Import alert to hit revenue by just 5%, says Divi’s Lab
MUMBAI: Divi’s Laboratories Ltd Monday said a recent US Food and Drug Administration (FDA) import alert at its Andhra Pradesh factory will hurt its revenue by less than 5%, since the ban has excluded 10 products made there.
On March 21, the US FDA issued the alert on unit-II of the firm’s Visakhapatnam unit citing violation of good manufacturing practices, but exempted 10 products including drugs to treat epilepsy, cancer and HIV. Import alert means products manufactured in the unit will not be allowed to be marketed in the US.
These products were exempted to prevent shortages and some customers may approach the US FDA to exempt more drugs, Murali Divi, chairman and MD of the Hyderabadbased company said in a conference call with analysts.
Divi’s shares fell 20% on 21 March on news of the import alert. On Monday, the shares closed up 1.74% at ₹ 633.95 on the BSE.
Resolving import alert related issues is generally a long-drawn process for companies and hence, this statement from Divi’s Lab comes as a breather,
Resolving import alert related issues is generally a long-drawn process for companies and hence, this statement from Divi’s Lab comes as a breather. However, investors will remain cautious for at least one-two quarters as there could incremental negative news from the regulator’s side or customer’s side, a Mumbai-based research analyst said. However, investors will remain cautious for at least one-two quarters as there could incremental negative news from the regulator’s side or customer’s side, said the analyst, who did not wish to be identified, citing company policy.
The Visakhapatnam unit contributes about 22% to the active pharmaceutical ingredients (APIs) and intermediates manufacturer’s total sales. North America accounts for 32% of the revenue. In the quarter ended December, Divi’s Lab’s sales were ₹973.44 crore, as against ₹858.65 crore a year ago.
“I expect 5-6% decline in revenue in FY18 (financial year 2017-18) but the fall in earnings could be 20% given the rise in costs due to remedial measures at the plant and also because there could be delay in sales as batches will be verified by consultants. However, the stock has corrected significantly and earnings risks have been factored in, so I believe the downside (in stock) is protected,” Surya Patra, analyst at PhillipCapital India, said.
Excluding the impact of the import alert on US sales, the company expects its revenue to grow around 10% in 2017-18, Divi said on the conference call.
He said company said has sent responses to US FDA regarding remedial measures at the unit and are awaiting the regulator’s direction for next course of action. Divi’s Lab has also hired third party consultants.