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Divis labs results: Misses estimates on high raw material costs

Divis labs results: Misses estimates on high raw material costs

Last updated: 09 Nov, 2021 | 06:10 am

Divis Labs Results: Divis Lab Quarterly Results for Q2 (2021-22) & News

Divi’s labs shares recorded their biggest fall in 20 months after the company missed estimates in the quarter ended September. Many brokerages have either reduced their target price or downgraded their rating on the stocks, as they expect margin pressure because of rising cost of raw materials. Here are the major highlights from Divi’s Labs Q2 earnings and the outlook going forward. 

Profit below estimates - Divi's Lab reported a net profit of Rs 606.5 crore in the quarter ended September. The profit increased 9% sequentially. However, it was below the analyst's expectations. The analysts have earlier estimated a profit of Rs 630.5 crore.

Revenue increase - The revenue increased marginally by 1% QoQ in the September quarter to Rs 1,987.5 crore, lower than analysts' estimates. Analysts have estimated revenue of Rs 2,083.2 crore.

EBITDA and margins - The Earning Before Income, Tax, Depreciation, and Amortization (EBITDA) reduced by 4% and stood at Rs 818.1 crore in Q2FY22 against the forecast of Rs 887.6 crore. Margins were lower by 130 basis points (QoQ) and stood at 41.2% against analyst expectation of 42.6%.

Divi's Labs Q2 highlights:

Forex loss/gain - India’s second-largest drugmaker reported a forex loss of Rs 7 crore, as against a loss of Rs 16 crore during the corresponding quarter of last year.

Divis lab quarterly results: Review

Divi’s Labs has reported a lacklustre set of numbers in the Jul-Sep 21 period, impacted by higher raw material costs. While the gross margin remained flat, the EBITDA margin has declined by 120 basis points (bps) (YoY) to around 41.2%. Higher-than-expected rise in other expenses (up almost 22 percent YoY) hurt at the operating level. Further, employee costs increased by 16 percent on-year.

In the previous quarter, Divi’s Labs had highlighted six growth engines for the future. These included growth in Established Generics (market share >70%), increased capacity utilization of existing generics (share of 20-30%), Sartan APIs, Contrast Media, Custom Synthesis, and New generics. The Company has identified 16 new molecules (large volume but niche molecules) whose patents are set to expire over FY22-26. Divi’s said that the capex is already in place for these growth levers. While these should aid the performance, margin pressures remain a concern.  

Divis laboratories q2 results: Brokerages take

Jefferies - Divi’s Jul-Sep 21 revenue/EBITDA missed Jefferies' estimates by 2%/3% but Profit beat expectations on lower taxes. “The stock trades at an expensive valuation, and we do not see major upside for the stock from here. We downgrade our rating to Hold. Our price target moves from ₹5,624 to ₹5,563,' it said in a note. 

Motilal Oswal - It has given a buy target of Rs 6,050 per share, an upside of 16%. The firm is positive on the stocks because of strong demand in the Custom Synthesis Segment, reduced cost of production due to backward integration, and the Kakinada project being back on track.

Dolat Capital - The firm has given a recommendation of 'accumulate' with a target price of Rs 5,400 per share, an upside of 4%. It believes that end-to-end integration coupled with better process technology are its key success levers.

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