Divi's Lab surges 15%, hits fresh 52-week high on robust Q1 earnings

Motilal Oswal has upgraded the stock to buy with the target price of Rs 3,350
Shares of Divi's Laboratories on Monday zoomed 15 per cent to a fresh 52-week high of Rs 3,201.85 on the BSE after reporting 80.61 per cent year-on-year (YoY) rise in consolidated net profit for the June quarter of 2020-21 (Q1FY21). 

The drug firm reported a net profit of Rs 492.06 crore for the quarter on account of robust sales. In comparison, the company had logged a profit of Rs 272.44 crore in the year-ago same period, Divi's Laboratories said in a filing to BSE.

Total income stood at Rs 1,747.80 crore during the quarter under review as against Rs 1,193.20 crore in April-June 2019-20, it added.

Earnings before interest, tax, depreciation, and ammortisation (Ebitda) margins expanded 716 bps YoY to 40.5 per cent due to significantly better overall operational performance. Subsequently, Ebitda grew 80.8 per cent YoY to Rs 700 crore.

"The company has been able to have near normal operations during the quarter and there was minimal impact due to COVID-19 pandemic," Divi's Laboratories said.

At 10:11 AM, the stock was trading 11.63 per cent at Rs 3,108.05 on the BSE. A combined 17 lakh shares have already changed hands on the counter on the NSE and BSE combined.

Motilal Oswal upgraded the stock to buy with the target price of Rs 3,350 "on account of promising demand prospects and multiple levers in place for Divi's Lab".

"Divi’s Lab delivered all-time high sales/EBITDA/PAT for the quarter. Overall performance was led by volumes and did not include any business opportunity related to COVID-19 treatment. The major capex program would be completed in FY21, and the commercial benefit would start accruing in FY22. This would further enhance the earnings trajectory going forward," the brokerage said.

"We raise our EPS estimate by 16%/13% for FY21/FY22E to factor favorable demand for DIVI’s APIs, margin enhancement owing to an increase in the in-house manufacturing of intermediates, and additional revenue from new capex," it said.

Emkay also upgraded the stock to 'BUY' with the 12-month target price of 3,500. 

"Growth was broad-based and led by volumes, with close to 50 per cent growth in Generics/CCS businesses. Margins rose 850 bps qoq, aided by operating leverage. Q1 growth is lumpy and may not be representative of the full-year growth. Nonetheless, we believe that the API sector has strong structural tailwinds as most global companies look to reduce their dependence on China and DIVI is the best positioned to benefit from this," it said.

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