Neutral Divi’s Laboratories; target of Rs 3430: Motilal Oswal

Motilal Oswal's research report on Divi’s Laboratories

The operational performance of Divi’s Laboratories (DIVI) missed our estimates marginally in 1QFY24, due to lower sales in generics and custom synthesis. However, EBITDA margin expanded sequentially owing to lower raw material/logistics costs. We reduce our earnings estimates for FY24/FY25 by 3%/5% to account for a gradual off-take in custom synthesis/nutraceutical sales in the near term and extended benefits of cost management activities. We value DIVI at 35x 12M forward earnings to arrive at a TP of INR3,430. DIVI continued to add capacity for product development/manufacturing and strengthen its capability in the contrast media space as one of the key levers of growth over the next 3-5 years. Further, being a leader in the core generic portfolio with the lowest cost, DIVI is in a good stead to see better growth than the market in respective molecules. However, we maintain our Neutral rating as we believe the valuation adequately factors in the earnings upside over the next two years. It is trading at 15%/48% premium to its 5- year/10-year average PE multiple.

Outlook

We reduce our earnings estimate for FY24/FY25 by 3%/5%, factoring in a gradual off-take in custom synthesis/nutraceutical sales over the near term and extended benefits of cost management activities. We value DIVI at 35x 12M forward earnings to arrive at a TP of INR3,430.

For all recommendations report, click here