Divi's Labs Q3 Result: Multi-quarter low margin drags shares to their worst drop in six years

Shares of Divi's Laboratories ended 11.7 percent lower on Friday, marking their worst single-day drop since March 2017, after the company's December quarter margin fell to a multi-quarter low.

Divi's EBITDA margin nearly halved from the previous year figure of 44 percent to 23.9 percent in the December quarter. It had already dropped to a multi-quarter low of 33.5 percent during the September quarter.

The management, during the earnings call attributed the fall in margin to higher tax rates and a change in product mix. Business was also impacted due to pricing pressure in the generic compounds.

Revenue for the period declined 31.5 percent year-on-year, while a consensus estimate of analysts had pegged the decline at 29 percent. Revenue declined due to a high base as it benefitted from the supply of Covid-19 related drugs in the base quarter.

The company's operating profit also declined 62 percent from last year. Net profit fell over 60 percent from the same period last year.

The management said that they expect the company's net profit to improve on a sequential basis and pricing pressures to ease. In fact, it is witnessing improvement in both volumes and pricing. Raw material prices are also expected to ease.

With cash of Rs 3,489 crore on the books as of December 31, the company has no plans of making an acquisition but instead invest in new technologies. The company is also looking to expand in India as most of its business currently comes from exports.

On the margin front, the management expects to move back to earlier margin in the next two years, adding that a move back to historical margin in the next few quarters is unlikely.

Shares of Divi's Laboratories ended 12 percent lower at Rs 2,875, after making a 52-week low of Rs 2,795.