Divi’s Labs Q4 Results Exceed Expectations, Leading to Price Target Upgrades

Divi’s Laboratories’ strong performance in the January-March quarter of FY24 has led brokerages to raise their price targets for the stock, reflecting the company’s impressive earnings. Many believe that Divi’s is set to return to growth after a period of slower earnings.

On May 27, Divi’s stock rose by 5% to a 52-week high of Rs 4,354.50 on the NSE, fueled by the strong Q4 results and positive brokerage comments.


Jefferies’ View:

Jefferies was particularly impressed with Divi’s custom synthesis business, which significantly boosted the company’s Q4 earnings. This success was attributed to favorable seasonal factors and two major commercial contracts. As a result, Jefferies raised its price target for Divi’s to Rs 4,500 but maintained a ‘hold’ rating, believing the current stock price already reflects the company’s growth potential.

Nuvama Institutional Equities’ Perspective:

Nuvama also raised its price target for Divi’s by 14% to Rs 3,660 but kept its ‘reduce’ rating. They agreed with Jefferies that the growth prospects for Divi’s are already priced into the stock.

Motilal Oswal Financial Services’ (MOFSL) Take:

MOFSL increased its price target to Rs 3,900 but retained a ‘neutral’ rating. They expect a 27% compound annual growth rate (CAGR) in earnings for Divi’s over FY24-26 but believe the current valuations already reflect this potential upside.

Positive Q4 Earnings and Management Optimism

Divi’s reported a 67% increase in consolidated net profit to Rs 538 crore for Q4 FY24, up from Rs 321 crore a year earlier. Revenue grew by 18% year-on-year to Rs 2,303 crore, surpassing estimates of Rs 443 crore in profit and Rs 2,125 crore in revenue.

The company’s EBITDA margin also improved, expanding by 650 basis points to 31.7%, thanks to a better product mix, higher gross margins, and lower employee costs.

Future Outlook

Divi’s management is optimistic about achieving double-digit growth in FY25, driven by the commissioning of the Kakinada plant in Q3 FY25, stable growth in the generics business, and the addition of new custom synthesis and contrast media molecules.

MOFSL also expects Divi’s to benefit from a better demand outlook in the CDMO segment, new technologies enhancing contract scope, and more product offerings in the generics segment.

The company plans to invest Rs 1,500 crore in capital expenditures for FY25.

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