Buy Divi's Laboratories, target price Rs 4205: ICICI Direct

ICICI Direct has given a buy rating to Divi's Laboratories with a target price of Rs 4205. The share price moved up by 2.32 per cent from its previous close of Rs 3469.35. The stock’s last traded price is Rs 3550.
Divi's Laboratories Ltd., incorporated in the year 1990, is a Large Cap company (having a market cap of Rs 95871.32 Crore) operating in Pharmaceuticals sector.

Financials
For the quarter ended 30-09-2020, the company reported a Consolidated sales of Rs 1749.30 Crore, up 1.09 % from last quarter Sales of Rs 1730.47 Crore and up 21.01 % from last year same quarter Sales of Rs 1445.57 Crore Company reported net profit after tax of Rs 519.59 Crore in latest quarter.

Investment Rationale
Divi's Q2 revenues grew 21.0% YoY to Rs 1749 crore. In Q2, generic segment grew 25.9% YoY, custom synthesis grew 18.1% YoY while carotenoids grew 9.9% YoY. EBITDA margins rose 843 bps YoY to 42.4% due to significantly better gross margin performance, lower other expenditure. Hence, EBITDA grew 51.1% YoY while PAT grew 45.6% YoY in Q2FY21. More than a strong performance, important narrative for Divi’s is unprecedented capex to further augment capacity besides preparing for growing opportunities arising from China plus one factor. It has earmarked an aggressive capex of ~Rs 2800 crore, over and above ~Rs 2000 crore spent in last five years. Impact of this massive investment is already visible and is expected to reflect in FY21-22. Divi’s stays a quintessential play on the Indian API/CRAMs segment with its product offerings and execution prowess. It maintains BUY with TP of Rs 4205 based on 38x FY23E EPS of Rs 110.6.

Promoter/FII Holdings
Promoters held 52 per cent stake in the company as of June 30, 2020, while FIIs held 18.2 per cent, DIIs 15.6 per cent and public and others 14.2 per cent.