Nice article in DNA on CRAMS.

 

 

Religare Securities has maintained buy on Divi's Laboratories and has revised the target price to Rs 1,825 from Rs 1,686.

Divi's posted above-expected results for October-December of 2007-08 driven by higher-than-estimated growth in the custom chemical services segment. This segment has grown at over 100 per cent year on year, which is notable considering that the growth has been achieved in the normal course of business without the execution of any one-time contracts, said Religare in its post earnings note.

Generic API also reported healthy growth of 58 per cent year on year to Rs 140 crore led by the performance of five key products. The strong operational performance resulted in EBITDA margin expansion of 1,100 basis points to 39.4 per cent while profit after tax more than tripled to Rs 100 crore.

Divi's mega capital expenditure of Rs 250 crore executed over FY05-FY07 has generated significant value in 2007-08. Capacity expansion in custom chemical services enabled the company to execute more contracts from innovators, while its focus on niche, difficult-to-manufacture APIs resulted in market leadership for key products. Infrastructure for the launch of carotenoids, a $1billion opportunity for the company, will be commissioned in February and will contribute to revenue in 2008-09.

In the light of strong Q3 results, Religare has revised their earning per share estimates upwards by 6.7 per cent and 8.1 per cent for FY08 and FY09 respectively. The brokerage expects Divi's to be one of the key beneficiaries of increased outsourcing from innovator pharma companies.

 

Wyeth & Pfizer outlined their plans to rationalize manufacturing sites as they step up their outsourcing efforts. Pfizer indicated that it now outsources 17% of its manufacturing (up from 8% in 2004) and intends to increase this to 30% by end-2009 – an incremental US$1bn worth of outsourcing. We believe that the focus on seeking strategic partnerships in the areas of manufacturing & research is gaining momentum and outsourcing appears to be becoming an integral part of corporate strategy for Big Pharma. We expect the quantum of outsourcing to increase materially going forward and Indian companies in this space are likely to be key beneficiaries. Nicholas Piramal remains our best play on innovator outsourcing.