This Bluechip Pharma Stock Plunges To 52-week Low, Should You Buy Now?

The shares of Divi's Laboratories has been plunging ever since the company declared its quarterly results, which belied expectations. Is it time to now buy the stock of Divi's Laboratories or simply hold or sell the stock. Let's take a look.

Net profits at Divi's falls, the shares follow

The net profit for the quarter ending Sept 31, 2022 amounted to Rs 494 crores as against a net profit of Rs 606 crores for the corresponding quarter of the last year. Interestingly, for the quarter, there was also a forex gain of Rs 31 crores as against a loss of Rs 7 crores during the corresponding quarter of last year.

For the half-year ended 30th September, 2022, the Company earned a consolidated total income of Rs 4278 crores as against a consolidated total income of Rs 3996 crores during the previous half-year. PAT for the current half-year came to Rs 1196 crores as against Rs 1164 crores for the previous half-year.

The stock takes a sharp fall

On the day of declaration of results, the shares fell almost 9% in trade and today, November 9, the shares are down another 3%. So, the cumulative loss on the stock of Divis Laboratories is 12% since the quarterly results or within a short span of two-days. The shares have also hit a 52-week high of Rs 5093 earlier, which means a substantial fall from those levels.

According to Motilal Oswal the company is working towards peptide chemistry and HiPo conjugate drug-related technology, which will drive opportunities over the next three-to-four years.

Should you buy the stock of Divi's Laboratories?

"Divi's delivered an earnings miss in Q2FY23. Reduced traction in CS, coupled with lower operating leverage, resulted in an earnings decline for the first time after 12 quarters of a strong performance," Motilal Oswal Financial Services said in result update. Analysts at ICICI Securities downgrade the stock from 'BUY' to 'HOLD' as the brokerage firm said it will keep tab on future custom synthesis ex-Covid opportunities and execution besides steady generics traction. At the moment there seems to be some more pain left in the stock. It would be interesting to see the management commentary going forward, but, at the moment triggers are very few.

"We cut our FY23/FY24 estimates by 18%, factoring in: a) a deceleration in the CS business and commercial benefit from certain newer projects on
completion of clinical trials (FY24 onwards), b) moderation in the API business, and c) delayed scale-up in the Nutraceuticals business, despite a
capacity expansion. We also lower our P/E multiple to 30x from 33x to factor in lower visibility on Kakinada capex, considering capex to be one of the leading growth indicators for DIVI. Accordingly, we arrive at our target price of Rs 3250, (from INR4,280 earlier)," Motilal Oswal has said.