INSUBCONTINENT EXCLUSIVE:
Sharekhan has a buy call on Divi's Laboratories with a target price of Rs 1,670.
The current market price of Divi's Laboratories is Rs
1,374.20.
Time period given by the brokerage is one year when Divi's Laboratories price can reach the defined target.
Investment rationale
by Sharekhan:Rupee reset pushes up estimates: In the past five months, rupee has depreciated by 10-11 per cent, benefitting exporting pharma
companies in terms of better sales realisation and profitability
Hence, we have revised our Rs assumptions to Rs 69 vs
earlier Rs 67 (for FY2020E and FY2021E), leading to upgrade of 2-3 per cent each in our sales and earnings estimates (FY2020E and FY2021E)
for Divis Laboratories Limited (Divis).
Better days ahead: In addition to rupee depreciation, there is immense scope for
better-than-expected growth and re-rating of valuation multiples going ahead
issues leading to constraints in supply from China, which open up opportunities for Divis; and 3) continued weakness in rupee against United
States dollar.
Maintain Buy with upward revised PT of Rs 1,670: Considering the above factors, we have revised our sales/earnings estimates
by 2 per cent each for FY2020E and FY2021E
We expect the company to report sales and profit CAGR of 23 per cent and 32 per cent, respectively, over FY2018-FY2021
We continue to maintain our Buy recommendation on the stock with an upward revised price target (PT) of Rs 1,670, valuing the stock at 22x
its FY2021E earnings.
Risk to our call: Any adverse regulatory changes could impact our estimates.
