Neutral Divis Labs; target of Rs 2620: Motilal Oswal

Motilal Oswal's research report on Divis Labs

The cost pressures are easing across major factors, indicating improved profitability going forward. The outlook for contrast media segment remains encouraging, given DIVI’s capability to have better Iodine recovery and limited investment by formulators to manufacture API. The green-field capital expenditure at Kakinada would not only cater to the company’s growth requirements from FY25 onwards, but also, would reduce the concentration of DIVI business at Hyderabad/Vizag. While the improvement in outlook is encouraging, the valuations remain high, considering the flat earnings growth in FY24 (43x FY24E earnings/33x FY25E earnings). We have a Neutral rating on the stock.

Outlook

We value DIVI at 30x 12M forward earnings to arrive at a price target of INR2,620. We have a Neutral rating on the stock.