Buy Divi’s Laboratories; target of Rs 5750: Motilal Oswal

Motilal Oswal is bullish on Divi’s Laboratories recommended buy rating on the stock with a target price of Rs 5750 in its research report dated August 08, 2021.

An Edelweiss research report for Q4FY21 says road tonnage continued to improve, evident in e-way bill generation (up 6% QoQ) and improved core trucking rentals. “We estimate tonnage would increase by three–five percent for truckers. Asset-light plays Mahindra Logistics and TCI Express remain our preferred picks due to their ability to scale up/down as the environment demands,” the report said. Edelweiss is bullish on Blue Dart Express due to the pandemic-induced boom in e-commerce and its leaner cost structure. It has retained a ‘buy’ call on Mahindra Logistics, TCI Express and Blue Dart Express.

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Motilal Oswal’s research report on Divi’s Laboratories

Divi’s Labs (DIVI) delivered in-line 1QFY22 earnings, led by strong off-take in the Custom Synthesis (CS) segment. The backward integration efforts over the past 2-3 years have fructified at a time when peers are facing issues in terms of raw material and logistics cost increases. In fact, this has led to better profitability for the quarter. DIVI remains well poised in terms of both product development and manufacturing capacity to sustain superior return ratios over the next 4-5 years. We raise our EPS estimate by 5%/4% for FY22/FY23 factoring in a) operational efficiency, b) higher business opportunities in the Sartans portfolio, and c) enhanced growth prospects in the CS segment.

Outlook

We continue to value DIVI at 36x 12M forward earnings to arrive at Target Price of INR5,750. We remain positive on DIVI on the back of a) its strong chemistry skill sets driving opportunities in the CS/Generics segment and b) continued cost reduction in production driving market share and profitability. Reiterate Buy.

For all recommendations report, click here

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