Buy Divi's Laboratories; target of Rs 1080: Axis Direct
Axis Direct is bullish on Divi's Laboratories has recommended buy rating on the stock with a target price of Rs 1080 in its research report dated October 03, 2017.
October 09, 2017 / 05:37 PM IST
Axis Direct's research report on Divis Laboratories
We are positively surprised on fast remediation by Divi’s followed by quick USFDA re-inspection. Form 483 observations issued in Dec’16 on Unit 2 facility (under Import Alert) have been confirmed as completed and resolved (EIR awaited) after USFDA re-inspection. We believe this could be due to large dependence of innovator/generic companies for key drugs on Divi’s. However, Divi’s has received another form 483 with 6 new observations (largely procedural as per the management).
As some remediation activity is going on and with closure of Import Alert/EIR awaited, we expect earnings to start improving from end FY18/FY19. We increase FY19E EPS by 15%. With improved visibility on USFDA resolution, we raise multiple to its historical level (on strong chemistry skills/manufacturing excellence) upgrading Divi’s to BUY with a revised TP of Rs 1,080 (24x FY19E) vs. Rs 625 (16x FY19E) earlier.
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