Divis Labs shares surge 5% on Q3 beat; target prices, outlook & more

Shares of Divis Laboratories Ltd climbed 5 per cent in Tuesday's trade after the drugmaker's Q3 results beat the consensus on all fronts with revenue, Ebitda and profit after tax ahead by 3 per cent, 8 per cent and 18 per cent.

The revenue beat was led by a strong performance in the custom synthesis (CS) segment. While the generic pricing is still under pressure, the management believes the market is stabilising and a cyclical upturn may be expected in the forthcoming quarters.

Analysts are, however, mixed on the stock's prospects after 28 per cent surge in the past six months. On Tuesday, the stock gained 5.07 per cent to hit a high of Rs 6,188.

Systematix Institutional Equities said it maintained its forecasts on Divis Labs and expects a revenue growth of 14 per cent compounded annually over FY24-27, which accounts for the erosion in sales of their single largest commercial asset (part of CRAMS) from FY26 onwards.

"We retain our valuation multiple to 40 times on FY27E EPS and arrive at a price target of Rs 4,118. Retain sell rating owing to rich valuation," it said.

MOFSL said Divis Labs has been fortifying its growth drivers in CS through its focus on subsegments, such as peptides and contrast media. It is also adding newer molecules in the generics space. To support customers, it is also building capacities for their future needs. Further, the cash of Rs 3,600 crore provided enough cushion to drive up projects if required, it said.

That said, the brokerge feels that the current valuation provides limited upside from current levels. It suggested a 'Neutral' rating and a target of Rs 6,200 on the stock.

"Divis Labs indicated at ongoing efforts to add new products/clients, which we have been highlighting through our monthly data series. GLP-1 remains a growth opportunity while it also expects margin benefits in the mid-term due to backward integration at Kakinada. We think its new product additions, can substantially offset the Entresto generic impact," said Nuvama Institutional Equities.

The brokerage raised its FY26 estimates by 3–4 per cent, but kept its FY27 estimates unchanged. The brokerage retained its ‘BUY’ on the stock with an unchanged target price of Rs 6,830.