Divi's lab Presentation
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Divi's Laboratories is a leading global manufacturer of active pharmaceutical ingredients (APIs) with a 70% market share in pain control and cough suppressants. The company is focused on growth through contract research and manufacturing services, capital expenditure, and debottlenecking, while leveraging its strong R&D capabilities. With zero debt and a stable credit outlook, Divi's aims for expansion in developed markets and benefits from rising global demand for generics and nutraceuticals.
Divi's lab Presentation
- 1. Divi's Laboratories Bloomberg: DIVI IN Prepared by: Kartik Maniktala Ujjwal Krishna Vaishnavi
- 2. Why DIVI’S? Largest Manufacturer of Pain Control Naproxen and cough suppressant Dextromethorphan (70% global market share), Among Top 3 API manufacturer in World Rising outsourcing trend & cost control measure will benefits companies like DIVI’S with focus on supplying API for niche generics Supply constraints in China, Safer Supplier (US FDA compliant), Going for Capex and debottlenecking will provide future growth High growth expectations from the company’s CRAMS (Contract Research and Manufacturing Services) business compare to peers New capabilities being tapped in a niche segment – carotenoids Strong R&D Capabilities and India Cost Arbitrage in IP , Filled of 42 DMF (drug master files),38 Patents & 5 generics Currently 2nd largest pharma player by market value Rs461,384 Millions
- 3. The Company Product portfolio comprises of i) Generic APIs (Active Pharma Ingredients) and Nutraceuticals and ii) Custom Synthesis of APIs, intermediates and specialty ingredients for innovator pharma giants • In next 5 years company expects growth to be driven by developed markets due to their readiness to adopt new and innovative products. • Other markets would see growth with rising affordability and per capita income • Company generates around 18% of revenue Naproxen The company operates at two manufacturing locations: • Unit I, at Hyderabad (Telangana) • Unit-II at Visakhapatnam (Andhra Pradesh) The Company has Research Centers at Sanathnagar,Hyderabad and at the manufacturing sites. 52% 15% 20% 13% SHAREHOLDING PATTERN (SEPT 19) Promoters Mutual Fund Foreign Investors Non-Institutional
- 4. 27% 46% 12% 12% 3% Geographical Revenue Contribution FY19 America Europe Asia India RoW Source: Annual report Source: Bloomberg
- 5. Strengths Zero Debt, cash rich manufacture Weakness High revenue contribution from CRAMS Opportunities Opportunities in the Carotenoid space Threats USFDA and other regulatory authority actions Company Analysis and Debt Profile Credit Rating Outlook Stable Long Term AA+ Short Term A1+ Source: Bloomberg, CARE
- 6. Competitor Analysis COMPANY P/E EV/EBITDA P/B ROE (%) ROCE (%) D/E DIVI'S LABORATORIES LTD 34.11 23.38 6.63 21.00 21.90 0.015 GLAXOSMITHKLINE PHARMACEUTIC 54.72 34.64 11.39 21.22 24.19 0.000 ALKEM LABORATORIES LTD 30.80 19.30 4.31 14.76 19.23 0.169 SANOFI INDIA LTD 36.28 22.14 6.22 17.93 25.84 0.000 ALEMBIC PHARMACEUTICALS LTD 17.55 12.44 3.77 23.66 21.95 0.342 AJANTA PHARMA LTD 23.02 15.80 3.97 18.06 18.38 0.008 SUN PHARMACEUTICAL INDUS 36.18 15.70 2.33 6.69 15.51 0.235 DR. REDDY'S LABORATORIES 24.05 14.01 3.22 14.10 19.13 0.274 Source: Bloomberg
- 7. Industry Outlook India accounts for 20% of global exports in generics. India pharmaceutical sector is expected to grow at a CAGR of 15% Investment (as % of sales) in R&D by major Indian pharma companies increased from 5.3% in FY12 to 8.5% in FY18 Segments in Indian Pharmaceutical Sector 1)Active Pharmaceutical Ingredients(APIs)/Bulk Drugs - Divided into Branded and Generics category 2)Contract Research and Manufacturing Services (CRAMS) 3)Formulations 4)Biosimilar
- 8. Govt. Initiatives Ayushman Bharat National Health Mission Pradhan Mantri Jan Arogya Yojana National Pharma policy Medical technology park 31% 19%16% 7% 7% 5% 15% MAJOR EXPORT DESTINATION IN INDIA'S PHARMA FY18 % North America Africa EU ASEAN LAC Middle East Others Source: IBEF
- 9. Innovation Backward integration to basic starting material in most API’s Core concepts of manufacturing are designed around the principle of green chemistry
- 10. FDA Checks Dec 2016 Unit II Vizag USFDA (Import Alert) July 2017 Import Alert Lifted Sept 2017 USFDA Inspection Nov 2017 Warning Letter closed July/August 2017 Ireland and Slovenia Inspection (No observation) Unit-I USFDA May 2018 No Observation June 2019 Unit II USFDA Inspection No Observations August 2019 Unit II Ireland and Slovenia Inspection (No observation Source: Company
- 11. Valuation (DCF) Particulars Value Risk free rate 6.519% Equity risk premium 8.54% Beta 0.79 Re-investment rate 63.50% Growth rate 11.67% Long term growth rate 10% Cost of Equity 11.90% Number of shares 265.47M Current Market price Rs1738 Value per share Rs1389 % Downside 24.95%