Divi’s Laboratories score – Cut back: Development momentum was maintained


At 38X FY2023e P/E, valuations totally seize the superior development in APIs, whereas ignoring the dangers to the synthesis phase over the long-term. REDUCE

Divi’s continued its sturdy development momentum in Q4FY21 with revenues/Ebitda exceeding our estimates by 6%/2%. Generics and synthesis enterprise recorded 21%/22% y-o-y development with gross margin growth driving profitability. We imagine market share good points throughout current API portfolio and introduction of recent merchandise by way of capability additions will assist drive 17% EPS CAGR over FY2021-24e. At 38X FY2023e P/E, valuations totally seize the superior development in APIs, whereas ignoring the dangers to the synthesis phase over the long-term. REDUCE

In-line quarter; sturdy income development to cap off a powerful FY2021
Divi’s posted 29% y-o-y income development in Q4FY21. Generics phase grew 22% y-o-y led by continued traction in key molecules whereas customized synthesis witnessed 22% y-o-y development with business shipments of molnupiravir aiding development. Cartenoids segments recorded sharp 68% y-o-y development. Gross margins declined 150bps q-o-q to 67.5%. Regardless of a pointy soar in different bills sequentially, Ebitda was 2% forward of our estimates with Ebitda margins remaining wholesome at 40.1%. Divi’s incurred a capex of `91 bn and generated FCF of Rs 10 bn in FY2021.

Lengthy runway for development in API enterprise; molnupiravir to help synthesis development in close to time period
With continued capability addition, we imagine Divi’s is properly positioned to achieve share from rivals in current merchandise. With capability associated bottlenecks now addressed, Divi’s has additionally recognized a brand new set of merchandise with patent expiries from 2023-25, the place it’s aiming for market management. We count on sturdy market share good points and introduction of recent APIs to drive sturdy 16% gross sales CAGR in generics phase over FY2021-23e. Within the synthesis phase, we count on sturdy close to time period development.

Enhance FY2022-23E estimates by 5%
We enhance our FY2022-23e EPS estimates by 5% every to bake in greater molnupiravir gross sales by way of provides to Indian VL companions. Nonetheless, at 38X FY2023e P/E and 27X FY2023e Ebitda, the inventory totally captures sturdy medium time period development. Revise FV to `3,750 (from `3,300 earlier) primarily based on 35X FY2023e EPS.

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