Divis Labs bucks weak pharma shares trend; hits new high on strong Q1 hopes

In the past six months, the Divis Labs stock has outperformed the market by surging 18 per cent, as against 1.4 per cent fall in the BSE Healthcare index and 7 per cent rise in the BSE Sensex.

Divis Laboratories share price

 

Shares of Divis Laboratories hit a new high of ₹7,077.70, gaining 3 per cent on the BSE in Tuesday's intra-day trade on expectations of strong June quarter (Q1FY26) earnings. The stock price of the pharmaceutical company surpassed its previous high of ₹6,940.95 touched on July 4. 

 

At 01:41 PM; Divis Labs was trading 0.5 per cent higher at ₹6,918.50 on the BSE. In comparison, the BSE Healthcare index was down nearly 1 per cent and BSE Sensex was trading flat or up 0.05 per cent.

 

In the past six months, the stock has outperformed the market by surging 18 per cent, as against 1.4 per cent fall in healthcare index and 7 per cent rise in the Sensex.

 

 

Divis Labs - management commentary post Q4 results

 

Despite the complex global environment, the company’s integrated efforts across generics, custom synthesis (CS), peptides and emerging growth areas supported by resilient procurement and logistical strategies, placed the company in a strong position to capitalize on future opportunities and enhance competitiveness in global market, the management said in the Q4FY25 earnings call.

 

The company’s strong growth continues in the CS segment backed by a strong pipeline of customer inquiries and regular on-site interactions. The company signed a long-term supply agreement with a major global pharma player for the manufacture of an active API intermediate. Earlier CS contracts were also for API contracts. Both these contracts will start contributing from late CY26 or early CY27.

 

With production underway at Kakinada Phase I, margin improvements are anticipated starting FY26. The management guided growth capex of ₹1,400 crore in FY26 and remains confident about double-digit revenue growth. 

Divis Labs - Q1FY26 result preview/outlook

 

For the Contract Research, Development, and Manufacturing Organization (CRDMO) segments, analysts expect strong year-on-year (YoY) growth in 1QFY26.

 

Kotak Institutional Equities expects Divi's to report overall sales growth of 18 per cent year-on-year (YoY) in Q1FY26. The brokerage firm expects generic active pharmaceutical ingredient (APIs) to grow 13 per cent YoY in Q1FY26. It expects continued traction in CSM with 23 per cent YoY growth in Q1FY26. 

 

However, the brokerage firm expects Divi's gross margins to remain flat quarter-on-quarter at 62.0 per cent.  Overall Q1FY26 EBITDA expected to grow 33 per cent YoY to ₹ 830 crore, with EBITDA margins expanding 370 bps YoY to 33.1 per cent.

 

Divi’s generates ~$160mn revenue from Sacubitril/valsartan, which is likely to decrease in H2FY26E due to potential generic entries. However, analysts at Nuvama Institutional Equities think Divi’s is insulated from the impact of this product due to addition of new products from large clients in the CS business.

 

Generic API and nutraceutical businesses have grown in H2FY25 and the brokerage firm thinks both have potential for a growth surprise in FY26. Unit-III and two other capex programmes also position Divi’s well for incremental manufacturing opportunities, including in peptides/GLP-1s and contract media. Analysts think its oral GLP-1 intermediate capacity can generate $100–175 million revenue. The brokerage firm has a 'BUY' rating on the stock with a target price of ₹7,225 due to new opportunities from its capex programmes and GLP-1s.