The Hindu Business Line : Sustained buying lifts Divi's Labs

The stock ended the day at Rs 1,396.05, up 5.65 per cent, with 27,532 shares traded on the BSE. On the NSE, it ended at Rs 1,397, up 5.75 per cent, with around 1.27 lakh shares traded.

Marketmen said that there is talk that concerns over the commercial launch of carotenoids have been allayed and that launch would happen in the near future.

"This presents a huge opportunity for Divi's. The revenue should start to flow in by the fourth quarter of the current fiscal," an analyst with a leading brokerage said.

Divi's is among the few manufacturers with expertise to manufacture carotenoids, which are used in the food processing industry.

The market for the product is estimated at $1 billion globally with only 2-3 other suppliers.

"We believe that the company will demonstrate robust growth over the next 2-3 years. Moreover, we expect the environment post 2005 to become more conducive to outsourcing, which should significantly benefit IP respecting companies like Divi's," said Mr Abhimanyu Kalra, an analyst with B&K Securities.

According to him, Divi's has set forth a derisked business with contribution from custom synthesis, generics, carotenoids, peptides and nucleotides with all businesses set to show robust growth over the next 2-3 years.

"We therefore expect revenues and profits to grow at 25 per cent and 26 per cent CAGR over the next two years," he added.

Analysts maintain that the generic business, which constitutes close to 70 per cent of revenues, is expected to show stable growth with 12 DMFs submitted to the USFDA and 20 more lined up for the next few years.

While long-term growth triggers appear to be in place, there are concerns that with intensifying competition from Indian companies, Divi's could face margin pressures, especially for older generation APIs.

Additionally, the custom synthesis business has a long gestation period with major benefits flowing when the molecules get commercialised.

Then there is the fact that close to 60 per cent of Divi's revenues is derived from 10 of its top customers (MNCs).

Any delay or difficulty in sustaining these relationships could impact business.