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Record revenue; CS on a 10-quarter winning streak Superior execution underpins 18% earnings CAGR; premium multiple caps upside

* Divi’s Lab (DIVI) delivered a better-than-expected financial performance in 4QFY26, with a 6%, 3%, 5% beat on revenue, EBITDA, and PAT, respectively. DIVI recorded the highest-ever quarterly revenue in 4Q.

* The CS segment has seen steady sales in 4Q and has posted 10 quarters of robust YoY growth. Notably, FY26 is the second straight year of strong YoY growth, led by the scale-up of existing contracts and the addition of new contracts.

* While pricing pressure continues to persist in the API segment, DIVI has been driving business through higher volume throughput and gaining market share. It has also worked with its customers to introduce newer molecules in this segment, subject to regulatory approvals.

* DIVI delivered high-teens YoY growth in the nutraceuticals segment as well through capacity expansion and strengthening its position in this segment.

* We trim our earnings estimate for FY27/FY28, factoring in

1) increased opex related to logistics due to the geopolitical turmoil

2) a gradual off-take of certain contracts such as contrast media products. We value DIVI at 52x 12M forward earnings to arrive at our TP of INR6,765.

* DIVI remains focused on execution discipline, supply reliability, and longterm capacity addition. It is also deepening capabilities in continuous flow chemistry, biocatalysis, peptides, contrast media space, etc., to provide superior and consistent service to innovator customers. DIVI continues to work on cost efficiency in manufacturing API in the generics segment, driving better volume share, as well as expanding the product offerings. We model an 18% earnings CAGR over FY26-28.

* Considering 63x/53x FY27/FY28E P/E, the current valuation adequately factors in the earnings upside. Reiterate Neutral

Input cost inflation and pricing pressure drag margins

* DIVI’s revenue grew 9.5% YoY to INR28.3b (our est: INR26.8b) for 4QFY26.

* Gross margin contracted 160bp YoY to 60.5%.

* EBITDA margin contracted 130bp YoY to 33% (our est: 33.8%), mainly due to a contraction in gross margin.

* EBITDA grew 5.4% YoY to INR9.3b (our est: INR9.0b) for 4QFY26.

* Adjusted for INR900m in forex gains, PAT grew 4% YoY to INR6.8b (our est: INR6.5b).

* For FY26, DIVI’s revenue/EBITDA/PAT grew 13%/16%/14% YoY

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