Buy Divi’s Laboratories Ltd For the Target Rs. 6,983 by Choice Broking Ltd
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Beats Estimates on all fronts; expanding opportunities in the Custom Synthesis business
* Revenue grew by 25% YoY and de-grew by 0.8% QoQ to INR 23.2 Bn (vs. consensus estimates at INR 22.6 Bn), driven by a 44% YoY growth in the custom synthesis business.
* EBITDA grew by 51.9% YoY and 3.8% QoQ to INR 7.4 Bn (vs. consensus estimates at INR 6.9 Bn). Margin improved by 568bps YoY and 142bps QoQ to 32.0% (vs. consensus estimates at 30.6%).
* PAT increased by 64.5% YoY and 15.5% QoQ to INR 5.9 Bn (vs. consensus estimates at INR 5.0 Bn) with a PAT margin of 25.4%.
Custom Synthesis to Exceed 51% of Revenue in FY25, by Rise in (Request for Proposals) RFPs
Divi’s custom synthesis segment is witnessing strong momentum, with a 44% YoY growth driven by solid customer relationships, capacity expansions, and a rise in RFPs. As a high-margin business (+40%), it contributed ~40% to revenue in FY21 and its share is expected to exceed 51% in FY25, fueling overall growth and enhancing group-level margins. With active involvement across various product lifecycle stages, Divi’s is well-positioned for sustained expansion
Patent Expirations and Destocking to Boost Generics Growth
The generic portfolio, contributing 47% of total revenue, faced pricing pressure but achieved an 8.4% YoY growth. Patent expirations are expected to drive higher demand for generics, while post-COVID destocking nearing its end brings optimism for market stabilization and increased demand for key molecules.
Major Milestone for Kakinada Unit 3 as Operations Begin
The commissioning of the Kakinada Unit 3 facility marks a key milestone for expansion. This greenfield project spans approximately 500 acres, with Phase 1 covering 200 acres now operational. The facility enhances backward integration by producing starting materials and strengthening supply chain resilience. The remaining phases are progressing as planned and are expected to be operational within six months. The project will also provide much-needed capacity support for the nutraceutical segment, which has been facing constraints
View and Valuation:
We reiterate our ‘BUY’ rating with an unchanged target price of INR 6,983, valuing the stock at 53x FY27 EPS. The rich multiple reflects the company’s position as the largest CDMO player, the commissioning of the Kakinada facility which will boost production in all segments, and emerging high-margin CDMO opportunities like GLP-1 (Glucagon-like peptide 1). We anticipate double-digit growth in the CDMO segment, while generics will sustain their growth trajectory.
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SEBI Registration no.: INZ 000160131
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