Target: ₹3,890
CMP: ₹5,893.80
Divi’s Laboratories -Q2FY24 revenue came in better than our estimates but EBITDA margin was lower. As a result, revenue was 8 per cent ahead of our estimates and EBITDA 6 per cent. Management commentary suggests revenue growth at 22.5 per cent yoy came in more from the custom synthesis part of the business as pricing pressures continue on the generics side. DIVI business inherently has seen fluctuations; we do not see over 20 per cent as a sustainable rate of growth; low base will likely help reported growth numbers for one more quarter in Q3; we expect a significantly lower growth rate starting from Q4FY25.
We continue to believe the narrative around the BioSecure Act has overheated the stock. We raise our core EPS estimates by 2-3 per cent during for FY25-27. The stock trades at 70.6x FY26E core P/E. We repeat Sell and raise our target price from ₹3,288 to ₹3,890 based on 37x (from 39x FY26) FY27 core P/E plus cash per share as we roll over to FY27.
Any large product opportunity in custom synthesis is a key upside risk to our call and estimates.