Divi's Laboratories Ltd fell nearly 5 percent to hit near 13-month low on Tuesday, despite a robust performance after analysts warned that the abnormal growth looks unsustainable as the pandemic eased globally.
The stock hit a low of Rs 3,676.85 a share on the BSE -- a level lase seen on 5 April 2021 and fell as much as 5 percent from its previous close. At 9.40am, the scrip was trading at Rs 3725 on BSE, down 4.42 percent from its previous close.
Divi's Lab net profit increased by 78 percent to Rs 895 crore in the March quarter against Rs 502 crore a year ago. Revenue from operations rose 40 percent to Rs 2,518 crore as against Rs 1,788 crore a year ago.
"We believe this abnormal growth was derived from Covid-led drugs (similar to last quarter) and is unsustainable going forward with the pandemic subsiding all over the world, except in China. We thus foresee lower growth on a higher base. On the margin front as well, the inflationary environment, coupled with a growth taper, would weigh on performance," BoB Capital said in a note to investors.
"Given the current high base, 85 percent capacity utilisation, delays at new plants as well as reduced margins and the absence of abnormal growth, we cut our FY23-FY24 EBITDA estimates by 9-15 percent and lower our target EV/EBITDA multiple from 27x to 26x (implied P/E multiple of 37x) – in line with five-year average multiple," the BoB Capital report said.
The brokerage firm has downgraded the stock to 'hold' from 'buy' and revised the target price to Rs 4,250 from Rs 5,250 a share earlier.
During the quarter, the custom synthesis business grew 60 percent QoQ, while generic APIs recorded a decline of 66 percent. EBITDA margin expanded by 380 basis points on-year to 43.9 percent due to lower other expenses/employee costs (-280bp/-180bp) as a percentage of sales.
"We lower our FY23/FY24 EPS estimate by 11 percent/14 percent, factoring in: (a) reduced sales of COVID-related products, considering the low number of cases globally, (b) a gradual uptick in growth in the generics segment, and (c) delay in implementation of Kakinada capex. We value DIVI at 33x 12-month forward earnings to arrive at our target price of Rs 4,480," Motilal Oswal Research said in a note to investors.
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