Divi’s Labs pinched by rising costs, slowing generic sales

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Divi’s Laboratories shares plunged more than 8% to ??4,765 each on BSE in the first Monday trades after second quarter results. Pharmaceutical company Divi’s Laboratories on Saturday announced a 16.7% increase in consolidated net profit to ??606 crore for the quarter ended September 30.

Divi’s 2Q FY22 revenue / EBITDA missed Jefferies’ estimate by 2% / 3%, but PAT beat lower taxes. “The stock is trading at an expensive valuation, and we don’t see a major advantage for the stock from here. We are lowering our rating to Hold. Our price target goes from ??5,624 to ??5,563, “he said in a note.

According to Divi management commentary, Covid antiviral drug formulation opportunity is worth $ 70 billion, with Merck’s Molnupiravir being the prime candidate. But last week, Pfizer released an interim study that showed its candidate Paxlovid reduced hospitalizations and deaths from covid by 89%, which Jefferies said could pose a risk to Divi’s outlook on Molnupiravir.

In Jefferies’ view, Divi’s second quarter margin was strong thanks to the product line and anticipated inventory supply, but high and sustained prices of key raw materials will eventually impact the market. business. “We now see no argument in favor of improving the margin profile for Divi and at best we see the company maintaining the current trend in its margins,” the note added.

Another Ambit Capital brokerage has a sell rating on the stock with a target price of ??4,300. “Second quarter results indicate limited near-term earnings growth, although comments from management on the potential scale of the global Covid-19 antiviral drug market and the company’s ability to target opportunities beyond of molnupiravir imply that the company could continue to see above. normal growth in the medium term, ”indicates the brokerage note.

The opinions and recommendations expressed above are those of individual analysts or brokerage firms, not Mint.

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