Divi's Laboratories Faces Rs 164 Crore GST Demand, Plans To Appeal For Resolution

Hyderabad-based pharmaceutical giant, Divi's Laboratories Limited, is grappling with a Goods and Service Tax (GST) demand notice amounting to Rs 164 crore, coupled with interest and penalties. Despite the setback, the company remains optimistic, expressing confidence that the order will not inflict significant financial damage.

In an official statement released on Thursday, November 16, Divi's Laboratories revealed that the GST demand notice was issued by the Office of the Commissioner of Central Tax, Ranga Reddy GST Commissionerate, Hyderabad.

The demand notice primarily focuses on the recovery of the Integrated Goods and Service Tax (IGST) refund granted under Rule 96 of the Central Goods and Services Tax (CGST) Rules, 2017. Divi's Laboratories is accused of erroneously claiming the refund under the provisions of the GST Act, 2017. The demand specifies an IGST of Rs 82,04,24,880, accompanied by applicable interest and a penalty of Rs 82,04,24,880, representing 100% of the tax amount (IGST).

Undeterred by the challenge, Divi's Laboratories has promptly initiated legal proceedings. The pharmaceutical giant stated in a regulatory filing, "The company evaluated the merits of the case and decided to file the appeal with the Appellate Authority within the time limit prescribed under the GST Law."

While the GST notice looms over the company, Divi's Laboratories is quick to assure stakeholders that it does not anticipate any substantial financial repercussions. The pharmaceutical firm remains confident in its ability to navigate through the regulatory hurdle.

In the financial realm, Divi's Laboratories reported a net profit of Rs 348 crore during the July to September quarter. However, this represents a 29.5% decline compared to the same period last year. The company's revenue for the quarter stood at Rs 1,909 crore, indicating a 3% rise from the corresponding period in the previous fiscal year.

Despite meeting revenue expectations, Divi's Laboratories fell short of Street expectations in terms of operating profit (EBITDA) and EBITDA margin. Operating profit declined by 22.9% year-on-year to Rs 479 crore from Rs 621 crore last year. The EBITDA margin experienced a significant contraction, plummeting over 800 basis points to 25.1% from 33.5% in the previous year.

The company's financial performance during the quarter has generated varying estimates, with revenue growth projections ranging from a decline of 5% to a growth of 7.4% year-on-year. The stock was trading with gains of nearly 1% at Rs 3,562 per share as of 1:50 pm.