Divi's Laboratories Ltd. share price target

Corporate earnings in Q2FY21 came in better-than-expected wherein companies benefitted from low raw material cost and realised operating leverage benefits with management commentary positive on pace of demand recovery and retaining some part of operating leverage gains in the post Covid world. At the index level, excluding the BFSI space; net sales fell ~10% YoY, primarily driven by double digit topline decline in the oil & gas space. On the profitability front, EBITDA margins at the index level came in at a multi-quarter high at 18.9%, up...

Divi's Lab (DIVI) reported a strong beat on 2QFY21 earnings. This was led by healthy traction in Generics / Custom Synthesis (CS), coupled with lower raw material cost and better operating leverage. Interestingly, meaningful benefit is yet to accrue from the major capex phase. DIVI indicated an...

Divi's Labs (DIVI) retained its strong execution in Q2, reporting an 18% EBITDA beat.

Divis Laboratories Limited (Divis) reported impressive numbers for yet another quarter with results ahead of estimates. A double digit growth in the API as well as custom Synthesis business drove the topline growth, while backward integration benefits and gross margin expansion drove the growth in operating margins, leading to a sturdy double digit earnings growth. Consolidated sales for the quarter stood at Rs. 1,749 crore, is up 21% y-o-y, due to 26% growth in API and 18% growth in custom synthesis business. OPM at 43.3% expanded sturdily by 933 bps y-o-y because of rise in gross margins and benefits of backward integration. Consequently, reported PAT at Rs. 519.6 crore was up 45.6% y-o-y and was ahead of estimates....

We value DIVI at 35x prospects for generic APIs, (b) its strong relationship with innovators, which is improving the scope of business in CRAMS (Contract Research And Manufacturing Services), and (c) capex support to meet the future requirements of customers. Accordingly, we arrive at TP of INR3,350 on a as we believe DIVI to be well-placed to benefit from renewed API as well as opportunity in CRAMS, supported by strong chemistry skill sets, manufacturing capacity/capabilities, and minimal The overall outlook for API manufacturers has improved on account of lower supplies from Chinese companies. We raise our EPS estimate by 16%/13% for FY21/FY22E to factor favorable demand for DIVIs APIs, margin enhancement owing to an increase in the in- house manufacturing of intermediates, and additional revenue from new capex. We expect a 33% earnings CAGR over FY2022E, led by increased business prospects from Custom Synthesis and Generics as well as ~600bp margin We value DIVI at 35x 12M forward earnings to arrive at TP of INR3,350.

Strong execution in Q1 drove a sharp 39% EBITDA beat for Divi's Labs (DIVI).

Outlook and Valuation: We downgrade our revenue estimates for FY21E by 5.9% to Rs. 60.3 bn dueto downgrade in Customs Synthesis and Generics business due to no revenueguidance provided by the management.

Outlook and Valuation: We downgrade our revenue estimates for FY21E by 5.9% to Rs. 60.3 bn due to downgrade in Customs Synthesis and Generics business due to no revenue guidance provided by the management.