Broker’s call: Divi’s Lab (Buy)

| Updated on March 25, 2021

Motilal Oswal

Target: ₹4,530

CMP: ₹3,444.80

Divi’s Labs, in addition to having a robust base business, is enhancing its product offerings in the generic API space — at least sixteen molecules are under various phases of development and in the subsequent DMF filing stage.

Particularly, we find Divi’s work interesting in the Contrast Media segment. While there is complexity associated with Iodine-based products, Divi’s strong chemistry skill set and experience in the Contrast Media space have enabled it to bring the Iohexol API to the validation phase.

We believe the company is well-placed to capitalise on the carotenoid opportunity, with a 21 per cent sales CAGR to ₹800 crore expected over FY20-23. This would be driven by healthy demand, product offerings, integrated manufacturing, and the doubling of capacity.

We continue to value Divi’s at 36x 12-month forward earnings to arrive at target price of ₹4,530. We reiterate Buy, encouraged by promising demand prospects and multiple growth levers – a) new product additions, b) a strong chemistry skill set, c) efficient manufacturing capabilities, d) scale-led advantage in legacy molecules, e) minimal financial leverage, and f) sufficient cash available for new projects.

Published on March 25, 2021

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