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Batlivala & Karani RESULT UPDATE LARGE CAP Share Data Reuters code DIVI.BO Bloomberg code DIVI IN Market cap. (US$ mn) 4,97 6M avg. daily turnover (US$ mn) 4.7 Issued shares (mn) 133 Target price (Rs) 2,4 Performance (%) 1M 3M 12M Absolute 3 14 31 Relative 3 8 19 Valuation Ratios Yr to 31 Mar FY16E FY17E EPS (Rs) 8.9 99.7 +/- (%) 26.4 23.3 PER (x) 24.3 19.8 PBV (x) 6.1.3 Dividend/Yield (%) 1.1 1.2 EV/Sales (x) 6.8. EV/EBITDA (x) 17.7 14.1 Major shareholders (%) Promoters 2 FIIs 19 MFs 14 BFSI's 1 Public & Others 14 Financial highlights Divi s Laboratories Maintain BUY Price: Rs 1,97 BSE Index: 28,236 1 August 21 1QFY16 Result Ramp-up of supplies from DSN SEZ drives growth Divi s Laboratories came out with strong set of numbers for 1QFY16 with revenues growing by 26% to Rs 8.1 bn while PAT grew by 4% to Rs 2.4 bn. Adjusting for the forex gain of Rs 212 mn reported during the quarter (Rs 13. mn gain in 1QFY1), PAT growth would have been 36% to Rs 2.2 bn. Overall performance is better than our estimates and has been driven by ramp-up in supplies from DSN SEZ unit II (capacity utilisation at 9%). EBITDA grew by 28% to Rs 3 bn with margin improving by bps to 37% owing to stable product mix (Generics:CCS :4). The board has recommended issue of bonus shares in the ratio 1:1 on completion of 2 years since the formation of the company. Divi s has expressed its intention of setting up a new manufacturing facility near Kakinada (initial cost of Rs bn) and currently is awaiting regulatory approvals for the same. With full benefits of DSN SEZ II likely to play out this fiscal, we expect Divi s performance to remain strong in the coming quarters (likely to sustain ~2% CAGR p.a.). Setting up of a new greenfield facility (likely to be funded through internal accruals cash and cash equivalents of Rs 8.4 bn on books) is positive and indicates the scalable potential of its CRAMs business. This offers visibility and would help to sustain good growth from a long-term perspective (beyond FY17-18E). Further, depreciation of INR against USD would also have a positive impact on earnings as 87% of the revenue comes from exports and nearly 8% of export revenue is dollar denominated. At the current market price of Rs 1,97, it trades at 24x FY16E EPS of Rs 81 and 2x FY17E EPS of Rs 1 (upward revision of 2%). We remain positive on the stock considering its strong quality compliance, position in the customer manufacturing space, high margin and robust cash flows which it has been able to sustain year after year. Maintain Buy. Key risks a) Delays in approvals/supplies. b) Sharp appreciation of INR against USD. (Rs mn) 1QFY1 1QFY16 YoY (%) FY1 FY16E YoY (%) FY17E YoY (%) Net sales 6,398 8,69 26.1 31,32 37,721 21.6 4,38 2.3 Operating profit 2,323 2,98 28.3 11,3 14,327 24.2 17,738 23.8 OPM (%) 36.3 36.9 37.2 38. 39.1 Other operating income 29 19 (36.2) 117 16 (9.3) 113 6.3 EBITDA 2,32 2,999 27. 11,63 14,433 23.9 17,81 23.7 EBITDA margin (%) 36.6 37.1 37.4 38.2 39.2 Other income 127 34 167.8 447 884 97.9 626 (29.2) Depreciation 333 289 (13.) 1,36 1,428. 1,477 3. Interest 4 2 (38.9) 19 2 34.4 27 8. PBT 2,142 3,47 42.2 1,721 13,864 29.3 16,973 22.4 Tax 463 61 32.8 2,26 2,912 32. 3,734 28.2 PAT 1,679 2,432 44.8 8,1 1,93 28.6 13,239 2.9 PAT margin (%) 26.2 3.1 27.4 29. 29.2 Adjusted PAT 1,669 2,262 3.6 8,497 1,741 26.4 13,239 23.3 Note: Quarterly numbers are on standalone basis.

B&K RESEARCH AUGUST 21 Details on manufacturing assets Plant Unit-I at Hyderabad (Choutuppal) Export unit (EOU) at Vizag Pharma SEZ unit at Vizag Assets Other highlights Power cost for the quarter increased by % to Rs 4 mn as against Rs 43 mn during the same quarter last year. Revenues from Carotenoids stood at Rs 4 mn (Rs 1.7 bn in FY1). Management has guided for a capex of Rs 3 bn in FY16E of which Rs 8 mn has been capitalised this quarter across all the plants. Another Rs 2.4 bn would be capitalised over the next three quarters. This is the first time since 28, where June quarter reported profits (historically weak for Divi s) are better than March quarter (generally 4Q is the strongest). acre site comprising of 13 production blocks, a pilot plant and kilo lab. 362 reactors (1,744 cubic mt) 1 acre site comprising of 8 production blocks, 19 reactors with 1,81 cubic mt capacity 26 acre site with 9 production blocks, 342 reactors with 2,717 cubic mt capacity DSN SEZ unit at Vizag production blocks, 276 reactors with 2,48 cubic mt capacity New unit near Kakinada New greenfield facility proposed for augmenting capacities and de-risking business. Awaiting regulatory approvals. Initial investment of Rs bn 4 Research centres Located at Hyderabad (Sanathnagar & Choutuppal) and Vizag Fixed assets addition over the years EBITDA margin sustaining 3% plus levels Rs bn 2 2 1 1 9.9 8..6 1.4 FY1 FY11 16.4 12.7 2.8 3.7 FY12 FY13 21.7 18.8 2.4 2.9 FY14 FY1 Rs mn 3, 3, 2, 2, 1, 1, 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY1 2QFY1 3QFY1 4QFY1 1QFY16 4 4 3 3 2 2 1 1 EBITDA Margin (%) Gross Block including CWIP Net Addition EBITDA EBITDA Margin (%) Source: Company, B&K Research PER Band One-year forward PER 3, 2, 2, 1, 1, 32.3x 28.3x 24.2x 2.2x 16.1x 3 3 2 2 1 1 Apr-7 Oct-7 May-8 Nov-8 Jun-9 Jan-1 Aug-1 Feb-11 Sep-11 Mar-12 Oct-12 May-13 Nov-13 Jun-14 Jan-1 Aug-1 Apr-7 Oct-7 May-8 Nov-8 Jun-9 Jan-1 Aug-1 Feb-11 Sep-11 Mar-12 Oct-12 May-13 Nov-13 Jun-14 Jan-1 Aug-1 1-yr fwd Mean +1 std dev -1 std dev Source: B&K Research DIVI S LABORATORIES 2

B&K RESEARCH AUGUST 21 Income Statement Period end (Rs mn) Mar 14 Mar 1 Mar 16E Mar 17E Net sales 2,23 31,32 37,721 4,38 Growth (%) 18. 22.9 21.6 2.3 Operating expenses (1,177) (19,497) (23,394) (27,642) Operating profit 1,77 11,3 14,327 17,738 Other operating income 68 117 16 113 EBITDA 1,14 11,63 14,433 17,81 Growth (%) 24. 14.9 23.9 23.7 Depreciation (921) (1,36) (1,428) (1,477) Other income 76 447 884 626 EBIT 9,93 1,739 13,889 17, Finance cost (21) (19) (2) (27) Profit before tax 9,99 1,721 13,864 16,973 Tax (current + deferred) (2,176) (2,26) (2,912) (3,734) P/(L) for the period 7,733 8,1 1,93 13,239 Reported Profit/(Loss) 7,733 8,1 1,93 13,239 Adjusted net profit 7,384 8,497 1,741 13,239 Growth (%) 24. 1.1 26.4 23.3 Balance Sheet Period end (Rs mn) Mar 14 Mar 1P Mar 16E Mar 17E Share capital 26 266 266 266 Reserves & surplus 29,368 34,688 42,38 49,49 Shareholders' funds 29,633 34,94 42,624 49,7 Non-current liabilities 1,197 1,343 1,391 1,467 Long-term borrowings 16 11 18 18 Other non-current liabilities 1,182 1,332 1,373 1,449 Current liabilities 6,274 7,7 7,8 8,939 ST borrowings, Curr maturity 169 21 271 287 Other current liabilities 6,1 7, 7,287 8,62 Total (Equity and Liab.) 37,1 44,2 1,73 6,161 Non-current assets 14,37 16,328 18,79 16,9 Fixed assets (Net block) 13,663 1,271 17,46 14,69 Long-term loans and advances 712 1,7 1,163 1,27 Current assets 22,73 27,724 32,864 44,66 Cash & current investment,424 7,982 6,2 1,949 Other current assets 17,36 19,742 26,838 33,116 Total (Assets) 37,1 44,2 1,73 6,161 Total debt 184 261 289 3 Capital employed 31, 36,47 44,286 1,9 Cash Flow Statement Period end (Rs mn) Mar 14 Mar 1P Mar 16E Mar 17E Profit before tax 9,99 1,721 13,864 16,973 Depreciation 921 1,36 1,428 1,477 Change in working capital (3,22) (1,437) (7,62) (,69) Total tax paid (1,818) (2,93) (2,848) (3,668) Others 21 19 2 27 Cash flow from oper. (a),813 8,69 4,844 9,24 Capital expenditure (2,379) (2,83) (3,83) 1,494 Change in investments (941) (2,311) 147 72 Others () Cash flow from inv. (b) (3,32) (,164) (3,683) 1,66 Free cash flow (a+b) 2,492 3,4 1,161 1,86 Equity raised/(repaid) (1,64) 1,64 Debt raised/(repaid) (146) 77 28 16 Dividend (incl. tax) (2,329) (3,16) (3,8) (3,393) Others (21) 93 (979) (2,433) Cash flow from fin. (c) (2,496) (3,18) (2,971) (,81) Net chg in cash (a+b+c) (4) 247 (1,81) 4,996 Key Ratios Period end (%) Mar 14 Mar 1P Mar 16E Mar 17E Adjusted EPS (Rs).6 64. 8.9 99.7 Growth 24. 1.1 26.4 23.3 CEPS (Rs) 62.6 74.3 91.7 11.9 Book NAV/share (Rs) 223.3 263.3 321.1 374.8 Dividend/share (Rs) 2. 2. 22. 24. Dividend payout ratio 4.2 36.2 31. 28. EBITDA margin 4.1 37.4 38.2 39.2 EBIT margin 39.3 34.6 36.8 37. Tax rate 2. 2.7 22. 22. RoCE 34.7 31.8 34.4 3. Net debt/equity (x) (.2) (.2) (.1) (.2) Du Pont Analysis - ROE Net margin 29.2 27.4 28. 29.2 Asset turnover (x).7.8.8.8 Leverage factor (x) 1.3 1.3 1.2 1.2 Return on equity 27. 26.3 27.7 28.7 Valuations Period end (x) Mar 14 Mar 1P Mar 16E Mar 17E PER 24.6 27.9 24.3 19.8 PCE 21.8 24. 21. 17.8 Price/Book 6.1 6.8 6.1.3 Yield (%) 1. 1.1 1.1 1.2 EV/EBITDA 17.4 19.7 17.7 14.1 DIVI S LABORATORIES 3

B&K RESEARCH AUGUST 21 Rohit Bhat Dhaval Sangoi, CFA Amit Hiremath rohit.bhat@bksec.com dhaval.sangoi@bksec.com amit.hiremath@bksec.com +91-22-431 71 +91-22-431 713 +91-22-431 7121 B&K Universe Profile By Market Cap (US$ mn) By Recommendation no. of companies 18 16 14 12 1 8 6 4 2 18 12 33 no. of companies 16 14 12 1 8 6 4 2 129 92 64 23 3 > $2bn $2mn - $2bn <$2mn Buy OP UP Sell NR UR B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd. B&K Investment Ratings. LARGE CAP MID CAP SMALL CAP (Market Cap > USD 2 bn) (Market Cap of USD 2 mn to USD 2 bn) (Market Cap <USD 2 mn) BUY >+2% (absolute returns) >+2% (absolute returns) >+3% (absolute returns) OUTPERFORMER +1% to +2% +1% to +2% +2% to +3% UNDERPERFORMER +1% to -1% +1% to -1% +2% to -2% SELL <-1% (absolute returns) <-1% (absolute returns) <-2% (absolute returns) Disclaimer: This report was prepared, approved, published and distributed by Batlivala & Karani Securities India Private Limited ("B&K") located outside of the United States (a "non-us Group Company"), which accepts responsibility for its contents. It is distributed in the U.S. by Enclave Capital, a U.S. registered broker dealer, on behalf of B&K, only to major U.S. institutional investors (as defined in Rule 1a-6 under the U.S. Securities Exchange Act of 1934 (the "Exchange Act")) pursuant to the exemption in Rule 1a-6. Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. ("FINRA") or other regulatory requirements pertaining to research reports or research analysts. No non-us Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. Outside the United States, this report is distributed by B&K or an authorized affiliate of B&K. The report has been compiled or arrived from sources believed to be reliable and in good faith, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. B&K has not verified the factual accuracy, assumptions, calculations or completeness of the information. Accordingly, B&K accepts no liability whatsoever for any direct or consequential loss or damage arising from (i) the use of this communication (ii) reliance of any information contained herein, (iii) any error, omission or inaccuracy in any such Information or (iv) any action resulting there from. B&K provides the information for the purpose of the intended recipient's analysis and review and recipients are advised to verify the factual accuracy, assumptions, calculations and completeness of the information. This report was produced by B&K solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. This document does not constitute an offer of, or an invitation by or on behalf of B&K or its affiliates or any other company to any person, to buy or sell any security. Analyst Certification: Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Disclosures, applying to B&K and the Analyst (together with associates and family members) Ownership interest in the issuer of the securities mentioned < 1% Other financial interest in the issuer Other material conflict of interest Compensation/benefits received from issuer/3 rd Parties in past 12 months: Public offerings managed/co-managed for issuer Fees for merchant banking, investment banking or brokerage services (as percentage of issuer s turnover) <.1% Compensation for other services (as percentage of issuer s turnover) <.1% Analyst service as officer, director or employee of the issuer Involvement in market-making in the issuer s securities

B&K RESEARCH AUGUST 21 Important US Regulatory Disclosures on Subject Companies 1. B&K or its Affiliates have not recently been the beneficial owners of 1% or more of the securities mentioned in this report. 2. B&K or its Affiliates have not managed or co-managed a public offering of the securities mentioned in the report in the past 12 months. 3. B&K or its Affiliates have not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. 4. However, one or more person of B&K or its affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon either on their own account or on behalf of their clients.. B&K or its Affiliates may, to the extent permitted by law, act upon or use the above material or the conclusions stated above or the research or analysis on which they are based before the material is published to recipients and from time to time provide investment banking, investment management or other services for or solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report. 6. As of the publication of this report, Enclave Capital does not make a market in the subject securities. Enclave Capital is the distributor of this document in the United States of America. Any US customer wishing to effect transactions in any securities referred to herein or options thereon should do so only by contacting a representative of Enclave Capital and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital (19 West 44th Street, suite 17, New York, NY 136). B & K SECURITIES INDIA PRIVATE LTD. Equity Research Division: City Ice Bldg., 298, Ground/1st Floor, Perin Nariman Street, Behind RBI, Fort, Mumbai - 4 1, India. Tel.: 91-22-431 7, Fax: 91-22-2263 2/3. Registered Office: Room No. 3/4, 7 Lyons Range, Kolkata - 7 1. Tel.: 91-33-2243 792. B&K Research is also available on Bloomberg <BNKI>, Thomson First Call & Investext.