Hold Divi's Laboratories; target of Rs 3000: Prabhudas Lilladher

Prabhudas Lilladher's research report on Divi's Laboratories

Divi’s Laboratories (DIVI) Q1FY24 EBITDA was 12% below our estimate led by lower revenues (down 9% QoQ) across segments. Though GMs have improved and back to +61% vs 57% reported in H2FY23. Mgmt. suggested moderation of raw material prices and also commencement of some CDMO and contrast media contracts, will continue to aid revenues and margins. However, recovery will be gradual and near-term growth is likely to remain muted. Our FY24/FY25E EPS stands reduced by 3-8%. We expect 15% EBITDA CAGR and 12% PAT CAGR over FY23-25E.

Outlook

At CMP, stock is trading at expensive valuations of 41x FY25E EPS. Downgrade stock to ‘Reduce’ from ‘HOLD’ rating on the stock with revised TP of Rs3,000/share (Rs2,700 earlier), valuing at 35x (30x earlier) FY25E P/E. Any sharp recovery in margin is key risk to our call