Shares of Divi's Laboratories surged 5.7 per cent on Tuesday after the pharma company delivered robust results in Q3FY25, surprising the Street on its margins and net profit performance.
The gains were driven by an improved product mix and a lower tax rate due to the company’s transition to the new tax regime.
The drugmaker's net profit rose an impressive 65 per cent on year to Rs 589 crore in the December quarter.
The stock, however, gave up some of the gains to end the session 3.45 per cent higher at Rs 6,092 apiece.
While most brokerages remained optimistic about the company’s growth trajectory, some raised concerns over valuation and the stock’s potential upside.
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The Q3 growth was led by its custom synthesis (CS) business that grew for the eighth quarter in a row, up 42 per cent year-on-year, and contributing 53 per cent to the revenues, followed by generics business which grew 7 per cent year-on-year (Y-o-Y).
Nutraceuticals saw a growth of 10 per cent Y-o-Y and accounted for 7 per cent of sales.
“The company indicated ongoing efforts to add new products/clients, which we have been highlighting through our monthly data series. GLP-1 (hormone to control blood sugar levels) remains a growth opportunity while it also expects margin benefits in the mid-term due to backward integration at Kakinada. We think its new product additions (including GLP-1 components), can substantially offset the Entresto (heart medication) generic impact,” analysts at Nuvama Institutional Equities noted in a report.
The GLP-1 remains an opportunity in FY26, the quantum for which cannot be estimated at this time, analysts at Nuvama added. Overall, they anticipate better product mix in CS, improvement in active pharmaceutical ingredient or API prices and revival of nutraceuticals leading to 33–35 per cent margins in coming years.
The brokerage upgraded its FY26 estimates by 3–4 per cent and retained FY27 estimates, giving a ‘buy’ call on Divi’s with a target price of Rs 6,830.
Meanwhile, analysts at Motilal Oswal Research, were cautious and highlighted Divi’s valuations providing limited upside from current levels. The brokerage retained its ‘neutral’ call with a target of Rs 6,200, valuing it at 50 times its twelve months’ forward earnings.
The brokerage, however, is positive on the business prospects and expects sustained growth of CS business and its sub-segments, such as peptides and contrast media, estimating a 25 per cent annual earnings growth over FY 25-27.
Improved capacity utilisation at Kakinada and healthy traction across key segments will be the pillar of this growth, while the company adding newer molecules in the generics space and building capacities for their future needs will also aid the cause, they said.
Analysts at Kotak Institutional Equities, also cited valuations as expensive at 55 times its FY26 earning per share and retained ‘sell’ with a target of Rs 4,550.
International brokerages such as Goldman Sachs maintained a ‘neutral’ rating with Rs 5,925 target, citing an 8 per cent earnings upgrade for FY 25-28, market share gains, and benefits from generics going off-patent (2026-2029).
Jefferies retained a ‘hold’ at Rs 6,280, noting strong custom synthesis growth and a better product mix but flagged pricing pressure in generics and the need to diversify beyond Sacubitril Valsartan by FY27, according to reports.