Divi's Laboratories: Recommendation Review

We had recommended Divi’s Laboratories in DSIJ Issue No. 11 (Dated May 7-20, 2012), when the scrip was trading at Rs 864. We had recommended the scrip as being among those that could help you protect your portfolio from inflationary pressures.

The pharmaceuticals sector has been a safe haven for investors to park their funds during turbulent times. Moreover, our recommendation was also backed by other factors including the company's meticulous product selection, a pipeline of more than 20 products and the forthcoming patent expiries, because of which it is set to witness better growth in the coming years.

On the financial front, the performance for FY12 has been quite good. The topline witnessed growth of 41 per cent on a YoY basis, and stood at Rs 1858.59 crore. This strong performance was aided by a ramp-up in its new capacity at Vizag and favourable currency movement. The management has surpassed its 25 per cent topline growth guidance for FY12, and expects a 25 per cent growth in FY13 and FY14 too. On the valuations front, the stock discounts its trailing 12-month earnings by 23.52x and the EV/EBITDA stands at 20x. At the current market price, we suggest booking partial profits to the extent of at least 50 per cent of one’s holdings.