Buy This Multibagger Pharma Stock For A Target Price Of Rs 4006, PAT Surges 26%

Leading brokerage firm Geojit Financial has given buy rating to the stock of Divi's Laboratories Ltd for a target price of Rs 4006 apiece with a potential gain of 15%.

Divi's Laboratories Ltd Stock Outlook

The current market price of the stock is Rs 3587 apiece with a 52-week high of Rs 5425 apiece and 52-week low of Rs 3365 apiece. The stock has given a return of 432% in the last 5 years and 121% return in 3 years.

According to Geojit Financial, if you buy the stock at its current market price, it has the potential to climb to Rs 4006 apiece and offer a likely return of 15%.

Divi's Laboratories Ltd Market Capitalization

The market capitalization of the company is Rs 95,227.56 crore at the time of writing the story.

Divi's Laboratories Result In Q1

Q1FY23 consolidated revenue went up 15.0% YoY (+9.0% on constant currency basis) to Rs. 2,255cr on account of growth in volumes. EBITDA margin contracted 380bps YoY to 41.5% on lower realisations and higher freight and input costs. PAT surged 26.0% YoY to Rs. 702cr. Company declared a dividend of Rs. 30 per equity share for the FY22. Divi's has expanded capacity to meet higher demand. Debottlenecking and backward integration also helped it achieve scale and de-risk its dependence on external supply.

Sturdy Revenue And Bottomline Performance

In Q1FY23, the company recorded a 15.0% YoY growth in consolidated revenue to Rs. 2,255cr, driven by higher volume, with exports accounting for 90% of total sales. Europe and America contributed a combined ~77% of total revenue. Nutraceutical business sales grew 34.8% YoY to Rs. 186cr. EBITDA grew by 5.3% YoY to Rs. 935cr, though EBITDA margin contracted 380bps YoY to 41.5%, driven by lower sales realisation and higher cost of production. PAT increased 26.0% YoY to Rs. 702cr on lower tax outgo, as two new SEZ-based facilities became operational.

Increased capex to support company's revenue potential

During FY22, the company expanded capacity rapidly for its existing pipeline products and for setting up new capacity for the emerging custom-synthesis projects. It plans to invest about Rs. 2,000-3,000cr over the next two to three years, with an option to further ramp it up to Rs. 4,000-5,000cr, if appropriate opportunities become available.

Valuation

According to Geojit Financial, "The company's outlook remains positive, with a strong product pipeline in place and ongoing capex spending aimed at portfolio expansion to cater to the rising demand and volume growth. It has managed to debottleneck and de-risk its dependence on external supply to a large extent, while managing to achieve economies of scale. In the near term, we expect margins to be impacted on account of higher freight rates and commodity prices. Having said that, we remain optimistic about the company's longterm financial performance and growth potential. We reiterate our BUY rating on the stock, with a lowered target price of Rs. 4,006 based on 38x FY24E Adj. EPS."

About Divi's Laboratories

Divi's Laboratories Limited manufactures and sells generic active pharmaceutical ingredients (APIs) and intermediates in the US, Asia, Europe and internationally. Its manufacturing, research and development facilities are located in Andhra Pradesh and Telangana in India.

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.