08 Nov , 2021 By : Kanchan Joshi
Shares of Divi's Laboratories plunged over 8% to Rs4,765 apiece on the BSE in Monday's early deals post Q2 results. Drug firm Divi's Laboratories on Saturday reported a 16.7% jump in its consolidated net profit to Rs606 crore for the quarter ended September 30.
Divi’s 2QFY22 revenue/EBITDA missed Jefferies' estimates by 2%/3% but PAT beat on lower taxes. “The stock trades at an expensive valuation, and we do not see major upside for the stock from here. We downgrade our rating to Hold. Our price target moves from Rs5,624 to Rs5,563," it said in a note.
As per Divi’s management commentary, Covid anti-viral drug formulation opportunity is worth USD70bn where Merck’s Molnupiravir was the leading candidate. But last week Pfizer released interim study showed that its candidate Paxlovid is found to reduce covid hospitalization and deaths by 89%, which as per Jefferies, could pose a risk to Divi’s Molnupiravir prospects.
In Jefferies' view, Divi’s 2Q margin was sustained on product mix and advance procurement of inventories, but the sustained high prices of key raw materials will eventually impact the firm. “We now do not see a case for an improving margin profile for Divi and at best see the firm maintaining its current margins trend," the note added.
Another brokerage Ambit Capital has a Sell rating on the stock with a price target of Rs4,300. “2Q results indicate limited upside to earnings in the near term although management commentary on the potential scale of the global market for Covid-19 anti-viral drugs and the company’s ability to target opportunities beyond molnupiravir imply that the business could continue to see above-normal growth over medium term," the brokerage note stated.
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