Divi’s Laboratories’ (Divi’s) Q4FY22 efficiency beat our estimates throughout parameters. Consolidated revenues grew 40.8% y-o-y to Rs 25.2 bn, Ebitda margin improved 380bps y-o-y to 43.9% and adjusted PAT grew 78.2% to Rs 8.9 bn. The sturdy progress was led by the customized synthesis division, most definitely attributable to higher-than-expected revenues from Molnupiravir. API section continues its weak efficiency attributable to intense pricing pressures. Company’s sturdy positioning will assist monetise the expansion alternative in API and CRAMS area given its stellar execution monitor file, steady aggression in capex, and standing as one of many most popular suppliers.
Nevertheless, we stay cautious on near-term outlook attributable to elevated prices and pricing pressures in API section coupled with waning Covid alternatives. Maintain Add with a revised goal worth of Rs 4,361/share based mostly on 38x FY24E EPS (earlier: Rs 4,800 based mostly on 40x Sep’23E EPS).
Business overview: Revenue progress was pushed by steep progress of 143% in customized synthesis (CS), probably on the again of commercialisation of fast-tracked tasks together with Molnupiravir. API enterprise declined 33.0% y-o-y. Carotenoids grew 7.7% y-o-y. Gross margin contracted 80bps y-o-y to 66.7%. However, Ebitda margin improved 380bps y-o-y to 43.9% pushed by beneficial income combine and operational leverage. Rising uncooked materials costs and logistical points coupled with pricing pressures in API enterprise is prone to impression margins within the close to time period. We count on generic APIs and carotenoids to develop at CAGRs of seven.5% and 11% over FY22-FY24E respectively, and CS progress to be muted throughout the identical interval on a excessive base.
Concall highlights: (i) Company is working at 80% capability; (ii) exports have been 90% (77% from US and EU) of whole gross sales in FY22; (iii) generic API drivers over 3-5 years: Sartans alternatives, foray into distinction media, and drug patent expires value $20 bn between FY23E-FY25E; (iv) CS: firm is engaged on two massive long-term tasks; (v) Kakinada venture: awaiting authorities clearance although all permissions are in place; (vi) administration guided for gross margins at 65-66%.
Outlook: Divi’s has a stellar monitor file by way of execution. However, contemplating the excessive base and near-term elevated prices, we estimate income/Ebitda CAGRs of two.8/ 0.3% over FY22-FY24E, respectively. We count on ~ Rs 44-bn FCF over FY22E-FY24E. RoE and RoCE could be ~19% by FY24E.
Valuation and dangers: We minimize our income and EPS estimates by 13-16% every over FY23E-FY24E to issue within the excessive pricing pressures in API section, near-term pressures on margins, and waning Covid alternatives. Maintain Add.
Source: www.financialexpress.com”