DIVI delivered a better-than-expected performance in 4QFY23, driven by improved traction in the generic API segment. The Custom Synthesis (CS) business also reported a slow uptick in sales. We raise our earnings estimates for FY24/FY25 by 7%/6% to factor in 1) a scale-up in commercial contracts in the CS segment, 2) a reduction in the availability of high-cost raw materials, and 3) improvement in operating leverage.
OutlookWe value divi at 30x 12M forward earnings to arrive at a TP of INR2,900. While the outlook is improving across segments of CS and generic APIs on the back of new launches and sharp focus on cost minimization, the current valuation adequately factors in the earnings upside. Hence, we maintain our Neutral rating on the stock.
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