Shares of Divi's Labs surged 4.5 percent in the early trade on February 12 after the company reported an increase in its net profit and revenue for the third quarter along with an expansion in operating margins.
Net profit rose 17 percent year-on-year to Rs 358 crore against Rs 306 crore in the same period last fiscal.
Revenue also grew nearly 9 percent on-year to Rs 1,855 crore, up from Rs 1,708 crore in the year-ago period. The drugmaker's custom synthesis (CS) business has witnessed revival during the quarter, aided by two major contracts with innovator.
However, its active pharmaceutical ingredient (API) business continues to be impacted by reduced pricing, which was offset higher volume off-take, brokerage firm Motilal Oswal Financial Services said in a note.
At 10.25 am Divi's Labs was trading at Rs 3,725.70 on the NSE.
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The EBITDA margin also expanded to 26.4 percent against 24 percent in the base period.
MOFSL also said the drugmaker is progressing well with respect to the CDMO opportunity for GLP-1 products. "It is currently showcasing its capabilities to an innovator customer and also has capacity if required for this customer. Further, it is also working to add new molecules in API segment," the firm added.
Despite that, MOFSL said the current valuation adequately captures any upside potential and hence maintains its “neutral” call on the stock with a price target of Rs 3,440.
Nuvama Institutional Equities also acknowledges the promising opportunities (peptides, contrast media, custom synthesis projects, etc) and Kakinada expansion that could fuel Divi's future growth but also notes the uncertainty around it.
The firm also seconded MOFSL's view on valuations pricing in the upside potential and hence retained its “reduce” call. However, Nuvama raised its price target for the stock by 4 percent to Rs 3,200 to factor in the Q3 earnings.
Kotak Institutional Equities also said the risk of the pricing recovery in generic APIs being delayed, compared to its estimate of a revival in early FY25. On these elevated estimates, and rich valuations, Kotak maintained its “sell” call on the stock with a price target of Rs 3,025.
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