Divi’s Laboratories share price tag has more than doubled in 2020 so far, generating it the very best performing Nifty 50 stock of 2020. Since the starting of this year, the stock has jumped from Rs 1,818 per share to Rs 3,822 apiece, a 110% jump in a year that has noticed the benchmark index acquire 12%. Even soon after such a huge jump, Divi’s Laboratories is not displaying indicators of slowing down now. On Thursday, the stock jumped 3.4% to trade at a 52-week higher of Rs 3,847 per share with the market place capitalization of the firm breaching the Rs 1 lakh crore mark.
Massive API chance
“Divi’s Laboratories is one of the largest generic API manufacturers globally and has a successful track record of executing custom synthesis business for innovator customers,” mentioned brokerage firm ICICI Securities in a note. The brokerage added that Divi’s Labs’ sturdy position will assist the firm monetise the development chance that lies ahead in API and CRAMS space. The development chance in the API space comes from the shift in worldwide provide chain exactly where India could advantage as suppliers appear at other alternatives apart from China.
The pharmaceutical firm could acquire market place share with a shift in manufacturing to India, according to ICICI Securities. Divi’s has a sturdy track record of meeting consumer satisfaction levels in terms of timely order provide, preserving top quality requirements and zero rejection. It also boasts a fairly clean regulatory track record with final inspection at each Unit-I and UnitII concluding with zero 483 observations .
Capex to help development
“Divis is in the midst of a massive capacity expansion plan. In addition to the earlier capex plan of Rs 1800 crore, it shall be investing Rs 400 crore in the custom synthesis business,” mentioned brokerage firm Sharekhan in a note earlier this month. Analysts at Sharekhan also see immense possibilities that have emerged for API players in India, and count on it to advantage from a structural shift in worldwide provide chains. This has led the enterprise to expand its capacity, which is anticipated to be completed by this fiscal year and would start off contributing to the topline by the subsequent monetary year. “We expect API sales to report a strong 28% CAGR over FY2020 to FY2023,” Sharekhan mentioned.
Premium valuations, but justified?
Holding a diverse view on the stock, analysts at Kotak Securities say that the stock completely captures the generics development, ignoring the emerging headwinds to the greater valued synthesis small business. “Even as Divi’s has an industry-leading API business that can further scale given its capacity expansion, as well as emerging opportunities from dislocations in global supply chains, we expect synthesis to moderate over the medium term, given global industry shifts,” they mentioned. Kotak Securities has a ‘Reduce’ rating on the stock with fair worth of Rs 3,000 primarily based on 32X Dec 2022 EPS, a ~50% premium to frontline peers.
Valuations may possibly be at a premium but analysts at ICICI securities obtain them to be justified. “We believe premium valuation of the stock is justified and will continue due to its strong execution track record, high growth visibility and superior return ratios,” they mentioned even though adding that they count on Divi’s Laboratories to register earnings CAGR of 25.7% more than FY20-FY23E driven by income CAGR of 20.8% and 670bps EBITDA margin improvement. ICICI Securities has an ‘Add’ rating on the stock with a target price tag of Rs 3,960 per share. Analysts at Sharekhan have ‘Buy’ rating with a target price tag of Rs 4,175 apiece.