Home / Markets / Stock Markets /  Multibagger pharma stock rises 400% in 5 years. Prabhudas Lilladher sees strong upside

Divi's Laboratories shares are one of the multibagger stocks delivered by the Indian stock market in last few years. Despite this pharma stock remaining under the sell-off heat for last one year, this multibagger stock has given around 400 per cent return to its shareholders in last 5 years. In this time, the stock has risen from around 700 to 3,460 apiece levels. However, this multibagger pharma stock has remained sideways for the last three months and Prabhudas Lilladher believes that the stock may go up to 4,140 levels in long term, delivering around 20 per cent return to its investors.

"Divi’s Laboratories (DIVI) registered healthy revenue growth however profitability was impacted due to higher COGS and overheads along with change in product mix. We believe efforts on backward integration, debottlenecking and utility upgradation will continue to yield better margins," the brokerage said.

On positives from the Q1FY23 results for the pharma stock, Prabhudas Lilladher report said, "Divi’s Q1FY23 sales increased 15% YoY (down 11% QoQ) to Rs22.5bn, largely in line with our estimates. This was aided by growth in custom synthesis (CS) (+22% YoY), though QoQ CS sales been down by 69% given reducing sales from Molnupiravir. During Q1FY23 EU and US contributed 74% of revenue. Product mix for generics and custom synthesis in Q1FY23 were at 47% and 53% of revenue, respectively. Nutraceutical business for the quarter was at 1.86bn with 35% YoY growth. Generic reported moderate growth of 4% YoY after four quarters of decline."

On key takeaways from the company's guidance after Q1FY23 results announcement, the brokerage report said, "Capacity expansion of key commercial API has been completed and qualification process is progressing well. New multi-purpose facility for custom synthesis is ready with additional capacity for projects under validation. Company continue to experience price increase in RM and solvent prices along with higher shipping and power cost."

The brokerage went on to add that the company is operating at 80-85% of capacity utilization and still large capacity is available for additional future demand. During Q1, 87 crore has been capitalized while 5.1bn has been under WIP. As of June2022, net cash stands at Rs34bn (6) Company has ability to pass on any raw material volatility with new contracts.

On its suggestion to positional investors in regard to this multibagger pharma stock, Prabhudas Lilladher report said, "We recommend our ‘Accumulate’ rating with revised TP of 4,140 per share." Divi's Lab share price today is around 3,460 that means that brokerage is expecting around 20 per cent upside as its long term target is now 4,140 per share.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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