Divi’s Lab shares have fallen 13 percent since the announcement of Q3FY23 results. (Image Source: Divislabs.com)
Divi’s Laboratories which reported its Q3FY23 results on February 3, saw its net profit decline 66 percent year-on-year (YoY) to Rs 307 crore. The active pharmaceutical ingredients (APIs) manufacturer reported consolidated revenues at Rs 1,708 crore falling 32 percent YoY.
On the operating front, EBITDA (earnings before interest, tax, depreciation and amortisation) tanked 63 percent YoY to Rs 408 crore for the December FY23 quarter, while EBITDA margin slipped to its lowest-ever at 23.9 percent, down 2,010 basis points.
Divi’s Lab shares have fallen 13 percent since the announcement of Q3FY23 results. Here’s what brokerages had to say about the stock and the company after the December quarter earnings:
ICICI Securities
Analyst at ICICI securities have downgraded Divi’s to a hold rating, cutting its price target to Rs 3,024 per share and remaining cautious on the near-term outlook given pricing pressures on APIs, contraction in margins and high base.
They expect margins to shrink and reach 34 percent by FY25E (from 43.3 percent in FY22) due to change in revenue mix, elevated costs and waning Covid-related revenues and expect RoE (return on equity) and RoCE (return on capital employed) to reach 16 percent in FY25E.
“The stock currently trades at valuations of 38.2x FY24E, 31.2x FY25E earnings and EV/EBITDA multiple of 25.8x FY24E and 21xFY25E. It has traded at premium valuations in the past and the same improved further on the back of: 1) strong growth seen in FY22, and 2) potential opportunity from shift of API/CRAMS manufacturing to India due to China disruptions. However, recent pressures on margins and muted growth outlook has led us to cut our multiple from 38x to 36x.” ICICI securities added in its report.
Brokerage house Morgan Stanley has also reduced its target price for Divi’s lab to Rs 2,766 per share giving it an underweight rating mentioning that the valuation appears expensive at 33.4x and 27.6x for FY24 and FY25 EPS estimate, respectively.
As per the brokerage, the core business, which saw margin erosion due to broad based price erosion in general business as well as due to input cost pressure, might take time recover.
The Brokerage firm also gave an underperform rating to Divi’s Lab cutting its target to Rs 2,550 per share and reducing its FY23-25 EPS target by 10-17 percent. They added that growth levers will kick in only from FY24, also attributing pricing pressure in generics and high input cost pressures leading to low margin.
On February 6, Divi’s Lab shares opened at Rs 2,797 per share on the NSE, trading 3 percent down at 10.39 a.m.
