Divis Labs Reports Lower Numbers In March 2013 Quarter

Pharma firm Divis Labs has reported an 8% year-on-year decline in its topline to Rs 655 crore for the fourth quarter of FY13. Its net profit has come down by 16.67% to Rs 180 crore. The company’s management has attributed the decline to the persistent power shortage in Andhra Pradesh, from where company operates its manufacturing capacities.

During the quarter, Divis Labs has reported a 1.5% decline in its material costs to Rs 234 crore. The material cost is the largest cost item as a percentage of sales, and stands at 35.64% during the quarter under review against 33% in Q4FY12 and 49.5% in Q3FY13. Among the other major expenses, employee costs rose by 22.7% while other expenses increased by 22%.

Due to the lower material costs, the company’s EBITDA margins showed an expansion of nearly 400 basis points on a sequential basis. On year-on-year basis, however, the margins have declined by 224 basis points.

With only Rs 32 crore as debt, the company is almost debt-free. Hence, there are no concerns with respect to its financial expenses. Further as per the financial results, the firm has paid taxes to the tune of Rs 56 crore. The tax rate for the quarter was at 24% against 20% a year ago.

On the balance sheet front, its net worth has gone up by 17%, which is a good sign. The company also has a good liquidity ratio, which means that it has no worries there.

For the full year, Divis Labs has reported an EPS of Rs 45.35. At its CMP of Rs 1010, the stock is trading at a price–to-earnings ratio of 22x, which seems a bit overvalued. Post the Q4 numbers announcement, the stock has tanked 6.5% so far. We expect a further correction to the Rs 980 level, and hence advise avoiding this counter at the moment.