Will Divis Labs continue to deliver returns as Post Covid era? डिविस लैब में निवेश करना चाहिए या नहीं? 😓

 1. Company & Business Strength: 10/10

Divis Laboratories Limited is an Indian pharmaceutical established more than 30 years and an API Producer company headquartered in Hyderabad, India with 6 manufacturing plants located in Telangana & Andhra Pradesh. It also has 3 R&D facilities across India. It also reached a milestone of being one of the top 3 API manufacturers in the world with a combined capacity of 14000m3+ and among the top in Hyderabad.  

It has 2 subsidiaries too: Divis lab(USA) and Divis lab(Europe).

The company is engaged in the manufacture of leading generic compounds, Nutraceutical ingredients, and custom synthesis of APIs & Intermediates of global innovator companies. It has a portfolio of around 120+ products across diverse areas.

It also has 16 products under various phases of development for which the market size is USD 10billion+.

It has been custom manufacturing for Big pharma giants and has integrity in over 95 countries.

Divis has also majorly benefitted from China plus one and government policies.

Business Segment:

Generic API: 

The product list includes a very selective 30 APIs that are manufactured commercially in 10s to 100's/1000s of Tonnes each year and continues to be the largest API producer in the world.

There are additional 10 APIs that are in various stages of the R&D/pilot scale development process.

Divi’s is one of the top 2 API manufacturers in the world for 18 out of the 30 molecules.

It has achieved this leadership position because of various factors such as backward integration to basic starting materials, dedicated production blocks with large batch sizes, and significant capacity creation ahead of time.

Custom Synthesis:

It is engaged in Custom Synthesis(contract manufacturing services) of APIs and Intermediates for global innovator companies with a vast portfolio of products across diverse therapeutic areas.

It has Segregated and dedicated production blocks for handling High Energetic Reactions, Azide Chemistry, and Pressure Reactions.

Nutraceuticals: 

Divi’s Nutraceutical Facility at its Unit II manufacturing site is an integrated facility for the production of the active ingredients and finished forms of Carotenoids. 

The facility includes a full-fledged R&D, Application Testing, and Support Facility. 

In addition to the standard nutraceutical product portfolio offering, Divi’s also offers customized ingredient solutions in liquids, beadlets, and powder forms.

2. Competitive Strength: 9/10

Divis is an Indian Pharma company leading in the world, but it has competition with other giants like Sun Pharma, Lauras Labs, Lupin, Cipla, Gland Pharma,  IPCA Labs, Alembic, Dr. Reddy, Aarti drugs, Aurobindo and others.

It has also multinational competitors like Abbott, Sanofi, GSK, Pfizer, AstraZeneca, PGHL, and others although not direct competitors in products.

Pharma sector has always been highly competitive and with a lot of regulations.

3. Stock Analysis Return & PE Ratio: 10/10

Divislab Stock is listed both in NSE, and BSE and currently trading around 4500 (Jan 2022), with 52 highs of 5400s and lows of 3100s.

It has a market cap of 120000+ which is a Large cap, Stock has given exceptional returns since inception and also after the pandemic.

The stock has given a 3-year CAGR of 44.6% which is exceptional. 

The face value is 2, so expect split, bonus, and buybacks.

PE Ratio: Divis has a PE of 56 currently which is a bit expensive compared to sector PE. 

4. Dividend: 7/10

The stock has been giving a fair dividend of 0.45%. Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.

Financial Ratios:

5. Sales Growth/Revenue: 10/10

The Sales growth indicates that the company can capture the market, and which may increase profitability. 

Divis Lab has a 3-year median Sales growth of 21.23%  which is good. Current year (2021) growth stands at 28.01%. For large caps, we consider the growth of atleast 15%+ as healthy sales. 

6. Profit Growth: 10/10

Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material prices to end customers.

Divis Lab Profit growth stands at a 3-year median of 31% which is exceptional, Current year stands at 42.4%. For a Large cap, atleast 15%+ is considered healthy growth in Profitability.

7. [ROE] & [ROCE] %: 10/10

Return on Equity:

ROE indicates the ability to generate profits from shareholders/Equity Investments. Divis Lab ROE has a 3-year median of 21.13%.  The current year stands at 23.57%. 

We consider a healthy ROE to be atleast 20% for growth companies.

Return on Capital Employed:

ROCE indicates the ability to use its capital employed for business. Divis Lab ROE has a 3-year median of 28.31%. The current year stands at 31.64%. 

We consider a healthy ROCE to be atleast 20% for growth companies.

8. Debt/Equity: 10/10

D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability. 

Divis Lab has a D/E of 0 which is exceptional. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.

We consider debt-free or D/E<0.1 to be healthy. 

Note: The debt has been decreasing in the last 3 years.

9. Shareholding %: 10/10

The company has a high Promotor holding of 51.95%. The FII and DII of 19.30% and 17.73% indicate it is in strong hands. The remaining are for the Public.

Note: The Promoter Pledging % is 0% which is good, generally no pledging indicates a good sign.

Another indicator like interest coverage ratio, Return on Assets[ROA], and others also seems good.

10. Future Prospects: 9/10

Pros:

India is expected to have high healthcare growth in the future, especially after the pandemic. Also, people in rural areas are conscious of their health now which leads to high drug demand.

Top 3 Leading API manufacturers in the world with Niche Products and development of new products.

China plus one or Aatmanirbhar Advantage. 

The company is debt free.

The Financial ratios have been exceptional in all aspects. The stock has given exceptional returns for the last 3 years and has been a multi-bagger.

Cons:

The stock is a bit expensive in valuation but note it's one of the leading in the sector.

The revenue is a bit focused only top 5 molecules, which can be diversified.

Investment Hacks Score Card: 

The average score of Divis Labs based on all factors comes to be 9.5/10.

Conclusion:

Overall DIVIS LAB seems to have solid Management, a Leading API manufacturer, research facilities, and Exceptional financial growth. The stock has given multifold returns to shareholders from listing. Since this is Large cap stock with amazing fundamentals, Investors can see limited volatility in the future and also can be considered as a pick.

Disclaimer:

Since this is an educated opinion, Please research thoroughly or consult your financial advisor before Investment.

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Team Investment Hacks.