Shares of Divis Laboratories fell 2.41 to Rs 4870 per share on the BSE in Monday’s intraday deals. This came despite the company delivering a 21 percent year-on-year (YoY) rise in net profit for the first quarter of financial year 2024-24 (Q1FY25).
Divis Labs on Saturday reported a 21 per cent YoY increase in net profit to Rs 430 crore for Q1 FY25 from Rs 356 crore in the same quarter last year.
Revenue from operations rose 19 per cent to Rs 2,118 crore, up from Rs 1,778 crore. Further earnings before interest tax, depreciation and amortisation (Ebitda) also grew by 23 per cent to Rs 622 crore, with a Ebitda margin of 29.4 per cent, up from 28.3 per cent last year.
According to analysts, the pharma giant’s Q1 show was a mixed bag with revenue beating consensus estimates, whereas the bottomline and Ebitda missed the consensus estimates.
Analysts at Nuvama Institutional Equities attributed the estimate miss to the ongoing pricing headwinds in API segment and muted Nutraceutical sales. The company recorded a flat growth in its nutraceuticals business in Q1FY25 on a year-on-year basis.
Meanwhile, Divis’ custom synthesis (CS) business continued to grow in double digits for the third straight quarter, contributing 49 per cent to sales and growing 46 per cent YoY growth.
This was driven by sales of Sacubitril and valsartan combination drugs, indicated for treating chronic heart failure in adults. Further, the generics business grew 4 per cent YoY showing its first reversal of growth trajectory against a flat growth in FY24.
Nuvama said that the company has multi-year levers growth opportunities including the capex-led growth from the company’s API manufacturing unit at Kakinada; opportunity in FY27 due to the Rs 7 billion project for undisclosed client; sustained sales of Sacubitril and Valsartan combination drug beyond FY26; opportunity in contrast media and GLP1 fragments; and generic manufacturing opportunity.
“Considering this, we reckon FY24–27E earnings growth shall be strong at 31 per cent compound annual growth rate (CAGR). We are revising FY25 and FY26 EPS by 3 per cent and 6 per cent, respectively and upgrading the stock to ‘Buy’ from ‘Reduce’ with target price of Rs 5,740 (earlier Rs 3,660),” Shrikant Akolkar, Aashita Jain, Gaurav Lakhotia of Nuvama wrote in a report.
Moreover, those at Motilal Oswal maintained their ‘Neutral’ stance on the counter as they said that the company’s valuation adequately factors in the earnings upside at stock’s current market price.
Though, the brokerage was optimistic on the company’s growth outlook, as improvements are seen in peptide, contrast media and other niche segments within the CS business.
Further, they said that Divi’s consistent service at lab-scale and availability of manufacturing capability give impetus to innovator customers to have the company as a reliable supplier.
The US Biosecure Act further provides a boost to Indian contract development and manufacturing organisation (CMDO) companies, including Divi’s, analysts at Motilal Oswal noted. Valuing Divi’s Labs at 42 times its 12 months forward earnings, the brokerage gave a target price of Rs 4,680.
That said, analysts concurred that the company’s API business outlook remains muted due to ongoing price erosion and given the large inventory base at the industry level.
Global brokerage firm Jefferies maintained a ‘Hold’ on the company at target price at Rs 4830 per share.
However, not all are optimistic about the Divi’s near term prospects, as analysts at Kotak Institutional Equities retained their ‘Sell’ rating for the company with a raised target price of Rs 3,600 per share than earlier 3,250, due to higher traction in CS business.
“Although Divi’s remains positive about prospects across generic APIs and CSM over FY2025-27E, we believe there is still scope for disappointments on topline as well as margins. We lowered Divi’s FY2025-27E EPS by 1-3 per cent, on account of lower generics sales,” Alankar Garude, Samitinjoy Basak, and Aniket Singh of Kotak said in a report.
At 10:06 AM; the share price of the company was down 2.19 per cent at Rs 4,880.90 per share on the BSE. By comparison, the BSE Sensex was down 1.78 per cent to 79,537 levels.
First Published: Aug 05 2024 | 10:47 AM IST
