Fundamental Analysis Of Divis Laboratories: It is no secret that India’s pharma industry is at a strategic advantage. From the low cost of production to the affordability of healthcare, the pharma industry has contributed to the boom of the hospitality sector in India.
Some notable pharmaceutical companies have made their way to the Nifty Index and we’re going to perform a fundamental analysis of Divis Laboratories. Keep reading to find out more!
Overview: Indian Pharmaceutical Industry
When you consume medicine for certain ailments and diseases, you’re recommended by your doctor to consume it for its curing effect. That effect where it cures your disease is possible because of APIs or Active Pharmaceutical Ingredients (APIs). APIs are the biologically active component of a drug. They are responsible for creating the effect required from the drug product.
About 35 percent of the pharma industry sees a contribution from the API sector. India is the 3rd largest producer of these APIs, having an 8 percent global share. As per Invest India, over 500 different APIs are made in India, and they add 57 percent of the APIs that are on the prequalified list of the World Health Organization.
The Indian API market is expected to grow at a CAGR of 13.7 percent, estimated to be 8 percent more than the generic API industry for the first four years. The need for affordable and innovative products in the pharmaceutical industry is the main driving force behind the growth of the generic API industry. One of the companies that stand to benefit from the industry growth of APIs is Divi’s Laboratories.
Divi’s Lab: Company Overview
Divi’s Laboratories is a large-cap pharma company, with an industry presence of over thirty years. It was founded in 1991, establishing itself over time as one of the leading API manufacturers in the country. Their products are offered to over 95 countries, and they also provide custom synthesis of the APIs to their clients.
Divi’s Labs also has a business relationship with the food and nutrition industry, supplying them with nutraceuticals. The products derived from food sources, along with added benefits not included in the food sources, are called nutraceuticals.
Divi’s Laboratories employs over 16,500 people, including 400 scientists, and has 2 manufacturing facilities and 3 R&D units. As per the company’s annual report, they have 42 process patents and plans to expand to meet the growing demand for APIs in the near future.
Divis Laboratories – Financials
Sized at ₹86,609 crores by market cap (as of May 2nd, 2023), Divi’s Labs is one of the largest pharmaceutical companies listed in India. In the section below, we’ll go through the key financial information of Divi’s Labs.
Segment Analysis
At a glance, the geographic breakdown of Divi’s Lab’s revenue show that the USA is its single largest region in terms of sales. A total of 44 percent of its FY 22 revenue came from the North American region, up from 24 percent last year. Europe and North America accounted for 77 percent of their revenue in FY 22.
| S. No. | Region | Revenue (In Percent) |
| 1 | North America | 44% |
| 2 | Europe | 33% |
| 3 | India | 10% |
| 4 | Asia | 9% |
| 5 | Rest Of The World | 4% |
Revenue & Net Profit Growth
| Year | Revenue (In Cr.) | Profits After Tax ( In Cr.) |
| FY 18 | 3837 | 869 |
| FY 19 | 4879 | 1,332 |
| FY 20 | 5,310 | 1,372 |
| FY 21 | 6,796 | 1,954 |
| FY 22 | 8,979 | 2,948 |
In the latest financial year, we could observe a notable rise in income from the North American region, contributing largely to Divi’s revenues. They reported sales of ₹8,991 crores in FY 22 and a net profit of ₹2,948 crores from the same. For the financial year FY 18, Divi’s Labs reported revenues of ₹3,837 crores and a net profit of ₹869 crores, showing how revenues have more than doubled and profits have increased by a multiple of 3.
OPM and NPM Growth
The pharma company saw its operating profit margin rise by 2.5 percent year on year, from 42.41 percent (FY 21) to 44.91 percent (FY 22). Even net profit margins have improved on a YoY basis. The company has improved its margins over the past 5 years, leaving more profits to either be distributed as dividends or for their expansion plans across their manufacturing facilities.
| Year | Operating Profit Margin | Net Profit Margin |
| FY 18 | 33% | 22% |
| FY 19 | 38% | 26% |
| FY 20 | 34% | 25% |
| FY 21 | 42.10% | 28% |
| FY 22 | 44.91% | 33% |
Returns Ratio: ROE & ROCE
As of FY 22, Divi’s Laboratories had an exceptional ROE of 25.24%, a record for the company and one of the best performers in its industry. Given the fact that the company is debt free, its ROCE of 30.25 percent shouldn’t come as a surprise to the company’s shareholders. The returns ratio of Divi’s Labs has been steadily increasing over the past 5 years, giving better returns every year.
| Year | ROE | ROCE |
| FY 18 | 14.80% | 20.10% |
| FY 19 | 19.44% | 25.84% |
| FY 20 | 18.83% | 23.99% |
| FY 21 | 21.34% | 27.60% |
| FY 22 | 25.24% | 30.25% |
Debt & Interest Coverage Ratio
Divi’s Laboratories is a debt-free pharma company. The company had fractional debt in FY18, which reduced whatever debt it had to zero. As the company is operating on its earnings and profits alone, it leaves sizable capital for interest coverage, should the company ever find itself in the need for borrowings in the future. Its interest coverage ratio reached a towering 4,994 multiple, leaving no room to worry about debt anytime soon.
| Year | D/E Ratio | Interest Coverage Ratio |
| FY 18 | 0.011 | 926.81 |
| FY 19 | 0.015 | 531.02 |
| FY 20 | 0.005 | 299.27 |
| FY 21 | 0.0004 | 3,065.41 |
| FY 22 | 0 | 4,994.76 |
R&D Expenditures
The industry of medicines and pharmaceuticals is everchanging and it is imperative for companies to constantly innovate and keep up with the latest findings in healthcare. R&D expenditure of Divi’s Labs has increased year on year by almost ₹80 crores from ₹512.6 crores in FY 21 to ₹590.5 crores in FY 22. The FY 22 expenditure on R&D is 0.66 percent of its total sales revenue for the year.
Divi’s Labs has its own research centers, called DRCs at its manufacturing facilities outside Hyderabad and Vishakhapatnam. Besides R&D, the company is investing in expanding the production capacity at its manufacturing facilities and constantly upgrading its plants and infrastructure.
Fundamental Analysis Of Divis Laboratories – Key Metrics
Here are some of the key metrics of the pharma company, as we have reached the end of our Fundamental Analysis Of Divis Laboratories.
| CMP | ₹ 3,229 | Market Cap (Cr.) | ₹ 85,730 Cr. |
| EPS | ₹ 90.3 | Stock P/E | 35.8 |
| ROCE | 35.1 % | ROE | 28.2 % |
| Face Value | ₹ 2.00 | Book Value | ₹ 457 |
| Promoter Holding | 51.9 % | Price to Book Value | 7.04 |
| Industry P/E | 22.1 | Dividend Yield | 0.93 % |
| Net Profit Margin | 33.1 % | Operating Profit Margin | 35.8 % |
Key Takeaway
Over the past 5 years, Divi’s Laboratories has given a substantial return of 171.6 percent, all while growing its business operations and profits. Given the company’s presence in the Indian API industry, we can expect it to grow further in the future. India’s importance in the pharmaceutical industry was witnessed by the global powers in the past few years.
Companies like Divi’s Laboratories are expected to benefit as the global dependence on pharmaceuticals will increase in the future with the rise in population and accessible healthcare.
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