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On Sunday, Axis Capital (NYSE:AXS) Limited updated its assessment of Divi’s Laboratories Ltd (DIVI:IN), increasing the price target to INR 6,430.00, up from the previous INR 6,100.00. The firm has chosen to keep its Reduce (3) rating on the stock.
The adjustment follows a report of Divi’s Laboratories’ financial performance, with the analyst noting that the company’s fourth-quarter sales, EBITDA, and PAT grew by 12%, 21%, and 23% respectively. This growth resulted in revenue figures that aligned with projections and EBITDA and PAT that surpassed expectations by 6% and 10%. The company’s generics division led the growth with a 13% increase, followed by the custom synthesis (CS) segment at 12% and the nutrition segment (Nutra) at 9% year-over-year.
The EBITDA margin saw a significant rise by 250 basis points year-over-year, reaching 34.3%, primarily due to a 1% reduction in other operating expenses. Axis Capital’s analyst highlighted Divi’s Laboratories’ strategic investments in new generic filings and GLP-1 as indicators of potential long-term growth. The company’s move to secure long-term supply arrangements in the financial year 2025 was also seen as a positive development.
Despite the optimism around Divi’s Laboratories’ future capabilities, particularly in the GLP-1/peptide area, the analyst expressed a need for further details on how Divi’s Laboratories can enhance its position in the supply chain. The company’s forecasted 18% sales compound annual growth rate (CAGR) from the financial year 2025 to 2028 takes into account growth in both the custom synthesis division and new active pharmaceutical ingredients (APIs), with the latter anticipating 2026 patent expirations.
The report also touched upon potential challenges, such as the upcoming generic version of Entresto’s patent expiration. Nonetheless, the firm’s estimates remain unchanged. The new price target of INR 6,430 is based on rolling over to the June 2027 enterprise value/EBITDA estimate while maintaining a 35x EV/EBITDA multiple. Despite the positive aspects of Divi’s Laboratories’ growth and strategic positioning, Axis Capital maintains its Reduce rating due to what it considers a rich valuation of the stock.
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