Add Divi's Laboratories Ltd For Target Rs. 12,650 by Choice Institutional Equities Ltd
Commercial Pipeline Continues to Support Strong Growth
DIVI continues to deliver a healthy growth, supported by large commercial projects, rising peptide order inflows, continued DMF filings and new generics launches. We project a revenue CAGR of 22.7% in FY26–FY29E, with EBITDA margin of ~36.5% in FY27E. Capital expenditure will remain elevated as DIVI expands capacity across peptides, KSMs and nutraceuticals, supporting mediumterm growth. Improving backward integration, a favourable product mix and operating leverage at Kakinada strengthen our earnings outlook. We raise our FY27E/FY28E earnings estimate by 15.6%/23.4%, respectively. Accordingly, we revise our target price to INR 12,650, retaining our ‘ADD’ rating.
Strong YoY and QoQ Growth across Metrics
* Revenue grew 35.4% YoY / 19.4% QoQ to INR 36,760 Mn (vs. CIE estimate of INR 33,525 Mn).
* EBITDA grew 76.4% YoY / 24.8% QoQ to INR 15,660 Mn; margin expanded 989 bps YoY / 185 bps QoQ to 42.6% (vs. CIE estimate of 38.0%).
* PAT increased 63.6% YoY / 24.8% QoQ to INR 11,270 Mn (vs. CIE estimate of INR 9,769 Mn).
Commercial Projects and Peptides to Drive Strong Growth Momentum DIVI continues to deliver a healthy revenue growth and margin expansion. We project this momentum to sustain in H2 and forecast a revenue CAGR of 22.7% in FY26–FY29E, driven by the following segments:
* Custom Synthesis: Three dedicated, projects of which one is close to commercialisation, while the other two are expected to advance over the next 1–2 quarters. Given the dedicated nature of these facilities, we project high utilisation once approvals are secured. The segment also has a pipeline of 60–70 projects across pre-chemistry to Phase II/III stages.
* Peptides: Several products are in validation or customer qualification stages. DIVI is installing additional 3,000-litre SPPS lines to support capacity expansion. The segment comprises innovator projects and contracts, providing visibility on the quality of its pipeline.
* Generics and Nutraceuticals: Healthy volume growth in generics is projected to offset pricing pressure. Nutraceuticals continues to benefit from sustained demand for preventive healthcare and wellness products.
Favourable Mix and Backward Integration Drive Margin Expansion
DIVI reported a sharp EBITDA margin expansion to 42.6% (from 32.7%) YoY, driven by a favourable business mix and improved backward integration. Synthesis now contributes ~61% of revenue and offers better economics than generics. Backward integration at Kakinada is also scaling up as planned. We anticipate these benefits, alongside higher order inflows from innovator-led peptide contracts, to support further margin expansion.
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