The Nifty Pharma index tanked 5.20% in the past three days and is currently at 12,553.70 points. Divi’s Laboratories is a major constituent of this index and has a weightage of 12.94% as per April 29, 2022’s data.

Despite stellar results in the March quarter, the shares of Divi’s Laboratories slipped by more than 21% in the past three days. The shares closed at ₹3519.35 on Wednesday’s closing bell, but they reached a 52-week low of 3365.55 on Thursday’s early trades.

The company on Monday reported a consolidated net profit of ₹ 894.64 crores, up 78.20% as against ₹502.02 crores, during the same period last year. Its consolidated revenue increased from ₹7032 crores during the previous year to ₹9074 crores this year. Its revenue from operations increased by 40.83% for the same quarter to ₹2518.44 as against ₹1788.19 crores during the same quarter last year.

“In our estimates, molnupiravir added about $200 million to the topline in FY22, implying ex-molnupiravir growth of 7% for rest of the business. We factor in $20 million molnupiravir sales in FY23 and ex-molnupiravir we build in 11% y-o-y growth. Based on our assumptions, we estimate FY23 topline will decline by 6% y-o-y and Ebitda by 11% y-o-y,” said analysts from Jefferies India in a report on 23 May.

“We believe this abnormal growth was derived from Covid-led drugs (similar to last quarter) and is unsustainable going forward with the pandemic subsiding all over the world, except in China. We thus foresee lower growth on a higher base. On the margin front as well, the inflationary environment, coupled with a growth taper, would weigh on performance,” said BoB Capital in a note to investors.

The brokerage has downgraded the stock from ‘buy’ to ‘hold’ and has reduced its target price from ₹ 5,250 per share to ₹ 4,250, indicating an upside of  23.91% from its current price of ₹ 3430.00. The shares of Divi’s Laboratories have given multibagger returns of 529.01% in the last five years and seem to be good for the long-term, as per analysts.

Analysts say that strong traction in the custom synthesis (CS) Segment boosted performance in the March quarter. They estimate this to be driven by higher sales from molnupiravir, an antiviral drug for covid. Divi’s Laboratories is an authorized manufacturer of molnupiravir API for Merck. They say that the base is high now and this would pose a challenge to growth and that the scope for meaningful gains is capped.   

The board of directors of the company recommended a dividend of ₹30 per share for the financial year 2020-21 subject to the approval of members at the ensuing Annual General Meeting (AGM). The company will pay the dividend within 30 days from the conclusion of the AGM.


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