Reduce Divgi Torqtransfer Systems; target of Rs 408: Prabhudas Lilladher

Prabhudas Lilladher's research report on Divgi Torqtransfer Systems

Divgi Torqtransfer Systems (DIVGIITT) reported 7th consecutive quarter of degrowth in revenue, indicating persistent challenges across core and new business segments. Its Q3FY25 revenue declined by 16.5% YoY, against the anticipated de-growth of 8%/11% (PLe/BBGe). Gross profit declined by 5% YoY, but gross margin expanded by 776bps YoY to 62.7% (PLe: 50.8%). EBITDA declined by 33.3% YoY, while margin contracted by 407bps YoY to 16.4% (PLe: 18.5%; BBGe: 18.4%), impacted by sharp rise in staff and other expenses. Weak overall performance led its PAT to decline by 44.1% YoY. The company has outlined a strategy to expand its product portfolio as well as diversify its revenue streams through components and exports businesses. However, we believe increased competition for a key customer in the EV space and low 4W drive penetration shall continue to impact its growth. Downgrade to “REDUCE.”

Outlook

We cut our estimates by 5-25% over the forecast period to factor in the headwinds in the legacy transfer case business and slowdown in the EV business. Further, we downgrade our rating from “HOLD” to “REDUCE” with a TP of Rs408 (previous Rs637), valuing it at a P/E of 30x on its Dec’26 EPS.

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