemistry, Divis continue to work towards ensuring efficient waste management.