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.

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Pharma Sector - Robust Growth Prospects buy on declines

Pharma companies may put up a strong set of numbers due to robust domestic growth and the global generics opportunity.

The BSE Healthcare index has underperformed the Sensex by about nine percentage points in the September quarter, which is not surprising. As the risk appetite increases among investors, the pharma sector, which is a defensive play, will not do as well as the broader market. However, since March 2009, when the markets were at a low, the pharma index has outperformed the Sensex by 14 percentage points.

According to analysts at Angel Broking, Sun Pharma may post muted sales growth of 2.4 per cent due to lower sales of Protonix, which is now under litigation. On the other hand, Dr Reddy's may surprise positively, as the September 2009 quarter was marred by inventory and goodwill amortisation issues.

Domestic formulations are likely to boost Cipla's top line by 5.5 per cent, but higher wage costs may drag operating profits. Ranbaxy, although struggling with US Food and Drug Administration issues, may see its top line rise two per cent, as Valtrex generics continue driving revenues despite the end of the exclusivity period and competition getting stronger.

Analysts expect Lupin to post 12 per cent growth with strong domestic and US revenues, while Ipca should grow at 14 per cent aided by the anti-malarial segment sales both in India and abroad.

The September quarter saw Sun Pharma completing the Taro acquisition, Ranbaxy getting exclusivity in Aricept and Aurobindo entering into a supply agreement with AstraZeneca. Approvals for generic launches, too, fell in around the same time, with Aurobindo receiving four approvals and Sun winning three.

Going forward, the pharma sector is in good shape. The domestic market is expected to witness 12-15 per cent year-on-year growth, while the global market will grow at five per cent. Being strong contenders in the global generics space, there are tremendous opportunities for Indian pharma companies, as a large number of key drugs will go off-patent over the next five years. Once again, the market has started factoring in the future growth. The healthcare index has gained 5.7 per cent in the past eight trading sessions, while the Sensex has risen just 0.7 per cent.

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Divis Labs - Buy on declines

Divi's Laboratories (Rs 699): Divi's Laboratories found support at Rs 382 in March 2009, retracing 61 per cent of its structural upmove. The stock subsequently resumed its longer-term trend. Investors with long-term perspective can hold the stock with stop at Rs 490. In this time frame, it can move higher to target of Rs 780 and next target of Rs 950.

Though the short-term trend also is up since this February low of Rs 558, the stock encountered key hurdle around Rs 710 last week. We don't rule out a near-term correction till Rs 650. A conclusive close above Rs 710 will take to Rs 750 in the short-term. Investors can remain invested with stop at Rs 635.

Source : Businessline

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