This Pharma Stock Will Continue To Create Wealth For Shareholders

Broking firm Geojit in a recent report believes that Divi's Lab has created massive wealth for shareholders and will continue to do so.
Divi's is a Supplier of generic APIs, also known as Active Pharmaceuticals Ingredients and a 'Custom Manufacturer' to Big Pharma and also is among the top API manufactures in the world.

"Many global pharma companies want to be assets light and prefer to outsource their product to companies which respect patent and supply APIs at a reasonable cost. It's estimated that the global custom synthesis market is about $100 billion and the generic API market is $74 billion.

We believe that Divi's will have ample opportunity to grow as market dynamics are in its favour, " Geojit has said in its latest report.

According to the broking firm, while other pharma companies faced US FDA regulatory issues, Divi's Lab has not faced that kind of regulatory issue, suggesting its high quality and standards. The company came out with excellent financial numbers for June 2020, where its sales moved up by 48 percent and Net profit by 81percent.

"The company's capex will start generating revenue in the current financial year and will also help in improving margins due to the backward integration project. Capex is going on stream at the time when many companies are reducing their reliance on China, creating a good business opportunity.

The capex of Rs 1650 crore was financed through internal accruals, and the company continue to remain net zero debt company," Geojit has stated. Divi's is also cash-rich with cash and cash equivalents of Rs 1540 crore as of June 2020 and the company enjoys a healthy ROCE of 26.06 percent.

The shares of Divi's Labs closed at Rs 3143 on the NSE and has doubled since Sept last year. The stock has hit a 52-week high of Rs 3349 on Sept 3 and has lost marginal ground since then.