FINANANCE FOR MANAGERS

Activity 2

Name: T. Madhan Kumar

Section: B (Marketing)

USN NO: 20MBAJ0083

Divi’s Laboratories Ltd

History about the company:

Divi’s laboratories were Pharmaceuticals Company. It was founded in 12 October 1990(30

years ago) Divi's Laboratories was established in 1990 as Divi's Research Centre. The
company initially started developing commercial processes for the manufacturing of APIs
and intermediates. Divi's Research Centre changed its name to Divi's Laboratories Limited in
1994 to signal its intent to enter the API and intermediates manufacturing industry.
Following this, the company established its first Manufacturing facility in 1995
at Choutuppal, Telangana. In 2002, the company's second manufacturing facility commenced
operations at Chippada near Visakhapatnam. The company went public with its IPO on 17
February 2003. In 2010, the company established a research centre in Hyderabad
Financials of the company (Balance sheet)

EQUITIES AND LIABILITIES March 2020 March 2019

SHAREHOLDER'S FUNDS
Equity Share Capital 53.09 53.09
Total Share Capital 53.09 53.09
Reserves and Surplus 7,263.60 6,920.22
Total Reserves and Surplus 7,263.60 6,920.22
Total Shareholders’ Funds 7,316.69 6,973.31
NON-CURRENT LIABILITIES
Long Term Borrowings 0.00 0.00
Deferred Tax Liabilities [Net] 273.96 221.18
Long Term Provisions 20.52 13.17
Total Non-Current Liabilities 294.48 234.35
CURRENT LIABILITIES
Short Term Borrowings 33.63 105.60
Trade Payables 580.34 483.31
Other Current Liabilities 286.51 242.50
Short Term Provisions 2.46 1.11
Total Current Liabilities 902.94 832.52
Total Capital And Liabilities 8,514.11 8,040.18
ASSETS
NON-CURRENT ASSETS
Tangible Assets 2,772.66 2,083.39
Intangible Assets 3.60 4.05
Capital Work-In-Progress 919.69 491.91
Fixed Assets 3,695.95 2,579.35
Non-Current Investments 7.37 554.62
Long Term Loans And Advances 35.00 34.04
Other Non-Current Assets 114.62 224.68
Total Non-Current Assets 3,852.94 3,392.69
CURRENT ASSETS
Current Investments 971.35 1,398.34
Inventories 1,744.17 1,663.18
Trade Receivables 1,533.21 1,282.24
Cash And Cash Equivalents 107.36 105.20
Short Term Loans And Advances 0.09 0.11
OtherCurrentAssets 304.99 198.42
Total Current Assets 4,661.17 4,647.49
 Total Assets 8,514.11 8,040.18

Profit and Loss account of Divis laboratories limited

INCOME March 2020 March 2019

Revenue From Operations [Gross] 5,207.32 4,737.22

Less: Excise/Service Tax/Other Levies 0.00 0.00

Revenue From Operations [Net] 5,207.32 4,737.22

Other Operating Revenues 103.25 142.44

Total Operating Revenues 5,310.57 4,879.66

Other Income 189.86 156.58

Total Revenue 5,500.43 5,036.24

EXPENSES

Cost Of Materials Consumed 2,182.66 2,082.05

Changes In Inventories Of FG,WIP And -94.10 -244.22
Stock-In Trade
Employee Benefit Expenses 608.36 530.72

Finance Costs 6.06 3.50

Depreciation And Amortisation Expenses 185.95 168.81

Other Expenses 798.21 662.15

Total Expenses 3,687.14 3,203.01

Profit/Loss Before Exceptional, 1,813.29 1,833.23
Extraordinary Items And Tax
Profit/Loss Before Tax 1,813.29 1,833.23

Performance of the company

Margin Expansions:

Backward integration implemented over last few years showed impact on gross margins,
which expanded sharply on year on year basis. Strong volume growth.
Expansion and de-bottlenecking: Recent expansion and de-bottlenecking at existing facilities
should lead to higher growth rate in some of the existing product lines. The impact of
ongoing capital expenditure for new segments of API might take some time to reflect in top
and bottomline.

