Shares of Divi’s Laboratories jumped on Monday following the pharma company's business update and positive comments from the major brokerages. Target prices have been raised by analysts on the stock as a result of growth in the custom synthesis business, a strong project pipeline and planned capacity expansion.
The scrip ended Monday's session at Rs 11,565.50 per share, up 4.22 per cent on BSE, after rising as much as 6.7 per cent to Rs 11,818 in intraday trade.
Brokerages raised their earnings estimates for the company for FY27-FY29 by 18-30 per cent, reflecting improved growth expectations. Hyderabad-headquartered Divi's Laboratories manufactures Active Pharmaceutical Ingredients (APIs), chemical intermediates and nutraceutical ingredients.
Custom synthesis business grows nearly 50% in H1
Divi’s Laboratories recorded nearly 50 per cent growth in its custom synthesis business in the first half of the financial year. That business accounted for approximately 62 per cent of the company's total sales for the period.
Exports accounted for nearly 90 per cent of the company's standalone sales and Europe and North America taken together made up around 75 per cent.
The company is also progressing with three major dedicated projects. One of these is close to commercialisation and the other two could be on the path to commercial production in the next 1-2 quarters.
Divi’s Laboratories has a pipeline of 60-70 projects at various stages of development which provides further scope for growth in the custom synthesis area.
Divi’s plans Rs 2,000 crore Capex over 2-3 years
The pharmaceuticals company is looking at a capital expenditure of around Rs 2,000 cr over the next 2-3 years to expand its manufacturing capacity in the areas of peptides, custom synthesis and flow chemistry.
As part of its expansion, Divi’s Labs is installing a number of new 3000 litre SPPS reactors to bolster its peptide manufacturing capability.
SPPS is the method of making peptides by building up the amino acid chain on a solid support.
The company is aiming to be one of the top three integrated players in the world in the peptides business.
The planned investments are expected to underpin capacity expansion and help the company meet the increasing demand across its core business units.
Brokerages raise target prices on Divi’s Laboratories
Following the business update and the more optimistic growth outlook, a number of brokers have held their positive views and increased their target prices.
Citi has maintained its 'Buy' rating on Divi’s Laboratories and increased its target price to Rs 15,100 from Rs 11,700.
Jefferies has maintained its 'Buy' rating and raised the target price to Rs 12,550 from Rs 10,200.
JP Morgan have kept their 'Overweight' rating and raised their target to Rs 12,500 (from Rs 9,100). Morgan Stanley have also held their 'Overweight' rating, increasing the target to Rs11,359 (from Rs 9,111).
The upward revisions are a reflection of stronger earnings expectations, underpinned by growth in custom synthesis, the ramp up of dedicated projects and investment in peptide manufacturing capacity.
Divi's Labs shares
At the current level, the Divi's stock has risen 82.3 per cent so far this year, outperforming a 4.2 per cent decline in the Nifty 50 and a 27.2 per cent rise in the Nifty Pharma.
