Divi’s Laboratories Stock Hits A Record High After Analysts Upgrades

Shares of Divi’s Laboratories Ltd. hit a record high after analysts upgraded their investment recommendations and earnings estimates for the drugmaker, citing better capacity utilisation and additional capex plans.

The Hyderabad-based company reported a 21% year-on-year rise in revenue at Rs 1,749.3 crore in the quarter ended September, according to an exchange filing. That compares with the Rs 1,658-crore consensus estimate of aflabnalysts tracked by Bloomberg.

Its net profit rose 45.6% over the year earlier. While Ebitda was up 51%, operating margin rose to 42.4% from 33.9%, owing to a fall in material and finance costs.

Shares ended at a record high, with gains of 5.75% at Rs 3,423. The stock was the top performer on the Nifty 50 index, gaining for the fifth straight day.

And while the brokerages highlighted the drugmaker’s expensive valuation, they still hiked their target prices. Of the 20 analysts that track Divi's Labs, 16 have a ‘buy’ rating and two recommend a ‘hold’ and a ‘sell’ each. The average of the 12-month Bloomberg consensus target prices implies an upside of 3.3%.

Here’s a look at what analysts had to say:

Jefferies

• Upgrades to ‘buy’ from ‘hold’; raises price target to Rs 3,772 from Rs 3,158 apiece
• Significantly increased FY22 visibility
• Further gains from earlier capex rounds will be gradual
• Margin effect from backward integration yet to fully play out
• Stock remains expensive but new custom synthesis capex adds to earnings visibility
• Upgrades FY21/22 EPS estimates by 14% each with potential for positive surprises on revenue and margin

Phillip Capital

• Upgrades to ‘buy’ from ‘neutral’; hikes price target to Rs 4,000 from Rs 2,750 apiece
• New capacity expansion provides multi-year growth visibility
• Kakinada site to boost operating efficiency of existing U.S. FDA approved sites
• New capacity additions eliminate concerns of capacity constraints over the medium-term
• Proven track record of strong execution capabilities
• Raises FY21/22 EPS estimates by 7% each

BoB CAPS

• Upgrades to ‘add’ from ‘reduce’; hikes price target to Rs 3,520 from Rs 2,850 apiece
• Strong sales and multi-year high margins
• Flawless execution drives Q2 beat
• Valuation premium can sustain on big pharma outsourcing gaining momentum and strong cost edge
• Raises FY21, FY22, FY23 EPS estimates by 9%, 4% and 3%, respectively

Motilal Oswal

• Maintains ‘buy’ rating; raises price target to Rs 3,900 from Rs 3,520
• Additional fast-track capex lined up to cater to medium-term growth
• Meaningful benefit is yet to accrue from the major capex phase
• Raises FY21/22 earnings estimate by 9.5% and 11.9%
• Factoring in an improved business outlook for the nutraceuticals segment, better capacity utilisation of recently commercialised manufacturing units.
• Expects 34% earnings CAGR over FY20-23