PremiumDivi’s Laboratories Ltd on Thursday became the second listed Indian pharma company to join the ₹1 trillion market capitalization club with its share price rising over 104% in 2020, beating peers Aurobindo Pharma, Dr Reddy’s Laboratories Ltd and Cipla Ltd, which have much higher revenues.
Divi’s stock hit an all-time high of ₹3,847.90 on Thursday, up 3.45% from its previous close. At closing, the scrip settled at ₹3,830 on BSE, up 3%. Currently its market cap stands at ₹1.02 trillion. Sun Pharmaceuticals Industries Ltd was the first pharma firm to achieve this milestone with a market cap of ₹1.37 trillion in May 2013.
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In terms of revenue, Divi’s Lab ranks 12th. Sun Pharmaceutical continued to report the highest revenue with ₹8,458.77 crore in the September quarter, followed by Aurobindo Pharma, Cipla, Dr Reddy’s Labs, Lupin, Cadila Healthcare, Piramal Enterprises, Glenmark Pharma, Alkem lab, Jubilant Life and Torrent Pharma.
Investors continued to buy Divi’s shares on strong earnings visibility from its aggressive capital expenditure (capex) plan. It is witnessing strong demand in both active pharmaceutical ingredients (API) and custom synthesis operations.
Anticipating strong demand traction, Divi’s had embarked on a capex plan which is expected to be completed by FY21 and would start contributing to the topline by FY22.
“We expect Divi’s to reap the benefits of backward integration, capacity expansion, and emerging opportunities in the API and custom synthesis space. Strong earnings visibility, almost zero debt and strong return ratios bode well from a growth perspective. Moreover, the company does not have any pending regulatory hurdles, which is a key positive," said Sharekhan in a recent report. The brokerage firm has recommended a buy rating on the stock and kept its target price at ₹4,175 a share.
Divi’s is in the midst of a recently announced ₹400- crore capex plan for the custom synthesis segment, backed by strong orders from its customers, especially in Europe. Besides, Divi’s is also implementing a ₹1,800-crore capex plan, which involves de-bottlenecking of existing plants as well as setting up of two new units. Divi’s has also started work on the Kakinada greenfield plant at an investment of ₹1,500 crore, with the phase I of the project likely to start operations within 18 months.
In addition to this, Divi's is also implementing a ₹1,800 crore capex plan, which involves de-bottlenecking of existing plants as well as setting up of two new units
Divi's has also commenced work on its Kakinada greenfield plant at an investment of ₹1,500 crore with phase I likely to commence operations in the next 18 months.
Analyst expects with this capacity expansion, sales and profit will likely post a sturdy 24% and 33% CAGR, respectively, over FY2020-23.
For the September quarter, the company's revenue grew 21% year-on-year to ₹1,750 crore. Generic sales rose 23% while costom synthesis sales advanced 18%. Gross margins expanded 820 basis points while profit increased 47% to ₹530 crore.
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