Reduce Divis Laboratories; target of Rs 5400: Geojit Financial Services

Geojit Financial Services recommended reduce rating on Divis Laboratories with a target price of Rs 5400 in its research report dated September 10, 2025.

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September 10, 2025 / 14:26 IST

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Geojit Financial Services research report on Divis Laboratories

Divi’s Laboratories Ltd (Divi’s) manufactures and sells generic active pharmaceutical ingredients (APIs), intermediates and custom synthesis projects for innovators primarily in Europe and the US. Its manufacturing and research and development facilities are located in Andhra Pradesh and Telangana. The consolidated revenue of Divi’s increased 13.8% YoY to Rs. 2,410cr in Q1FY26 but exhibited a sequential decline of 7% primarily due to pricing pressures in the generic division. Though the company reported steady performance this quarter, led by growth in custom synthesis, the pricing pressure in the generics segment and higher logistics and shipping costs dragged down gross margins. EBITDA grew 17.2% YoY to Rs. 729cr and the margin increased 90bps. However, it sequentially declined 18% due to pricing pressures and logistics costs. The custom synthesis segment grew 23.1% YoY to Rs.1,277cr, supported by multiple projects across R&D, pilot, and validation stages. However, near-term challenges may arise from generic competition in Entresto.

Outlook

Divi’s also faces the risk of losing business related to sacubitril/valsartan (Entresto), adding to competitive pressures. The company is also trading at a premium valuation. Therefore, we downgrade our rating to Reduce on the stock with a target price of Rs. 5,400, based on 45x FY27E adj. EPS.

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