Divi’s Laboratories’ (Divi’s) Q2FY26 result was in line with our expectations on all fronts. Constant currency growth slowed down to ~10.8% vs. 15% QoQ and 18% in FY25. Q2 growth was largely led by robust traction in CS segment (+23% YoY), while generics grew at a slower pace of 8% YoY due to pricing pressure. Divi’s aspires to become one of the largest manufacturers of peptide products globally. Recently, it entered into three CS peptide projects; it is investing INR 7-8bn per project to set up a dedicated manufacturing unit. Supplies from these plants are expected to begin in 1 2 years. Talks with innovator for gadolinium contrast media products are in advanced stages and supplies may start soon. Downgrade to SELL on expensive valuation, with TP of INR 5,400, based on 40x FY27E earnings.
OutlookWe downgrade to SELL (earlier Reduce) with an unchanged TP of INR 5,400, based on 40x FY27E (unchanged) EPS of INR 135.
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