Divi's Laboratories Ltd. share price target

Revenues in line, margins outperform: Divis Lab's net revenues increased by 1.9% YoY to Rs 10.8 bn, marginallylower than our estimates of Rs 10.9 bn for the quarter. The operating marginswere at 35.5% in Q4FY18 (higher than our estimate of 33.9%) as against 34%in Q4FY17 on account of lower raw material cost and other expenses.

EBITDA margins improved 159 bps to 35.5% (I-direct estimate of 33.7%) mainly due to strong gross margins and lower other expenditure. Gross margins improved 200 bps to 62.5% (I-direct...

Maintain NEUTRAL rating, with a revised TP of Rs 1,095 (22x FY20E). After resolving the import alert for Unit 2, this was the 2nd consecutive quarter where Divis Lab (DIVIS) has maintained strong sequential improvement in its operational performance. Top line increased 5%QoQ/2%YoY, EBITDA at Rs 3.8bn was up 13%QoQ/-1.2%YoY and Reported PAT came in at Rs 2.6bn up 16%QoQ/0.9%YoY. EBITDA margin at 35.5% is suggesting that the business has returned to near normalcy. It was up 256bps QoQ/down 113bps YoY in 4QFY18.

Overall revenue came marginally ahead of estimate by ~5% at Rs10.8bn as against estimate of Rs10.4bn. Overall net income stood at Rs2.6bn as against estimate of Rs2.42bn, helped by significantly higher other income. The highlight of Q4FY18 was a 200/400bps qoq expansion in gross margin/EBITDA margin. The additional EBITDA margin expansion is a result of remediation costs fading away, which should completely normalize in the next 1-2 quarters. short-term growth outlook for DIVI's is uncertain given the possible paucity of capacity. Valuation also looks challenging for DIVI's given the stock's run-up in the past few months,...

Gross margin improved ~210bp YoY (~130bp QoQ) to 62.5%. This, along with a decline in other expenditure by ~180bp (as % of sales), led to margin expansion by ~180bp YoY to 35.5%. EBITDA rose ~8% YoY (+19% QoQ) to INR3.9b (est. PAT, however, grew by just 26 May 2018 ~1% YoY to INR2.6b, mainly due to a higher tax of 34% v/s 26% in 4QFY17. For FY18, sales, EBITDA and PAT stood at INR39b (-4.

Q3FY18 revenue grew 6% YoY/ 17% QoQ (19%/ 11% YoY decline in Q1/ Q2), 9% ahead of our estimates, on resumption of supplies of non-exempted products and completion of USFDA resolution in Sept-Nov'17.

ICICI Securities Ltd | Retail Equity Research Revenues grew 6% YoY to | 1038 crore (I-direct estimate: | 957 crore) driven by growth across segments EBITDA margins declined 724 bps YoY to 31.4% (I-direct estimate: 36%), impacted mainly by lower gross margins (60.7% in Q3FY18 vs. 64.1% in Q3FY17), higher remediation cost & forex loss of | 16 crore in Q3FY18 vs. gain of | 0.7 crore in Q3FY17. Subsequently, EBITDA declined 14% YoY to | 326 crore (I-direct estimates of | 345 crore)...

Maintain NEUTRAL rating, with a revised TP of Rs 1,100 (22x Dec-19E). 3QFY18 was Divis Labs (DIVI) first quarter post the lifting of the import alert on Unit II, and the recovery began well. The top-line came in at Rs 10.4bn, (in-line with estimates), up ~8%/17% YoY/QoQ. Strong growth in the CMS (+10% YoY) and nutraceuticals businesses (+23% YoY) boosted the top-line.

Divis Labs Net revenues increased by 6.2% YoY to Rs 10.4 bn, higher thanour estimates of Rs 9.8 bn for the quarter. The Operating margins were at31.4% in Q3 FY18 (lower than our estimate of 32.9%) as against 38.7% inQ3FY17 on account of lower gross margin and higher other expenses.

DIVI reported healthy revenue growth of 8% YoY and 17% QoQ in 3QFY18 to INR10.4b (v/s our estimate of INR9.9b). It has reported revenue growth after three quarters due to regulatory issues at its Unit-II, which have now been resolved. EBITDA declined ~14% YoY but grew ~18% QoQ to INR3.3b. Margin declined 790bp YoY (flat QoQ) to 31.4%. PAT declined 16.3% (grew 9%QoQ) to INR2.2b, ~3% below our estimate. DIVI incurred forex loss of INR160m, adjusting for which margin would have been ~33%. It incurred remediation cost of INR140m, which is expected to decline to INR50m-60m in 4QFY18. Remediation cost will not be incurred from FY19. We expect EBITDA margin to improve by ~400bp to ~36%, with no remediation expenses from next fiscal.