| Recommended Price | Rs 6073 |
|---|---|
| Target Price | Rs. 7066 |
| Stop Loss | Rs 5627 |
| Upside | 16.3% |
| Time Period | 12 Months |
Table of Contents
Divis Laboratories, established in 1990, started by developing cost-effective processes for Active Pharmaceutical Ingredients (APIs) and later expanded to custom synthesis and manufacturing for innovative pharma companies. It is a global leader in producing APIs, intermediates, and nutraceuticals, serving over 100 countries and partnering with 12 of the world’s top 20 pharmaceutical companies.
Divis manufactures a diverse range of APIs used in cardiovascular, anti-inflammatory, anti-cancer, and central nervous system drugs. It is the world’s largest producer of 10 out of 30 APIs in its portfolio. The company also produces high-quality carotenoids, lutein, and vitamins for use in food, beverages, dietary supplements, pet food, and animal feed.
Headquartered in Hyderabad, India, Divis operates two advanced manufacturing facilities inspected by global health authorities like USFDA and EU GMP. A third facility is under construction in Kakinada to expand operations further.
Key Investment Thesis
Focus on new opportunities in Custom Synthesis and Generic Products
Divis Laboratories, a key player in the pharmaceutical industry, is actively exploring growth opportunities in custom synthesis and generic products. Expanding into specialty chemicals and creating complex molecules through custom synthesis offers new market potential and revenue streams. Additionally, diversifying its portfolio by entering new therapeutic areas or launching generic versions of popular branded drugs can drive future growth. While the generics segment is currently facing pricing challenges and inventory destocking, the company expects these issues to ease soon. Divis remains optimistic and has projected double-digit revenue growth, supported by ongoing projects in Contrast Media and Generic APIs, along with upcoming patent expirations in the next few years.
GLP-1 represents a significant growth opportunity
Divis Laboratories sees significant potential in the peptides market, especially with Glucagon-like peptide-1 (GLP-1) products. The company has made considerable progress in this area and aims to become a leading supplier soon. Since only a few companies outside China can supply these building blocks, this presents a major opportunity. Divis expects strong demand for these building blocks and plans to add value by advancing to dipeptides, tripeptides, and more complex compounds. Despite entering this market relatively late, the company is confident about becoming a top supplier of GLP-1 building blocks. This is expected to drive strong growth from FY2025 onward and continue to contribute significantly in the future.
Outlook & Valuation
Divis Laboratories, a leading global pharmaceutical company, specializes in manufacturing Active Pharmaceutical Ingredients (APIs), Intermediates, and Nutraceuticals. The company is expanding its custom synthesis capabilities and traditional product offerings by increasing capacity at its six manufacturing facilities across Telangana and Andhra Pradesh. Recent projects, including debottlenecking and backward integration, have improved cost efficiency.
Divis is investing around Rs 1,500 crores in its Unit III at Kakinada, with Rs 1,000 crores already spent and the rest expected by FY25. Additional capex of Rs 1,000 crores annually is planned for FY25 and FY26 to boost capacity at existing plants. Growth is expected from steady API demand, diversification into peptides for GLP-1 drugs, long-term contracts, and opportunities in contrast media.
We assign a “Buy” rating to Divis Laboratories with a target price of Rs 7,066, representing a 16.3% upside. The stock is currently trading at an EV/EBITDA of 60.0x/51.8x for FY25e/26e estimates.
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