Prabhudas Lilladher's research report on Divi's Laboratories
Divi’s Laboratories (DIVI) reported weak performance in FY23 given high COVID base and higher COGS, resulting in weakest ever margins (OPM of 25% in H2FY23 vs +33-35% in preceding quarters). Before FY21/22, DIVI’s GMs were between 61-63% range vs 57% reported in H2, suggesting that H2 may be an aberration. Mgmt. suggested moderation of raw material prices and also commencement of some CDMO and contrast media contracts, which should aid revenues and margins, in our view.
Outlook
However, recovery will be gradual and near-term growth is likely to remain muted. We expect 17% EBITDA CAGR and 13% PAT CAGR over FY23-25E. At CMP, stock is trading at expensive valuations of 35x FY25E EPS. Retain ‘HOLD’ rating on the stock with TP of Rs2,700/share, valuing at 30x FY25E P/E.
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