Motilal Oswal has given Buy recommendation for Divi’s Laboratories recommended buy rating on the stock with a target price of Rs 4850 in its researc with a target price of Rs. 4850 in its research report issued on May 30, 2021

Motilal Oswal’s research report on Divi’s Laboratories

DIVI delivered in line 4QFY21 earnings. It ended FY21 on a strong note, with 29%/57%/54% YoY growth in sales/EBITDA/PAT. New product development, ongoing capex, and strong prospects in Custom Synthesis (CS) provides confidence that the momentum in earnings growth will sustain over the next 2-3 years. We have raised our FY22E/FY23E EPS estimate by 4% each to reflect: a) scale-up in CS projects, b) enhanced capacity for APIs in the Generics segment, and c) better profitability on account of backward integration. We continue to value DIVI at 36x 12-month forward earnings to arrive at our TP of INR4,850. We remain positive on DIVI on the back of: a) sustained volume growth in base molecules, b) superior performance in niche categories of CS and Nutraceuticals, c) ability to work on complex Iodine based chemistry, and d) sufficient cash available to take up new projects. Reiterate BUY.

Outlook

We continue to value DIVI at 36x 12-month forward earnings to arrive at our TP of INR4,850. We reiterate our BUY rating supported by promising demand prospects and multiple growth levers: a) growth in existing molecules, b) new product additions, c) manufacturing efficiency, d) strong and established relationships with big Pharma companies in the CS segment and enhanced demand prospects in Nutraceuticals, and e) scale led cost advantages.

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