Brokerages’ Take On Divi’s Labs After Q1 Results
Most analysts maintained their ‘buy’ ratings on Divi’s Laboratories Ltd., citing improving outlook for nutraceuticals and higher capacity, growth opportunities in carotenoids and custom synthesis; and backward integration.
That came after the bulk drugmaker reported an 11% sequential rise in net profit at Rs 557.1 crore in the quarter ended June.
Its revenue, too, increased 10% to Rs 1,960.6 crore.
Its Ebidta margin stood at 43.5% against 40.1% in the preceding three months, and the estimated 41.3%.
Shares of Divi’s Labs were trading 0.31% lower as of 3 p.m. compared with a 0.07% gain in the Nifty 50. Of the 20 analysts tracking the drugmaker, 15 have a ‘buy’ rating, three suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price targets implies an upside of 3.3%.
Here’s what brokerages have to say about Divi’s Labs’ Q1 FY22 performance:
Recommends ‘buy’ rating with a target price of Rs 5,750 apiece, implying a potential upside of 17%.
The backward integration efforts over the past two-three years have fructified at a time peers are facing issues in terms of raw material and logistics cost increases.
Well poised in terms of product development and manufacturing capacity to sustain superior return ratios over the next four-five years.
Higher business opportunities in the Sartans portfolio.
Enhanced growth prospects in the custom synthesis segment.
Continued cost reduction in production driving market share and profitability.
Improving outlook for nutraceuticals, supported by higher capacity.
Ramp-up in existing products and continued growth in legacy products, coupled with market leadership.
Cost leadership through process and technological improvements.
Management highlighted six growth engines over the next four-five years.
There are potential opportunities from the genericisation of products over FY23-25.
The management expects 10-15% year-on-year growth in revenue in FY22.
The company is fully backward integrated in the Molnupiravir API and plans to scale up two other custom synthesis projects.
Recommends ‘buy’, hikes target price from Rs 5,295 to Rs 5,624 apiece, implying a potential upside of 12.3% from Aug 9 opening.
The company has worked on backward integration and reduced China dependence over the past two years.
Nutraceuticals annual revenue is currently in the range of Rs 500-600 crore and the company has doubled the capacity recently. The segment expected to deliver 10-15% growth.
The Kakinada project for nutraceuticals is expected to drive growth beyond the six growth engines and litigation around the project is settled.
Outlay for this plant estimated at Rs 1,000 crore.
Total capex outlay at Rs 600 crore for both FY22 and FY23.
Recommends ‘hold’ with a target price of Rs 4,828 apiece implying a downside of 3.6%.
Performance broadly in line with estimates.
The growth was driven primarily by custom synthesis business with generics declining YoY due to general quarterly volatility.
Strong positioning of Divi’s will help in monetising the growth opportunity in API and contract research and manufacturing space (CRAMS) being one of the preferred suppliers.
Recently done capex of Rs 2,500 crore and planned capex of Rs 600 crore on Kakinada project reinforces the brokerage’s view on high growth visibility.
Management sounded very positive on growth outlook of API and CRAMS business opportunities and carotenoids.
It is working on few new contrast media projects.
Downgraded from ‘add’ considering recent rally in stock which has capped the upside.
Recommends ‘accumulate’ with a target price of Rs 5,400 apiece, implying an upside of 10%.
Raw material dependency lowered significantly due to backward integration process.
Earmarked capex of Rs 3,700 crore to generate 2x asset turn.
Divi’s is well positioned to gain share from competitors in existing products, particularly, given the ongoing shift from China.
Its asset base has doubled over last three years.
Risk of decline in tonnage requirements of new chemical entities in custom synthesis segment could bring down the addressable opportunity size.
Management said end-to-end integration coupled with better process technology are its key success levers.
Recommends ‘neutral’ with a target price of Rs 5,200 apiece, implying an upside of 6%.
Expects generic growth momentum to continue led by de-bottlenecking and timely capacity expansion.
Expects new molecules going off-patent in FY23-24 to complement growth.
Strong track record with innovators, faster capability and capacity expansion to aid custom synthesis opportunity.
Carotenoids to grow at 10-15% in FY 22 as per management guidance.
However, company cautions on cost front due to surge in logistic and input costs in the near term.
Margins surprised positively due to lower selling, general and administration expense.