Divi's lost almost 4% on the bourses as the reported bottom-line growth of 11.2% year-on-year growth reported by the company failed to cheer the market. This profits growth was much lower than the 63.2% y-o-y growth seen by the company in the June'12 quarter. The profits at Rs 117.97 crore in the September quarter declined 29.5% on sequential basis.
The company despite reporting a decent 33.6% growth in sales to Rs 472.60 crore mainly suffered due to the higher power costs and forex losses of Rs 21 crore. Thus the company saw its other expenses more than double to Rs 103.85 crore due to purchase of power from the grid at higher prices in the back of power shortage in Andhra Pradesh. With this total expenditure shot up substantially and growth at PBIDT (Profit before interest Tax and depreciation) was restricted to 16.3% for the company that generally sees 40 -60% growth at this level. Thus the net profit growth too suffered.
Though profits growth was lower, the strong revenue growth has been led by strong performance in all segments i.e Custom Synthesis and Generics including carotenoid. Carotenoid segment though small is ramping up well. Custom synthesis business revenue (48% of sales) grew 31% to Rs 207 crore, generics sales (52% of sales) surged 35% to Rs245 crore. Carotenoid contributed Rs 25 crore to sales against Rs 18 crore in June'11 quarter. With improving product mix and led by currency benefits (Divi's sees more than 90% revenues coming from exports) Divi's could still maintain its EBITDA margin at 39.2% compared to 40.6% in June'12 quarter despite higher costs and forex losses.
Moving forward the newly commissioned Vishakhapatnam SEZ is likely to continue providing traction to revenues growth and profitability. The SEZ expansions are likely to be completed by end of Fy13 and full scale operations commencing in Fy14 as two blocks of new capacity under Vishakhapattanam SEZ are due for inspection in first quarter of Fy14.This will lead to full scale commercialization of the facility. While the SEZ contributed 5% to revenues in FY12 analysts at Bank of America Merrill Lynch see the contributions increasing to 20% by FY14. They add that in addition to contributions from the SEZ, Strong visibility in order flow from key clients underpins our confidence on 20-25% revenue growth sustaining over coming 6-8 quarters at-least. Management too has guided for 20-25% growth during Fy13. Analysts at HSBC too remain positive on the stock on the back of stronger FY14 earnings driven by growth from additional capacities in generics and custom synthesis.
They add Divi's continues to enjoy the benefit of a weak rupee that was visible in June'12 quarter.
For the stock trading at Rs 1148 levels, 29 out of 35 analysts polled by Bloomberg have BUY ratings.