Divi's Laboratories' better-than-expected performance for the January-March quarter of FY24 has prompted brokerages to raise their price targets for the stock, to factor in the strong earnings. Meanwhile, brokerages also anticipate the drugmaker to spring back to its growth path after delivering sluggish earnings in the last few years.
The drugmaker's strong Q4 results, combined with positive brokerage comments aided sentiment for the stock, lifting it 5 percent on May 27 to a 52-week high of Rs 4,354.50 on the NSE.
Brokerage firm Jefferies was impressed by the strong performance of Divi's custom synthesis business which provided a big push to the company's Q4 earnings growth. The brokerage attributed the robust show by the custom synthesis business to favourable seasonality and two commercial contracts.
Consequently, factoring in the better-than-expected earnings, Jefferies raised the price target on Divi's to Rs 4,500 but retained its 'hold' call on the stock. Even though the brokerage believes that Divi's is set to jump back to its growth path, it feels that the company's growth patch is already factored in the current stock valuation.
Nuvama Institutional Equities followed a similar trend as it raised its price target for Divi's by 14 percent to Rs 3,660 but held on to its 'reduce' call on the stock. Nuvama also seconded Jefferies' view as it also feels Divi's growth prospects are already factored in.
Additionally, Motilal Oswal Financial Services also revised its price target for Divi's upwards to Rs 3,900, but retained its 'neutral' call on the stock. Even though the firm expects a 27 percent earnings CAGR for the drugmaker over FY24-26, it also believes the valuations adequately capture the earnings upside.
Positive management commentary, better-than-expected Q4 earnings
Divi's delivered a 67 percent rise in its consolidated net profit to Rs 538 crore in the March quarter of FY24 from Rs 321 crore in the same period a year ago.
Revenue also grew 18 percent on year to Rs 2,303 crore. The company's net profit as well as revenue topped Moneycontrol's estimates of Rs 443 crore and Rs 2,125 crore, respectively.
In addition, EBITDA margin also expanded 650 basis points on year to 31.7 percent, surpassing the 30 percent mark after several quarters. The margin expansion was aided by improved product mix, higher gross margin and lower employee costs.
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Further, the management also remains optimistic of double-digit growth in FY25 on the back of the Kakinada commissioning slated for Q3 of FY25, stable growth in the generics business and potential addition of new custom synthesis and contrast media molecules.
MOFSL also expects Divi's to benefit from better demand outlook in the CDMO segment, the addition of new technologies, which will enhance the scope of contracts from the innovators, and a higher number of product offerings in the generics segment.
The drugmaker also rolled out its plans to invest Rs 1,500 crore towards capital expenditure for FY25.
Also Read | Divi’s Labs Q4 results: Net profit up 67% to Rs 538 crore
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