Divi's Laboratories – Growth Through Contract Manufacturing

More Profit In Bio-Similars

More Profit In Bio-Similars
More Profit In Bio-Similars | Source
Divis Laboratories - share price movement
Divis Laboratories - share price movement | Source

Divis Laboratories - stock market position

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Divis Laboratories - share price movement

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( 2 May 12 )
( 5 May 11 )
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Divis Laboratories - share price movement

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Divi's Laboratories – Growth Through Contract Manufacturing

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Divi's Laboratories – Growth Through Contract Manufacturing

Good Investment Opportunity

Excellent Results

Divis Laboratories has produced very good results for the quarter ended 31.12.11 as compared to the previous quarter. Both revenue and net profit have appreciated sizably. Margins both at the operating and net level are quite comfortable. The shares of Divis Laboratories are traded in the Indian stock exchanges at Rs.862 now (National Stock Exchange, 04.05.12). The highest and the lowest prices recorded by the shares of the company in the last one year are Rs.878 and Rs.672 respectively. The face value of the company’s shares is Rs.2. The company is operating in the pharmaceutical sector.

Allocation Of Shares To Employees

Divis Laboratories is a Hyderabad-based company. Hyderabad is considered as the pharmaceutical capital of India. If we compare the results of the third quarter with that of the corresponding period of the previous year, it is still more impressive. Net profit increased by 44%. The company’s special economic zone project worth Rs.200 crore is being implemented in Visakhapatnam satisfactorily. Divis Laboratories has allotted 29690 equity shares to its employees under the employees compensation scheme (ECS).

Scouting For Acquisitions

The company’s revenue growth was aided to the extent of 13% by the depreciation of Indian rupee against the dollar and other major currencies. Divis Laboratories has accumulated around Rs.500 crore for its inorganic growth. The company is now targeting its next phase of growth through acquisitions. Divis Laboratories is scouting for acquisitions in bio-similar space. The company is banking on growth momentum led by generics drug business and custom synthesis. It is doing well in nutraceuticals business. The company is aiming its next growth phase through carotenoids.

Increasing In Outsourcing Helps The Company

The company is helped by increase in outsourcing of business from American and European clients. Expansion in capacity in its Visakhapatnam plant will also come in handy for the company’s growth. Divis Laboratories is the World’s biggest manufacturer of a chief ingredient in Vicks cough medicines. Now Divis Laboratories is planning to acquire biotechnology research firms to enter into the business of drugs made from living cells. Ideally, the company is scouting for small R&D companies in India and abroad for its needs. Divis Laboratories was the best performing stock in the BSE Healthcare list last year. With a cash kitty of Rs.500 crore, the company may acquire the desired firms at any time now.

More Profit In Bio-Similars

Bio-similars are very complex in producing and need immense skill to produce with quality. Divis Laboratories has the necessary skill to produce them with top quality. Because of the difficulty in producing them, few people enter into the segment and as a result, production of bio-similars is a profitable business with high margins. Bio-similars are more profitable than conventional generic drugs. Sale of bio-similars in India amounted to around $200 million last year. It is estimated to increase to around $580 million in the current year.

New Products

Even though bio-similars are very challenging and profitable, revenue from them will take time and involve a minimum gestation period of five years. Every pharmaceutical company likes to get into the bio-similar business for its future growth without minding the waiting period. Divis Laboratories earns 50% of its income from producing nutraceuticfals and generic drugs. It earns the remaining 50% of its income from contract producing for innovator pharmaceutical firms Divis Laboratories has three manufacturing units and is setting up the fourth unit at Visakhapatnam. During the current year, Divis Laboratories expects to add ten to fifteen new pharmaceutical products to its existing portfolio of active pharmaceutical ingredients.

Good Investment Opportunity

Divis Laboratories has a good balance sheet, sound financials and a strong cash flow. It has a good customer base. Most of the international pharmaceutical companies are its customers. Divis Laboratories follows a ‘no competition with customer’ policy. Divis Laboratories has an edge over its Indian peers because of its involvement in the contract manufacturing. At the current market price of Rs.862, one can invest in the shares of Divis Laboratories for medium to long term holding for decent returns.

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