IGI Logo

Below is perspective on Divi`s Laboratories Ltd Quarterly Result by Mr Anmol Das, Head of Research, Teji Mandi

1. Divi's Q2 numbers were a miss both on the revenue front as well as the profit as per the consensus estimates and also lower on a sequential basis. There has been a sharp downtick on net profit at Rs 490 odd crore as compared to Rs 650 crore in the last quarter. The expectation this time around was of QoQ improvement.

2. The key USP of Divi's is basically the high margins that the company is able to maintain. They have maintained atleast over 40% of margins in the previous quarters, the best in the pharmaceutical space.

3. Q1FY23 was also a big disappointment for Divi's as the margin dip over 600bps on a QoQ basis as the Molnupiravir opportunity had tapered plus a slowing base business so the expectation this time around was that the company would report a QoQ recovery though what it seems after the Q2 numbers is that the company has not come through on those expectations and that is the reason why the stock reacted downwards post the result.

4. Margins for Q2FY23 stood at 33.5% compared to 37% in the previous quarter and probably this is the lowest margins that the company has ever reported.

5. There was weakness in custom synthesis business which was basically one of the reasons because of reduction in supplies of the Molnupiravir API which is the covid drug but separately the weakness in the base business x of Molnupiravir and has affected the numbers for Divi's as there is disappointment in the base business this time.

6. Despite the correction, the company still trades at premium valuation and hence both the P/E multiple and EPS estimates could get contracted as these numbers fails to provide any kind of comfort going ahead.

Above views are of the author and not of the website kindly read disclaimer