Divis Laboratories share price: Ashis Biswas of CapitalVia puts Target Price at Rs 3980

Divi’s Laboratories share price closed at Rs 3708, up Rs 9 or 0.25%. Divi’s Laboratories share price moved from Rs 3610 to Rs 3708 in one week. Ashis Biswas, Head of Technical Research at CapitalVia Global Research says that technically Divi’s Labs looks good for a target of Rs 3980. A triple bottom pattern in the daily chart followed by a breakout above Rs 3600 makes this stock attractive from a short to medium-term perspective. Cyclically Ashis observed healthcare and pharmaceutical stocks to bottom out and regain their upward momentum again. 

Ashis said that in addition to having a solid base in the industry, Divi's Labs is extending its product offerings in the generic API segment, developing 16 additional APIs to lead the next phase of growth and the subsequent DMF filing.  

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Ashis said that despite iodine-based drugs' complexity, Divi's Labs' good chemistry skills and experience in the Contrast Media room have enabled it to take the Iohexol API through the validation phase. Divi’s Labs has more than doubled its capacity and is poised to take advantage of carotenoids' growing market. Divi’s Labs is well poised to take advantage of the carotenoid opportunity, with a 21% revenue CAGR to Rs 8 bn forecast over FY20–23, attributes to solid demand, product offerings, and advanced manufacturing. During FY18–20, DIVI more than doubled its revenue in the Carotenoids industry to Rs 4.4 bn (8% of sales) and saw a 22 percent YoY rise in 9MFY21. With a CAGR of 4%, the global carotenoid market is worth 1.5 bn by 2026.  

Sharekhan says that Divis Laboratories is expected to benefit from strong growth likely in the global active pharmaceutical ingredients (API) space, driven by multiple factors. Increasing preference for biologics for disease management, key drugs going off patent, outsourcing opportunities and higher regulatory approvals would be key growth drivers for the API industry, which is expected to report a high single-digit CAGR over the next 6-7 years. In addition to this, there are immense opportunities that have emerged for API players such as Divis Laboratories, as pharma giants across the world look to tide over the pandemic. Supply reliability and quality are factors that have taken precedence over pricing, which pharma companies’ world over are looking for.

Sharekhan says that Divis Laboratories is planning to invest Rs 600 cr towards the Kakinada plant over the next 2-3 years, but the work is expected to commence post resolution of the issues with locals. Of the Rs 400 cr capex announced for the custom synthesis business, Divis Laboratories has commenced production at one stream and is on track to achieve completion for others. The fact that the company has lined up substantial investments towards capacity expansion points towards strong growth visibility.