IGI Logo

Divis Laboratories is the leading manufacturer of APIs (Active pharmaceuticals ingredients), Intermediates and Registered starting materials offering high quality products with the highest level of compliance and integrity. Divi’s quality control testing and validation labs are fitted with state-of-the-art analytical equipment and testing facilities. The company is one of the selected nutraceutical ingredients manufacturers that offer a complete range of carotenoids at a very competitive offering for food, feed and dietary supplements all over the world.

Investment Rationale

* Leader in India for API Formulations: Divis Laboratories Ltd is India’s market leader in API formulations. The company has multiple Drug Master files (DMF’s) in various regulated markets. The contract media API is in qualification stages with customers. Two are specifically for innovators/leaders in this space. There are two types of contrast media. One is for CT scans and the second is for MRIs, where the company has just entered and is a much bigger market. The company plans to focus on newer APIs worth USD20 bn, which is expected to go off patent in FY2023-FY2025

* Custom synthesis business is expected to grow post in FY24 & FY25: Company promoters are optimistic on the custom synthesis business now because of multiple Ph-III projects with big pharma companies progressing for commercial supplies in 4-6 quarters along with steady progress in its early-stage normal developmental supplies. Moreover, Divis expects healthy contribution from Big Pharma for two contrast media projects in the near future.

* Gradual Improvement in margins is Expected: Divis Lab’s operating margins remained impacted in H1FY23 on account of elevated raw material price, stiff freight cost and air cost, management expects gradual improvement in operating margins towards previous levels on account of lower prices of key materials.

* Outlook and Valuations: We estimate a 08% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 25.2 for FY 25E earnings. We value it with a earnings multiple of 30x to FY25 earnings estimate which results per share value of Rs 4155. We recommend BUY on DIVISLAB at CMP of Rs. 3497 with Target price of Rs. 4155 (19%).

Observation

* On the monthly charts, the DIVISLAB has taken a strong support at 3200 – 3150 range and bounce back.

* The stock is sustaining above its 5 week high.

* The stock has given a breakout of Double Bottom price pattern with volume confirmation indicating positive undertone of the stock.

* The RSI plotted on the weekly and the daily time frame can be seen placed above the 45 mark and forming higher high higher low formation indicating expanding bullish momentum in the prices.

* One can accumulate the stock at current level and also average it at lower levels around 3200 levels.

* Going ahead we can expect the prices to move higher towards 4000 followed by 4450.

* The stop loss for the setup would be 2950.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://geplcapital.com/term-disclaimer

SEBI Registration number is INH000000081.

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer