Divi’s Laboratories share price rises 5% post Q4 results, dividend announcement, to 52-week high: Buy, Sell or Hold ?

Stock Market today: Divi's Laboratories share price gained 5% in morning trades on Monday. The  company announced its Q4 results over the weekend.

With the gains the Divi's Laboratories share price also scaled 52-week high of ₹4359 on the NSE 

With today's gains Divi's Laboratories share price has risen almost 25% in the current financial year (FY25- till date).  

The stock is rebounding after volatility seen earlier. The concerns have remained elevated on Divi's laboratories over last one year on slowdown in Custom Synthesis business. Also some of Divi's patented products are going off patent, and further the importunities are rising in the smaller size molecules  however larger size molecules see lower opportunities, highlight analysts. Hence as rising competition adds to concerns, there could be other factors slowing earnings growth. A strong Q4 performance thereby lifted investor sentiments.

Also Read- Torrent Pharma share price jumps over 8% to touch 52-week high post robust Q4 results; is it the right time to invest?

Q4 earnings beat estimates

Divi's Laboratories reported net profit for the January-March'2024 quarter at ₹538 grew 68% year-on-year and 50% sequentially. 

Divi's Laboratories reported a strong operating performance with Earnings before Interest, Tax, Depreciation and Amortisation (Ebitda) at ₹731 crore rising 49.5% year-on-year and 48.6% sequentially.  This marks a strong beat. Analysts at Prabhudas Lilladher said that Divi’s Laboratories  Q4FY24 Ebitda was 18% above our estimate led by higher custom synthesis (CS) revenues (up 47% YoY) and better operating leverage.

The revenue from operations during the quarter at ₹2303 crore increased, 18.1% year-on-year and 24.1 % sequentially.

Earnings upgrades

 Most analysts have increased their earnings estimates for Divi's Laboratories after strong Q4 show-

Analysts at Motilal Oswal Financial Services have raised their earnings estimates by 3% each for FY25 and FY26 respectively, factoring in a better demand outlook in the CDMO (Contract Development and Manufacturing)  segment, the addition of new technologies, which will enhance the scope of contracts from the innovators, and a higher number of product offerings in the generics segment. 

Those at Prabhudas Lilladher also have raised FY25 and FY26 estimates earnings per share by 10%.

Those at Antique Stock Broking have  increased their FY25 and FY26 EPS estimates by ~10% and ~7% respectively factoring-in stronger operating leverage

Also Read- Cochin Shipyard shares climb 10% to touch new all-time high as net profit soars multifold in Q4

Caution Prevails-

Post strong Q4 performance while earnings upgrades may have have taken place, nevertheless many analysts feel the upside is priced in the stock prices.

Those at Motilal Oswal Financial Services while expect a 27% earnings CAGR (compound annual Growth rate) over FY24-26, they said that the valuations, however, adequately capture the earnings upside.\

Analysts at Jefferies India Pvt ltd also said that while Divi’s looks forward to recovery in both its businesses, coupled with key issues like a high base and one-offs behind it, they believe the stock already reflects these factors as it is trading at a Price to earnings valuations of 41 times FY26 EPS, in line with its one-year forward average P/E over a five-year period.

Analysts at Antique Stock Broking said that despite the near 5% improvement in revenue contribution from the CDMO segment, gross margin remained stable. They believe this is on account of pricing pressures seen in the CDMO market. This reaffirms their view that the current and future CDMO opportunities are largely going to be in the small molecule space, which is likely to reduce Divi’s revenue size and margins per project. Antique analysts foresee headwinds in the CDMO business on account of  the upcoming patent cliff and Small molecule opportunities which are likely to be low value/ project.

Also Read- Ashok Leyland share price gains as analysts maintain positive view after Q4 results. Should you buy the stock?

Dividend Announcement

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.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision