Divi's Labs spurts despite volatility

Divi's Laboratories is maintaining its tempo on the bourses after a strong debut this month.

Today, Divi's Laboratories rose strongly, by 3% to Rs 224. The scrip, however, pared some gains, coming off the day's high of Rs 231. At that high, the scrip had gained as much as 6.1% from Tuesday's close of Rs 217.55. Volumes were impressive, with 4.6 lakh shares changing hands in about two hours of trading on BSE.

Institutional investors are believed to be mopping up Divi's Labs. Some funds that did not get the opportunity to pick up the stock in the initial public offer of the company made in February 2003, are getting in now (after the scrip's listing), according to market men.

The scrip made a sparkling debut on BSE when it settled at Rs 176.25, a premium of 25.8% (on 12 March 2003) compared to the issue price of Rs 140. The scrip has gained further ground since listing.

DLL got overwhelming response to its IPO that was made in February 2003. The initial public offering of the Hyderabad-based pharmaceuticals company was oversubscribed 19.5 times. Against an offer of 32.04 lakh shares , constituting 25% of the company's post-issue paid-up capital, applications were received for 6.24 crore shares.

DLL is into bulk drugs and contract research. Besides producing generic active pharma ingredients and intermediates for generics, the company has ventured into custom synthesis for select MNCs by developing intermediates for new chemical entities being developed by them. It associates with these MNCs at the early drug development stage with the ultimate aim of becoming a "preferred supplier" of APIs and intermediaries to such MNCs, when their discovery drugs are launched in the market. Thus the company builds its API pipeline and gets a ready market from MNCs, by associating with them from the basic research stage.

Divi's Laboratories is promoted by Murali K Divi, who had also co-promoted Cheminor Drugs (now merged with Dr Reddy's Laboratories) and was its managing director till May 1990. He had also co-promoted Globe Organics in 1998. The promoter group holds a 59.96% stake in Divi's, which came down to 54.02% after the issue.

Divi's Laboratories' turnover has risen at a CAGR of 22.08% in the past four years, from Rs 93.22 crore in FY 1997-98 to Rs 207.05 in FY 2001-02. In the half year ended September 2002, it reported a turnover of Rs 114.43 crore (Rs 1.14 billion), and an OPM of 23.6%. The net profit stood at Rs 22.61 crore. The long-term debt, as of September 2002, was Rs 42.10 crore. The debt-equity ratio has been steadily coming down from 1.1:1 in FY 1997-98 to 0.3:1 as of September 2002.

Divi's Laboratories has been focussing on increasing its business in the regulated markets of Europe and the US. These constituted about 73% of the turnover in the half year ended September 2002. The domestic turnover constituted about 10% and the rest of the world contributed about 17%. Since inception, Divi's exported more than 90% of its turnover. The company's regulated market-intensive approach augurs well in view of the substantial potential and also superior margins therein.

The promoters of DLL held a 59.96% equity stake in the company before the IPO. Post-IPO, their holding has slipped to 54.02%