Reduce Divi`s Laboratories Ltd For Target Rs. 5,400 By Geojit Financial Services Ltd
Uncertain Short-Term Outlook Amid High Valuations...
Divi’s Laboratories Ltd (Divi’s) manufactures and sells generic active pharmaceutical ingredients (APIs), intermediates and custom synthesis projects for innovators primarily in Europe and the US. Its manufacturing and research and development facilities are located in Andhra Pradesh and Telangana.
* The consolidated revenue of Divi’s increased 13.8% YoY to Rs. 2,410cr in Q1FY26 but exhibited a sequential decline of 7% primarily due to pricing pressures in the generic division.
* Though the company reported steady performance this quarter, led by growth in custom synthesis, the pricing pressure in the generics segment and higher logistics and shipping costs dragged down gross margins.
* EBITDA grew 17.2% YoY to Rs. 729cr and the margin increased 90bps. However, it sequentially declined 18% due to pricing pressures and logistics costs.
* The custom synthesis segment grew 23.1% YoY to Rs.1,277cr, supported by multiple projects across R&D, pilot, and validation stages. However, near-term challenges may arise from generic competition in Entresto.
Outlook & Valuation
The company’s outlook remains positive due to growth drivers such as increased traction from global innovators, a healthy pipeline of RFPs, expansion of scientific and technological capabilities, and steady growth in the nutraceutical business. Management highlighted persistent pricing pressures in generics and higher cost escalation compared to custom synthesis, weighing on margins. Regulatory delays of 12-24 months for peptides, contrast media, and Kakinada approvals restricted near term revenue conversion. Divi’s also faces the risk of losing business related to sacubitril/valsartan (Entresto), adding to competitive pressures. The company is also trading at a premium valuation. Therefore, we downgrade our rating to Reduce on the stock with a target price of Rs. 5,400, based on 45x FY27E adj. EPS.
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SEBI Registration Number: INH200000345
