Motilal Oswal has given Buy recommendation for Divi’s Lab recommended buy rating on the stock with a target price of Rs 4530 in its research with a target price of Rs. 4530 in its research report issued on Mar 24, 2021

Motilal Oswal’s research report on Divi’s Lab

Divi’s Labs (DIVI), in addition to having a robust base business, is enhancing its product offerings in the generic API space – at least sixteen molecules are under various phases of development and in the subsequent DMF filing stage. Particularly, we find DIVI’s work interesting in the Contrast Media segment. While there is complexity associated with Iodine-based products, DIVI’s strong chemistry skill set and experience in the Contrast Media space have enabled it to bring the Iohexol API to the validation phase. We believe DIVI is well-placed to capitalize on the carotenoid opportunity, with a 21% sales CAGR to INR8b expected over FY20–23. This would be driven by healthy demand, product offerings, integrated manufacturing, and the doubling of capacity.

Outlook

We continue to value DIVI at 36x 12M forward earnings to arrive at TP of INR4,530. We reiterate Buy, encouraged by promising demand prospects and multiple growth levers – a) new product additions, b) a strong chemistry skill set, c) efficient manufacturing capabilities, d) scale-led advantage in legacy molecules, e) minimal financial leverage, and f) sufficient cash available for new projects.

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