Divi's Labs: In good health

Sales at the Rs 1,033 crore Divi's Laboratories grew 43 per cent in FY 08 though the pace was slower than in the previous year, when they grew at 90 per cent on a much lower base.

Both the company's key businesses, generics and custom chemical synthesis (CCS) ""- contract manufacturing for drug firms""- found good demand in overseas markets.

As such, exports now constitute about 90 -95 per cent of the company's annual turnover. The business was profitable : the operating profit margin (opm) expanded by 630 basis points to 40.3 per cent, with the company keeping a least on manufacturing costs. As such, the operating profit grew an impressive 69 per cent to Rs 417 crore.

Divi's is possibly one of the top three global generic suppliers of Naproxen (arthritis), Diltiazem (anti-hypertensive) and Dextromethorphan (medication for cough and cold).

Being mature products, prices have stabilised but demand should grow at about 10 per cent annually. The company is understood to be working with several global players for its CCS division but details are not available.

The company expects to grow it top line by 25 per cent in FY09 by exploiting opportunities from its recently commissioned carotenoids facility (medication to increase immunity). Divi's is understood to have commenced supplies to its overseas partners and analysts say that they expect a gradual ramp-up in sales over the next two years.

The company's net profit was Rs 354 crore in FY 08 and is expected to grow about 30 per cent in FY09 with the earnings per share rising to around Rs 70.

The stock closed 4.76 per cent higher at Rs 1,524 on Tuesday just below its 3-month high reached in the first week of June.It trades at 21.5 times estimated FY09 earnings which is much more expensive than Dishman Pharma, which at Rs 309, trades at 16.6 times FY 09 earnings.