Divi’s Labs Rating ‘Buy’ Generic API molecules improve outlook

Tom Smith

Several factors augur perfectly for our expectation of a 21% income CAGR to Rs 8 bn over FY20–23. Divi’s Labs (DIVI), in addition to possessing a robust base business enterprise, is boosting its product or service offerings in the generic API house – at least sixteen molecules are under several […]

Several factors augur perfectly for our expectation of a 21% income CAGR to Rs 8 bn over FY20–23.

Divi’s Labs (DIVI), in addition to possessing a robust base business enterprise, is boosting its product or service offerings in the generic API house – at least sixteen molecules are under several phases of improvement and in the subsequent DMF submitting stage. Particularly, we find DIVI’s operate attention-grabbing in the Contrast Media phase. Even though there is complexity linked with Iodine-dependent merchandise, DIVI’s solid chemistry skill established and working experience in the Contrast Media space have enabled it to provide the Iohexol API to the validation section. We believe that DIVI is nicely-placed to capitalise on the carotenoid opportunity, with a 21% product sales CAGR to Rs 8 bn expected about FY20–23. This would be driven by healthier demand from customers, item offerings, built-in producing, and the doubling of ability.

We carry on to benefit DIVI at 36x 12M forward earnings to get there at TP of Rs 4,530. We reiterate Get, encouraged by promising desire potential customers and a number of growth levers – (i) new item additions, (ii) a robust chemistry skill established, (iii) productive producing abilities, (iv) scale-led advantage in legacy molecules, (v) negligible fiscal leverage, and (vi) adequate funds obtainable for new assignments.

Iohexol – specialized niche prospect in Contrast Media room
Contrast media brokers have a marketplace measurement of ~$5 bn. Reduced genericisation and restricted opposition, coupled with DIVI’s specialised chemistry capabilities, deliver a reasonable small business prospect. We expect the Iohexal API US market place size to be $100–120 m. The genericisation of Omnipaque may perhaps offer a prospective upside of $40–50 m for DIVI – post the effective validation and subsequent acceptance for its formulator consumer.

Carotenoids – an additional limited-competition prospect for DIVI
DIVI has fully built-in the Nutraceutical facility (Unit II) for the API/finished form of carotenoids. In actuality, it has doubled its ability in excess of the earlier yr and is properly-positioned to advantage from the growing desire for carotenoids. Many elements augur properly for our expectation of a 21% product sales CAGR to Rs 8 bn over FY20–23.

Reiterate Buy
DIVI has documented ~Rs 25 bn capex given that FY18. This has been toward capability additions as effectively as to increase backward integration. Thinking of increased product or service offerings and increased asset utilisation, we assume a 27% sales CAGR in excess of FY20–23. This, coupled with better operating leverage, would drive a 38% earnings CAGR in excess of FY20–23E. Maintain Acquire.

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