Anand Rathi Sees Nearly 11% Upside In India's 2nd Largest Pharma Company

Brokerage Anand Rathi has a 'buy' recommendation on Divi's Laboratories Ltd. with a target price of Rs 4,095. "We remain positive on the stock given its strong market position, strength in API manufacturing, established long-term contract with customers and benefit from its capex programs," it said.

Shares of the company closed at Rs 3,688.90 on Tuesday on BSE. The price target upgrade from Anand Rathi points to an expectation of 10.6% upside from Tuesday's closing price.

The manufacturer of Active Pharmaceutical Ingredients (API), has seen a significant surge in its share price this year, that helped it beat drugmakers like Aurobindo Pharma, Dr Reddy's Laboratories Ltd and Cipla Ltd, to become the second-largest listed pharma company in India in August in terms of market cap.

Sun Pharma is currently the largest most pharma company, having a market cap of Rs 1.36 lakh crore (based on 8 December's closing price). As on Tuesday, Divi's Lab's market cap stood at Rs 97,928.70 crore.

Anand Rathi said that the growth prospects of Divi's look decent with favourable traits in the API industry due to supply chain readjustments/ diversification from China into other countries including India amid the COVID-19 pandemic. As global players are looking to reduce dependency on China and preferring India, companies like Divi's remain well placed to capitalize on such opportunity, it said.

As part of its CAPEX program, Divi's has completed debottlenecking/backward integration for intermediates to reduce dependency on supplies of raw materials from China and completed several utility expansion projects as well.

On 1 December 2020, the company announced the construction of Divi's Unit-III Facility (the Project) at Kona Forest, Andhra Pradesh from 7 December 2020. It will be investing about Rs 1,500 crore out of its internal accruals in a phased manner for the implementation of this facility. The company's management expects to commence operations within 12 to 18 months for the first phase of the Project.