Divi’s Labs shares plunge around 9 per cent on back of weak operational performance – know what brokerages say

Pharmaceutical major Divi's Laboratories shares tumbled around 9 per cent to Rs 4,751 per share on the BSE intraday trade on Monday on the back of weak operational performance in the second quarter of the financial year 2021-22 (Q2FY21). 

In the July-September quarter of FY22, the company’s profit jumped by 17 per cent to Rs 606 crore as against Rs 520 crore in the same quarter in year-ago period. While the revenues also surged around 14 per cent to Rs 1,987 crore from Rs 1,749 crore in the year-ago quarter. 

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While, Divi’s Labs EBITDA (earnings before interest, tax, depreciation, and amortization) margin contracted by 180 basis points year-on-year (YoY) to 41.5 per cent in Q2FY22 amid higher other expenses/employee costs. 

The stock of the pharma company is trading over 7.5 per cent to Rs 4,813 per share on the BSE as compared to a 0.54 per cent rise in the BSE Sensex per cent at around 02:13 pm. The counter had touched a 52-week high of Rs 5,425 on October 18, 2021. 

Goldman Sachs on Divi’s Lab, maintained a Buy rating while mentioning that the second-quarter miss, the COVID oral anti-viral opportunity in focus. The generic API business drove miss as customers destocked inventory from the high base of last year. It sets a target of Rs 5840 per share. 

The global brokerage firm said margin came off but remained buoyant at 41 per cent and API miss was partially offset by CMO product opportunities announced in mid-FY21. 

Jefferies downgraded Divi’s Lab to Hold stance while pointing out that the Q2 revenue/EBITDA missed our estimates by 2/3 per cent but profit beat on lower taxes. It sets a target of Rs 5563 per share. And says, it could pose a risk to Divi’s Molnupiravir prospects.  

The brokerage said surging raw materials prices are likely to restrain margin profile and trades at an expensive valuation and do not see a major upside.