We reduce our FY24/FY25E EPS estimates by 7/6%. Divi’s Laboratories (DIVI) Q2FY24 EBITDA was 14% below our estimate led by lower margins. GMs declined on the back of pricing pressure, rise in input costs and inventory write off. Mgmt. suggested that moderation of raw material prices with 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. We expect 16% EBITDA CAGR and 14% PAT CAGR over FY23-26E. At CMP, stock is trading at expensive valuations of 44x FY25E EPS.
OutlookMaintain ‘Reduce’ rating with revised TP of Rs3,150/share (Rs3,000 earlier), valuing at 35x Sept 2025E P/E as we roll forward. Any sharp recovery in margin is key risk to our call.
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