Monday, August 29, 2011

Divis Lab - Buy on declines

The company was earlier engaged primarily in the manufacturing of active pharmaceutical ingredients (APIs) and intermediates, but now it provides complete turnkey solutions to domestic pharma companies and is also the leading player in the custom synthesis space. With a near debt-free balance sheet and strong, predictable cash flow, Divis continues to exhibit robust performance aided by its strong business model.

What gives it an edge over its competitors is its unique focus on the contract manufacturing space, coupled with the ability to keep costs at a low level. With the global downturn, CRAMS players like Divis are benefitting from the bigger outsourcing opportunities offered by global pharma players, thereby providing more revenue visibility in the long term. Divis' cost advantage also allows it to maintain EBITDA margins as high as 38%. Apart from this, its strong skillset and commitment to R&D is expected to reap rich rewards in the future.

It also has a robust product pipeline in the offing, comprising opportunities in the generics space. Its new multipurpose plant at Visakhapatnam has recently commenced operation, which will yield benefits in the coming period. For the current year (2011-12), the company has planned to incur a capital expenditure of around Rs 1.75 billion, primarily to ramp up the existing capacity.

Performance :
The data given below gives the returns divis has given in the past 1 year. In the short term it will trade side ways.

Time Span Price Change %Change
Today 704.00 6.15 0.88
Week 715.20 -17.35 -2.42
Month 833.55 -135.70 -16.27
Three Months 750.00 -52.15 -6.95
Six Months 597.40 100.45 16.81
One Year 754.65 -56.80 -7.52

The fall has been more severe in the last 1 month where it has fallen from 840 levels to 700 where it is seeking good support. Any breakdown below 700 will take the scrip to 660 levels.
Our Recommendation :

Divis lab has been falling after touching a 52 week high of 840 and is likely to slide to Rs.650 giving investors a great opportunity to buy and add to their portfolio. Expect a 100-125% return over a period of 2-3 years time frame.

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli

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