Divi's Laboratories Share Price Rises 5% Post Q4 Results and Dividend Announcement

Divi's Laboratories' stock price surged by 5% in morning trades on Monday. The surge followed the company's announcement of its Q4 results over the weekend. The gains were driven by the pharmaceutical company's robust performance in the fourth quarter of fiscal year 2023-24 (Q4FY24). Divi's Labs' net profits witnessed a remarkable 67% increase, climbing to ₹538 crore in the January-March quarter of FY24, compared to ₹321 crore during the same period in the previous year.

Revenue for the quarter surged by 18% to ₹2,303 crore, up from ₹1,951 crore recorded in the same period the previous year. The company's earnings before interest, tax, and amortization (EBITDA) witnessed a significant increase, rising from ₹473 crore to ₹731 crore compared to the corresponding quarter last year. The EBITDA margin for the quarter exhibited a notable expansion, climbing from 25% to 31.7% year-over-year (YoY).

While impressed by the company's presentation and its FY25 outlook, many brokerages expressed concern about the stock's high valuation and potential for a decline in price.

Divi's is anticipating double-digit growth fueled by strong performance in emerging generic APIs, increased volumes, expansion in its CDMO business, and the launch of two new projects. However, Nuvama Research analysts believe that most of this anticipated growth is already reflected in the company's stock price. Despite this, Nuvama Research analysts are impressed with Divi's Q4FY24 results, noting that the company exceeded expectations due to improved traction in its custom synthesis (CS) business, resulting in a better product mix. The analysts forecast a 16% compound annual growth rate (CAGR) for revenue and a 26% CAGR for Ebitda over the period FY24–26E. “The stock is trading at a rich 43x FY26E EPS; retain ‘REDUCE’ with a revised TP of ₹3,660,” the brokerage said in a result update.

Kotak Institutional Equities analysts remain bullish, predicting a 23% CAGR in CSM sales over the next four years (FY2024-27E). This optimistic outlook is driven by anticipated growth from GLP-1, contrast media, and other projects.

Despite analysts' expectations of a pricing recovery in generic APIs in early FY2025E, they acknowledge the continued risk of a delayed recovery. “On these elevated estimates, valuations stay rich. Retain SELL with an FV of ₹3,250,” KIE said in a note.

Analysts at Motilal Oswal (MOSL) forecast a 27% compound annual growth rate (CAGR) in earnings for the next three fiscal years, ending FY26. Despite this positive earnings outlook, they maintain a 'Neutral' rating on the stock with a target price of ₹3,900, indicating that current valuations already reflect the anticipated earnings growth.

Analysts at Jefferies India Pvt Ltd acknowledge Divi's anticipated recovery in both its business segments. However, they point to a high base effect and one-off factors that may impact future performance. Despite this, they believe the stock's current valuation, with a price-to-earnings ratio of 41 times FY26 EPS, already reflects these potential headwinds. This valuation aligns with the stock's one-year forward average P/E over the past five years.

Divi's Laboratories stock is recovering after a period of volatility. Concerns about the company's performance have persisted for the past year, fueled by a slowdown in its Custom Synthesis business. Analysts point to several factors contributing to this. Some of Divi's patented products are losing their patent protection. The company faces rising competition in the smaller molecule market, while the larger molecule market offers fewer opportunities.The importunities in the smaller size molecules are increasing. These factors, combined with the rising competition, could impact Divi's earnings growth. However, a strong Q4 performance has boosted investor sentiment, leading to the stock's rebound

Divi's Laboratories also recommended a final dividend of ₹30 a share (i.e. 1,500%) per equity share of face value ₹2 each for the financial year 2023-24.