Divi's Laboratories: Recommendation Review

We had recommended Divi’s Laboratories (DLL) in DSIJ Vol. 27, Issue No. 1 (dated 1st January, 2012), when it was trading at Rs 753.60. As we expected, the scrip inched strongly northwards and created an alpha for investors. On a YTD basis, the Sensex has moved up by around 13 per cent, while DLL has appreciated by a whopping 34 per cent.

We had recommended the scrip on the back of the strong financial performance of the company, as well as for the fact that its growth drivers were in place, with 18 patents in India and 12 patents in USA. Further, even in a high interest rate environment, DLL was among those companies that had very low debt on its balance sheet. Another factor that went in favour of this stock was that none of the shares held by the promoters were pledged.

The company performed well in FY12. Its revenues were up 40 per cent to Rs 1845 crore, while the net profit increased by 25 per cent to Rs 546 crore on a YoY basis. The company has surpassed the management’s intended growth target of 25 per cent in its topline for FY12, and expects around 25 per cent growth in the next two years.

The uncertain macro-environment and the high volatility in the market are two factors that prompt us to advise our readers to book profits in this counter. Booking profits at the current levels entails a return of 30 per cent within a span of just six months.