Divi's Labs set for continued growth, valuation may cap upside: Analysts

Shares of Divis's Laboratories scaled up to 3.4 per cent at Rs 6145.60 per share on the BSE after beating street estimates in its second quarter earnings for the financial year 2024-25 (Q2FY25).

 

Analysts said that their estimates were beaten by Divis's across revenue, profit and  earnings before interest, tax, depreciation and amortisation. The growth was largely driven by custom synthesis (CS) business, which grew 56 per cent year-on-year (Y-o-Y), further led by drugs such as  Sacubitril/Valsartan, Iopamidol, and a new addition—Bromo Tosylate. The company’s nutraceuticals segment grew 11 per cent Y-o-Y while Generics continued to face pricing pressure, noted analysts at Nuvama Institutional Equities. 

 

The brokerage highlighted that there are several growth opportunities for the company going ahead including the growing CS business, contrast media business, GLP-1 leverage in FY26, and opportunities due to the Biosecure Act, Kakinada project, etc.

 

“Overall, we believe Divis's is optimally placed to capture these opportunities. We are raising the target enterprise value (EV) to Ebitda to 37 times (from 35 times) and rolling over the valuation to FY27 estimates; retain ‘Buy’ with an increased target of Rs 6,830,” said Shrikant Akolkar, Aashita Jain, and Gaurav Lakhotia of Nuvama in a report. 

 

Others at Motilal Oswal, also agreed on the bright prospects of Divis's Labs, as the firm's Capex programs that include the construction of Kakinada manufacturing unit remain on track and will cater to future requirements of the CS and generics segments. 

 

Apart from aiming to increase its offerings GLP-1 category and working on Gadoliniumbased contrast media products for additional growth, the company is also recalibrating its supply chain management to minimise delay in the availability of materials due to ongoing geopolitical tensions, analysts said. 

 

Accordingly, Motilal Oswal has kept its earnings estimates unchanged between FY25-27, building in 17 per cent, 22.6 per cent and 24.9 per cent growth in revenue, Ebitda and PAT, respectively. 

 

“We value Divis's at 50 times 12 month forward earnings to arrive at a target of Rs 5,630. While the outlook is promising, the valuation at 60 times FY26 estimates and 49 times FY27 estimates earning per share (EPS) largely factors in the earnings upside. Maintain ‘Neutral’,” analysts at Motilal Oswal stated. 

 

Financial print

Divi's Laboratories reported a 46.5 per cent rise in net profit for Q2FY25, reaching Rs 510 crore, up from Rs 348 crore in Q2FY24. Revenue for the quarter stood at Rs 2,338 crore, a 22.5 per cent Y-o-Y increase. Ebitda grew 49.5 per cent Y-o-Y to Rs 716 crore, with margins improving by 500 basis points Y-o-Y to 30.6 per cent.  For the half-year ending September 30, total income reached Rs 4,640 crore, up from Rs 3,854 crore last year, while PAT rose to Rs 940 crore from Rs 704 crore. The company also reported a forex gain of Rs 28 crore, up from Rs 14 crore last year.

At 9:43 AM; the stock of the company  pared all its gains and slipped in red, down 1.05 per cent at Rs 5,875.80 per share. By comparison, the BSE Sensex was down by 0.13 per cent at 79,383.57.