Divi's laboratories Ltd
Results in line; maintain hold
HOLD
CMP: Rs1194 Target Price: Rs1089
Divi's reported revenue of Rs3.2bn (up 16% yoy and 21% qoq), in line with our expectations. The revenue mix has changed in favour of API, which constituted 51% of revenues. EBIDTA for the quarter grew by 9% to Rs1216mn. EBIDTA margins declined by 237 bps to 37.8%, however, adjusting to forex loss of Rs169mn, EBIDTA margins were up by 290bps to 43.1%. PAT at Rs1074mn was up 16% yoy and 17% qoq. We maintain our FY10E and introduce FY11E estimates. At CMP of Rs1194, the stock is trading at 70% premium to CRAMS universe (13x FY11E vs. 7.6x FY11E average multiple of CRAMS universe). In the last three years, stock has traded at 32% premium to sector universe because of superior growth profile (46% and 81% CAGR in revenue and earnings over FY06-09) and relatively strong balance sheet. However, going forward, we believe that it would be difficult to maintain similar growth profile. Therefore, Divi's may not be able to command similar premium valuations as it did in the past. Our fair value estimate for Divi's is Rs1089. At CMP of Rs1194, the stock is trading at 13xFY11E. We maintain our Hold rating with a target price of Rs1089.
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