Shares of Divi's Laboratories remained in the grip of bears as they fell more than 4% in morning trade to hit their fresh 52-week low of ₹3,275 on BSE on November 9. The stock eventually closed 3.38% lower at ₹3,298.15.
The stock plunged almost 9% in the previous session after the company reported a profit after tax (PAT) for the September quarter at ₹494 crore as against a PAT of ₹606 crore for the corresponding quarter of the last year.
The company reported a consolidated total income of ₹1,935 crore for Q2FY22 as against a consolidated total income of ₹2,007 crore in the corresponding quarter of the previous year.
Brokerage firms appear disappointed by the company's Q2FY23 performance. Many of them have downgraded this stock and cut their target prices.
Brokerage firm Motilal Oswal Financial Services downgraded the stock to a 'neutral' and reduced the target price to ₹3,250 from ₹4,280.
"We have downgraded our rating to a 'neutral', considering the muted outlook (a 4.5% compounded decline in earnings over FY22-24). Valuation is yet to factor in the same," said Motilal Oswal.
Motilal cut its FY23/FY24 estimates by 18%, factoring in: (a) a deceleration in the CS business and commercial benefit from certain newer projects on completion of clinical trials (FY24 onwards), (b) moderation in the API business, and (c) delayed scale-up in the Nutraceuticals business, despite a capacity expansion.
"We also lower our P/E multiple to 30 times from 33 times to factor in lower visibility on Kakinada capex, considering capex to be one of the leading growth indicators for Divi," said Motilal Oswal.
Kotak Institutional Equities (Kotak Securities) maintained a 'reduce' call on the stock and reduced the target price to ₹3,180 from ₹3,475 earlier.
"We reduce our FY2023-25E EPS (earnings per share) estimates by 4-9% to factor in lower sales and margins. At 35 times FY2024E EPS, in the context of the meagre 1% EPS CAGR over FY2022-25E, we find valuations expensive," said Kotak.
"We now value Divi’s at 30 times EPS versus 32 times EPS earlier to account for slower longer-term growth (across segments) and margin assumptions. On an elevated FY2022 base, our fair value (target price) implies an 11% 10-year sales and EBITDA CAGR," said Kotak.
Brokerage Elara Securities downgraded the stock to a 'reduce from an 'accumulate' and cut the target price to ₹3,260 from ₹4,085.
"Divi’s is trying to address growth-related challenges through an array of initiates, though these would pave the way for growth only in the long term and may not bridge the gap from dwindling near-term molnupiravir sales, even as a cost-related strain continues to dent margins," said Elara.
"We pare FY23E/24E earnings estimate 14% each on limited near-term growth visibility. We downgrade to a 'reduce from an 'accumulate' and pare target price to ₹3,260 from ₹4,085, on 33 times (from 35 times) FY24E P/E," said Elara.
According to a MintGenie poll, an average of 21 analysts have a ‘hold’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.
