Divi's Laboratories Ltd. reported better than expected earnings for fourth quarter of fiscal 2024, as its custom synthesis business revived, and company maintained margin in its active pharmaceutical ingredients segment, brokerages said.
Custom synthesis is the process of synthesizing chemical compounds on a scale, with purity as per customers' request.
Divi's Laboratories Q4 FY24 Results Highlights (Consolidated, YoY)
Revenue rose 18% to Rs 2,303 crore. (Bloomberg estimates: Rs 2,095.69 crore)
Ebitda rose 50% to Rs 731 crore. (Bloomberg estimates: Rs 607.46 crore)
Margin expanded 670 basis points to 31.7%. (Bloomberg estimates: 29%)
Net profit rose 68% to Rs 538 crore. (Bloomberg estimates: Rs 449.75 crore)
Divi's Laboratories' topline grew 18% on annual basis during the period under review, against the 16% growth BofA penned for the period. The pharmaceutical giant also maintained stable volumes and customers despite the higher pricing environment, the brokerage said in a note.
Gross margin remained flattish despite better than expected growth in its custom synthesis business, which reflected continuous price pressure in the API segment, according to BofA.
Two fast-track projects and contrast media API launches will drive growth in its custom synthesis business, Bofa said. The company has indicated that innovators have raised more inquiries at various stages.
Improvements in sales drove growth for the quarter, according to Motilal Oswal Financial Services Ltd. It has raised earnings estimates for FY25 and FY26 by 3% due to a better demand outlook in the API segment, the addition of new technologies, and a higher number of product offerings in the generic segment.
The addition of new technologies will assist Divi's Laboratories in securing contracts from innovators, Motilal Oswal said.
The pharmaceutical giant is making "great strides" on both the custom synthesis business and API segment. In addition, Divi's Labs has been improving its offering in the API segment, according to the brokerage.
Here is what brokerages had to say.
BofA
BofA kept a 'buy' rating on the stock, with a target price at Rs 4,515 per share, which implied 9.5% upside from Friday's closing price.
Divi's Laboratories' fourth quarter result has beat estimates in terms of revenue.
Custom synthesis business and API segment led growth in revenue. Its revenue rose 18% on year, compared to the brokerage's estimate of 16%.
Ebitda margin also rose which reflected the pharma giant's operating profitability.
Divi's Labs has reported no loss of existing customers and stable volume despite concerns about aggressive pricing.
BofA assumes FY25-26 margins of 30.5%/34.5%, compared to 28% in FY24 factoring the higher costs post Kakinada commissioning.
The brokerage adjusted earnings per share by 3-6%.
Motilal Oswal
The brokerage reiterated a 'neutral' rating, with a target price Rs 3,900 which implied a downside of 5% from Friday's close.
The company has delivered a strong beat on earnings in the fourth quarter.
Revival in the custom synthesis business.
Motilal Oswal has raised earnings estimates by 3% each for FY25/FY26.
Better demand, addition of new technologies and higher number of product offerings in the generics segment.
Values it at 40 times 12M forward earnings.
Shares of Divi's Laboratories Ltd. rose 5.74%, the highest level since May 23, before paring gains to trade 4.18% higher at 1:03 p.m. This compares to a 0.49% advance in the Nifty 50.
The stock rose 23.56% in 12 months, and 10.14% year-to-date. Total traded volume so far in the day stood at 9.1 times its 30-day average. The relative strength index was at 77.17.
Of the 26 analysts tracking the company, eight maintain a 'buy' rating, five recommend a 'hold' and 13 suggest 'sell', according to Bloomberg data. The average 12-month analysts' price target implies a downside of 11.35%.
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