Investor's Eye: Update - Divi's Laboratories (A weaker Q4; long-term growth prospects intact)

 

Investor's Eye [May 26, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE     Divi's Laboratories Recommendation: Buy Price target: Rs1,500 Current market price: Rs1,238   A weaker Q4; long-term growth prospects intact    Key points Divi's Laboratories (Divi's) reported weaker results for Q4FY2014, as its revenues grew by 14% YoY but OPM declined by 195BPS restricting the PAT growth to 12% during the quarter. The decline in the OPM can mainly be attributed to a lower contribution from the custom synthesis business, which commands a better margin.  Inconsistency in revenue streams is inherent in the CRAMS business and therefore the company's quarterly performance does not truly represent the annual performance. The weaker performance in Q4FY2014 should be treated as an aberration (the custom synthesis business was affected by a delay in shipment of a particular contract) because the long-term growth story of the company remains intact.  The management is expecting a near 20% revenue growth and an OPM of 40% in FY2015, after witnessing an 18% jump in the net sales and a 41.1% OPM in FY2014. The company declared a dividend of Rs20 per share (face value of Rs2 each). We maintain our estimates for FY2015 and FY2016. We continue to rate the stock as a Buy with a price target of Rs1,500 (19x FY2016E EPS).   Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team