Divi's Labs hits new high; soars 26% in three weeks on strong Q2 results

The stock hit a new high of Rs 1,574, up 3% on the BSE today.

Shares of Divi’s Laboratories hit a new high of Rs 1,574 per share, up 3% in intra-day trade on the BSE, extending their rally in the past three weeks, after the pharmaceutical company reported a healthy 92% year-on-year (Y-o-Y) jump in its net profit at Rs 3.98 billion in the September quarter (Q2FY19). It had a profit of Rs 2.07 billion in the year-ago quarter.

The company’s revenue from operations during the quarter grew 45% at Rs 12.85 billion against Rs 8.88 billion in the corresponding quarter of previous fiscal. Ebitda (earnings before interest, tax, depreciation and amortization) margin expanded around 890 bps Y-o-Y to 40% during the quarter. This is the highest margin recorded by the company in the last 18 quarters.

In the past three weeks, Divi’s Laboratories outperformed the market by surging 26%, as compared to a 6% rise in the S&P BSE Sensex.

Global index provider MSCI on Tuesday, November 13 announced effective November 30; Divi’s Laboratories will be added in the MSCI India index, a key benchmark for India-focused overseas funds.

“Besides currency tailwinds, the strong Q2 performance was attributable to higher capacity utilisation in the wake of Chinese supply constraints. To overcome the capacity constraints and prepare for growing opportunities arising due to China factor, the company has earmarked an aggressive capex of around Rs 15 billion (including maintenance capex), over and above Rs 10 billion spent in the last three years. The greenfield expansion at Kakinada is still some time away but this delay is unlikely to have material impact on the growth due de-bottlenecking at existing plants,” analysts at ICICI Securities said in result update.

The brokerage firm ascribes a 12-month target price of Rs 1,700 on the stock as it believes margins are also likely to get support from currency tailwinds and operating leverage.

At 12:29 PM; Divi’s Laboratories was trading 2% higher at Rs 1,562 on the BSE, as compared to 0.62% rise in the S&P BSE Sensex. A combined 1.18 million equity shares changed hands on the counter on the BSE and NSE so far.