📢 5 STEPS TOWARDS WEALTH 🚀 The Indian Stock Market Way
Divi's Laboratories Limited is an Indian Pharmaceuticals company and producer of active pharmaceutical ingredients (APIs) and intermediates. The company manufactures and custom synthesizes generic APIs, intermediates, and nutraceutical ingredients. Divi's Laboratories is India's second most valuable pharmaceutical company by market capitalization. Divi's Laboratories was established in 1990 as Divi's Research Centre. The company initially started developing commercial processes for the manufacturing of APIs and intermediates. Divi's Research Centre changed its name to Divi's Laboratories Limited in 1994 to signal its intent to enter the API and intermediates manufacturing industry. Following this, the company established its first manufacturing facility in 1995 at Choutuppal, Telangana. In 2002, the company's second manufacturing facility commenced operations at Chippada near Visakhapatnam. Came with the IPO in 2003 and since then have created huge wealth along with consistent dividends for investors. History of 2 decades with growth and profitability.
Pharma sector could be seen in different phases in India. We saw the strong growth phase in pharma during late 1990 to Fy_2017. This was the growth phase and thereafter from 2017 to fy_2020 we saw muted growth. This whole era is known as Pre_Covid era in the pharma industry. Divis came with the IPO in Fy_2004 when their sales and Profits were 300 Cr and 70 Cr. We saw the company growing well till fy_2017 when sales and profits were 4000 Cr and 1000 cr. This shows the growth of more the 10X in just 13 Years. The Pharma industry was in muted growth due to changing global regulations. This affects the pharma most as the pharma industry is majorly export oriented. Yet Divis was able to outperform during this period of 2017 to 2020 when sales reached 5400 Cr during this challenging time. Fy_2020 was the entry of Covid wave-1 and this continued for next year with wave-2. During these 2 years we saw a boom, 29% sales growth, 47% profit growth, and hence the valuations were also at peak with the share rallying 50-60% CAGR just in 2 years. We saw sales & Profits reaching around 9000 Cr and 3000 Cr. Hence Investment of 1 lakh is already 5 Cr with huge dividends of 30% distribution from profits every year. Today's annual dividends are 4X than invested amount during the IPO.
Q1_Fy_2024: Last year was the first year where we have not seen the rise of Covid after the 2 covid waves. Hence, we can say the Covid era was the high demand era while this was the 1st year without covid and hence the sales of this whole sector were down due to high base last 2 years. Sales of Pharma companies, Laboratories and even hospitals were affected. The low growth scenario seems to continue even for Q1_fy_24 as CC growth was down by -29% and sales growth was down by 21%. Despite the low growth in sales, we saw their main cost, Raw material, increase by 6% due to high-cost inventories. The Profits margin y-o-y was down by 11% Hence the profits were down by 49%. Yet considering the improvement in Margins Quarter to Quarter by 4% we can assume the margins may improve as we proceed further this year.
Now moving towards FY-2024 was this year we may improve from the low grwoth scenario but still the growth would be low near to negative 15%. Hence Profits may fall by 28%. We may see double digit growth in the coming years. We may expect the sales growth similar to what we were getting pre_covid era. The Covid era was an event base short term 2 years sales boom. Hence can expect the range of 3000 to 4700 where buying can be done during lower range of 3000 while some profits can be booked near 4700. This yeat till we do not see the sales growth strong we could not expect breakout.
The company was and is debt-free and best in margin. Definitely a wealth creator. We may see 12% to 15% sales growth even in future. Hence growth along with consistent dividends can be expected from Divis. Can give 1.5% weightage in portfolio.
Reseach from CSPradhan: (Investment Advisor, ProfitFromIT)
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