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EBITDA miss; Peptide opportunities key for growth

Divi’s Laboratories (DIVI) Q4FY26 EBITDA missed our estimates due to lower gross margin. Revenues were largely aided by CS segment and currency tailwind. Mgmt indicated inventory levels may increase further in Q1FY27E to ensure uninterrupted operations. We expect stable margins in FY27 and expect revenue to accelerate from FY28 as commencement of some CDMO and contrast media contracts along with peptide revenue scale up. Our FY27E/FY28E EPS estimates stand cut by 2-4%. We expect 19% EBITDA and PAT CAGR over FY26-28E. At CMP, stock is trading at 52x FY28E EPS. We Maintain our ‘Accumulate’ rating with revised TP of INR 6,900/share.

In line revenues aided by CS segment:

DIVI’s Q4FY26 revenues came in at INR 28.3bn (up 10% YoY); in line with our estimates. Generic revenues came at INR 10.6bn; flat YoY while Custom synthesis (CS) grew by 16% YoY at INR 15.3bn. In Q4FY26 overall exports stood at 89% and exports to EU and US stood at 74% of revenue. Product mix for generics and CS in Q4FY26 were at 46% and 54% of revenue. Nutraceutical business for Q4 was INR 2.4bn, up 17% YoY.

EBITDA below est; Weak GMs:

GM lower at 60.4%; down 158 bps YoY and 342bps QoQ below our estimates. Employee expenses grew by 9% YoY whereas other expenses were up 8% YoY. EBITDA stood at INR 9.3bn up 5% YoY vs our estimate of INR 10bn. OPM stood at 33%, down 128bps YoY and 119bps QoQ. There was a forex gain of INR 900mn. Tax rate was at 22%. Adj for forex PAT came in at INR 6.8bn; up 4% YoY; vs our estimate of INR 7.1bn.

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