Price Analysis:

Positive Movement since 1st Jan2005 on Intraday basis

Negative Movement since 1st Jan 2005 on Intraday basis

Nifty Pharma joins markets bullish bandwagon, index surges; Divi's
Lab, Lupin, Cipla lift the performance
Divi's Laboratories performed well surging by 0.76% at Rs3,813.00 per piece.

After the bearish tone in previous trading session, Nifty Pharma joins the bull bandwagon
on Tuesday. The government's announcement to open up vaccination for all above 18 from
1st May steps in the right direction for market perspective.

Somehow, the Index been under some pressure amidst rising Covid-19 cases in India
resulting in restrictions in certain States.

23 states in India have announced that they will offer free vaccines to all those who are
eligible for vaccination. States like Maharashtra, Karnataka, Kerala, Rajasthan, Gujarat,
Chhattisgarh, Delhi, are on the list. The free vaccination will be available at government
hospitals in all these states only. They will not be free in private hospitals.
Somehow, the Index been under some pressure amidst rising Covid-19 cases in India
resulting in restrictions in certain States.

On the index, Divi's Laboratories performed well surging by 0.76% at Rs3,813.00 per
piece.

Aurobindo Pharma and Lupin also traded higher while Dr Reddy's, Sun Pharma
and Cipla were also marginally higher.

Alkem Laboratories shed 0.40% while Torrent Pharma was down 0.20%.

Biocon was also trading in the red by 0.5% at Rs393.55 per piece.
Was the top bear on the index dragging the sector most by tumbling 1.47%.

In last 24 hours, India registers 3,52,991 new covid cases while country's cumulative
vaccination coverage exceeds 14.19 cr as the Largest Vaccination Drive completes 100
days.
Nifty Pharma maintains gaining spree; Cadila, Lupin led the
pack
Divis Lab also gained over 1% to lift performance. Torrent Pharma slipped 1% to drag.

Nifty Pharma Index continues to ride with markets bulls by advancing over 0.7% on
Thursday. The Index is witnessing buying sentiment amid surging Covid-19 cases in the
country and progression on drugs and vaccines to counter the pandemic.

Cadila led the gains while Lupin and Divis Lab also lifted the performance. Torrent
Pharma dragged the sector.

At around 1.15 pm, Nifty Pharma was trading at 12,700.25 up 83.90 points or 0.67%,
touching a high of 12,739.05 during intraday trade on Thursday.

Cadila Healthcare rose 2.67% to Rs474.05 per piece after the Pharma company announced
that it has received final approval from the USFDA to market Macitentan Tablets, 10 mg.

Lupin was 1.87% higher at Rs1,053.50 per piece. Divis Lab continued forward moment by
advancing 1.18% at Rs3,74265 per piece.
.
Auro Pharma was 0.78% up despite trimming few gains. Dr Reddy's also gained 0.69%
while Cipla was also 0.62% on the upside. Sun Pharma was also marginally higher.

Alkem Lab and Biocon traded marginally lower and it was Torrent Pharma that emerged
the biggest laggard. Torrent Pharma was down 1% at Rs2,551.70 per piece.

DIVIS LABORATIES LIMITED RATIOS

Operational & Financial Ratios

Earnings Per Share (Rs) 51.86 50.96 1.76

CEPS(Rs) 58.87 57.32 2.70

DPS(Rs) 16.00 16.00 0.00

Book NAV/Share(Rs) 275.38 262.09 5.07

Tax Rate(%) 24.34 27.08 -10.10

Margin Ratios

Core EBITDA Margin(%) 33.80 37.87 -10.75

EBIT Margin(%) 33.86 37.60 -9.94

Pre Tax Margin(%) 33.73 37.50 -10.07

PAT Margin (%) 25.52 27.35 -6.69

Cash Profit Margin (%) 28.97 30.76 -5.83

Performance Ratios

ROA(%) 15.11 15.78 -4.26

ROE(%) 19.30 21.00 -8.12

ROCE(%) 25.36 28.50 -11.02

Asset Turnover(x) 0.59 0.58 2.61

Sales/Fixed Asset(x) 1.75 1.98 -11.18

Working Capital/Sales(x) 1.44 1.30 10.52

Efficiency Ratios

Fixed Capital/Sales(x) 0.57 0.51 12.58

Receivable days 87.17 80.35 8.49

Inventory Days 123.02 115.23 6.76

Payable days 54.82 52.21 4.99

Valuation Parameters

PER(x) 38.33 33.42 14.68

PCE(x) 33.76 29.71 13.62

Price/Book(x) 7.22 6.50 11.06

Yield(%) 0.81 0.94 -14.31

EV/Net Sales(x) 9.76 9.14 6.84

EV/Core EBITDA(x) 26.17 22.28 17.44

EV/EBIT(x) 28.84 24.31 18.64

EV/CE(x) 5.59 5.14 8.74

M Cap / Sales 9.78 9.14 7.00

Growth Ratio

Net Sales Growth(%) 9.06 27.10 -66.57

Core EBITDA Growth(%) -0.78 47.41 -101.64

EBIT Growth(%) -1.78 50.75 -103.51

PAT Growth(%) 1.76 54.24 -96.76

EPS Growth(%) 1.76 54.24 -96.76

Financial Stability Ratios

Total Debt/Equity(x) 0.00 0.02 -69.74

Current Ratio(x) 3.06 5.49 -44.25

Quick Ratio(x) 2.04 3.40 -40.04

Interest Cover(x) 255.83 397.38 -35.62

Total Debt/Mcap(x) 0.00 0.00 -72.71

Future plans:

DIvi’s Lab Expansion Plans Raise HOPES that its growth will sustain

 Divi’s investors are enthused by the new capex of about ₹400 cr for drug research,
custom synthesis

 Custom synthesis is expected to grow at a fast pace. Global outsourcing is also likely to
benefit Divi’s
Big Pharma continues to expand global sourcing, and this has given a great push to the Divi’s
Laboratories Ltd stock. The stock has gained 85% this year. But investors are further
enthused by the new capital expenditures of about ₹400 crore towards custom synthesis and
drug research. This is over the capital expenditure of about ₹1,800 crore announced last
quarter. The stock gained nearly 6% on Monday, and also hit a new 52-week high.
Custom synthesis is expected to grow at a fast pace thanks to increased outsourcing from
multinational pharmaceutical companies. The firm is also likely to benefit due to increased
outsourcing from geographies other than China.
“Global outsourcing trends remain favourable with global research and development funding
availability on the rise and regulatory environment favourable. Divi is likely to be the biggest
beneficiary of this trend given its established track record, strong intellectual property rights
adherence policy, a sticky customer base and robust execution skills," said analysts at Equirus
Securities in a client note.

Divi’s indicated that it is accelerating its capex plans, which could see these enhanced
capacities coming up in about nine months. Another greenfield project of about ₹600 crore in
Kakinada is likely to commence from Q4.
“The new capacity additions practically have eliminated our medium term concern of
capacity constraints (emerging from recent robust growth momentum) and provide strong
growth visibility over the next five years," said analysts at Phillip Capital in a client note.
Besides the improved outlook, Divi’s second-quarter results were a step ahead of the Street’s
expectations. Generics and custom research business growth are some of the key drivers
supported by lower raw material costs and improving operating leverage on rising revenues.
Further, the nutraceutical segment is showing the benefits of going into new geographies and
could see growth rates of about 10-15% in FY22 as per the management.
These drivers helped Divi’s revenue grow by a healthy 21% year-on-year (y-o-y) in Q2. The
company’s Ebitda rose over 48% y-o-y thanks to lower costs and a better product mix which
aided gross margins. Ebitda margins expanded 800 basis points y-o-y in Q2.
Little surprise, analysts are raising earnings estimates after the company announced
additional capital expenditures. Analysts have revised earnings by a further 10% for FY22 on
average.
Even so, the sharp gains in the stock this year of 85% may be pricing all these benefits and
more. The stock is trading at a price-earnings multiple of 37 times FY22 earnings. “Stock
remains expensive, but new custom synthesis capex adds to earnings visibility," said Jefferies
in a client note.