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US ban on Divi’s Labs may dent profitability by up to 25%

Stocks of Hyderabad based drug firm Divi’s LaboratoriesBSE -1.17 %, once a darling of stock investors, were hammered after news that the US Food and Drug Administration (USFDA) had raised several questions regarding quality controls at the company’s Visakhapatnam unit that fetched nearly 70% of its revenues.
Shares of another Hyderabadbased drug firm, Dr Reddy’s, also fell steeply after details of the FDA’s inspection report of March 8 emerged indicating a repeat of 2015 action.

Divi’s LabBSE -1.17 % shares tanked nearly 20% to a 52-week low after the company said the US drug regulator has banned it from selling drugs to the US markets over quality issues.

The USFDA has sent an import alert to the company for its manufacturing unit located in Vishakhapatnam for violation of Good Manufacturing Practices (GMP).

The announcement comes three months after Divi’sBSE -1.17 % said it filed a “detailed response“ to the observations made by the USFDA in December. “Divi’s, along with third party consultants, is currently working to address the concerns of the USFDA and making all efforts to fully meet the compliance requirements,“ the company said in a statement to the exchanges. Divi’s did not respond to ET’s questions on specific issues raised by the USFDA.