1 day ago
Shares of Divi's Laboratories Ltd. are trading with gains of 4% on Tuesday, February 4 after the company reported its December quarter results during market hours on Monday. The stock had gained in response to its results as well.
Brokerage firm Elara Securities has a "sell" rating on Divi's Laboratories with a price target of ₹4,098, which implies a potential downside of 30% from current levels.
Divi's Laboratories reported a 25% revenue growth during the December quarter, while its bottomline grew by nearly 65% on a year-on-year basis. Margins also saw an expansion from the year-ago quarter.
Elara wrote in its note that revenue growth has been flat in the last four quarters but the current quarter growth was supported by a low base. "With higher revenue run-rate coming into the base, we expect growth rates to normalise, starting from Q4. Long-term revenue growth has been 13% in rupee terms and 9% in USD terms," Elara's note said.
Divi's margins, which fell from 35-38% between financial year 2012-2019 to 28% in financial year 2024 have improved to 31% for the first nine months of the current financial year. Elara believes that based on the management commentary, major margin expansion is unlikely from current levels.
While Elara does not see any visibility of any jump in margins, it is factoring in a margin figure of 33.3% for financial year 2026 and 35.2% in financial year 2027. "Despite that, valuation remains expensive," the brokerage said.
Although the financial year 2025 capex guidance is higher than the usual run-rate, Elara does not see that as an indicator of any major pick-up in growth.
"The valuations has built in narratives that are unlikely to materialise at the pace of investor expectations," Elara said, adding that the stock has run ahead of what the company can achieve in terms of growth in its existing business, along with the potential growth from GLP-1 agonists and the US Biosecure Act.
Even as Elara has raised its core Earnings per Share (EPS) estimates for Divi's by 5% to 6% for financial year 2025-2027, the stock trades at 65 times financial year 2026 core price-to-earnings. The potential downside of 30% is despite the brokerage raising its price target on Divi's to ₹4,098 from ₹3,890 earlier.
On the flip side, brokerage firm Citi has highlighted Divi's as its top pick with a "buy" rating and a price target of ₹6,850.
It said that the company remains upbeat on all segments and is working with multiple MNC customers and have a strong competitive position due to backward integration capabilities.
The management also said that it is targeting to grow in double digits on a conservative basis and that the pricing environment is stabilising in generics.
