Net profit beat estimate by 14% driven by a robust sales beat of 20%. Sales too were well ahead of estimates on the back of higher contribution of gDiovan, which Divis is supplying to Ranbaxy during the six-month exclusivity in the US market. EBITDA margin at 36.8% was 330 bps lower than our estimate, which implies that gDiovan margins are low for Divi's.
Given higher supplies of Valsartan (gDiovan) in Q2, generic share is higher at 54% while custom synthesis is at 46%. Post Q3, gDiovan should be immaterial, in our view. The company attributes the lower margin in the quarter to this higher generic mix. Divis continues to maintain 20% sales growth guidance for FY15 with margins close to the H1 level of 37%. At 20% sales growth, implied sales growth for H2 is just 8%. We believe while this guidance is conservative, margin should continue to remain depressed as certain costs such as power are expected to increase.