Divi’s Laboratories (DIVISLAB) Surges 5% to 52-Week High Following Strong Q4 Results

<ul>
    <li>Divi's Laboratories share price surged by 5% in morning trades on Monday.</li>
    <li>The company announced its Q4 results over the weekend, which led to the surge.</li>
    <li>With this gain, Divi's Laboratories share price also reached a 52-week high of ₹4359 on the NSE.</li>
</ul>
<p><strong>Divi's Laboratories share price rises 5% post Q4 results, dividend announcement, to 52-week high: Buy, Sell or Hold?</strong></p>
<h2><strong>Q4 Earnings Beat Estimates</strong></h2>
<p>Divi's Laboratories reported a net profit for the January-March 2024 quarter at ₹538 crore, growing 68% year-on-year and 50% sequentially.</p>
<p>The company showcased a strong operating performance with Earnings before Interest, Tax, Depreciation and Amortisation (Ebitda) at ₹731 crore, rising 49.5% year-on-year and 48.6% sequentially. This marks a significant beat. Analysts at Prabhudas Lilladher noted that Divi’s Laboratories Q4FY24 Ebitda was 18% above their estimate, driven by higher custom synthesis (CS) revenues (up 47% YoY) and better operating leverage.</p>
<p>The revenue from operations during the quarter stood at ₹2303 crore, increasing by 18.1% year-on-year and 24.1% sequentially.</p>
<h3><strong>Earnings Upgrades</strong></h3>
<p>Most analysts have increased their earnings estimates for Divi's Laboratories following the strong Q4 performance.</p>
<p>Analysts at Motilal Oswal Financial Services have raised their earnings estimates by 3% each for FY25 and FY26, factoring in a better demand outlook in the CDMO (Contract Development and Manufacturing) segment, the addition of new technologies, and a higher number of product offerings in the generics segment.</p>
<p>Prabhudas Lilladher analysts have also raised their FY25 and FY26 earnings per share estimates by 10%.</p>
<p>Antique Stock Broking analysts have increased their FY25 and FY26 EPS estimates by approximately 10% and 7% respectively, factoring in stronger operating leverage.</p>
<h3><strong>Caution Prevails</strong></h3>
<p>Despite the strong Q4 performance and subsequent earnings upgrades, many analysts feel the upside is already priced into the stock.</p>
<p>Motilal Oswal Financial Services analysts expect a 27% earnings CAGR (compound annual growth rate) over FY24-26 but believe that the current valuations adequately capture the earnings upside.</p>
<p>Jefferies India Pvt Ltd analysts also noted that while Divi’s anticipates recovery in both its businesses and has moved past key issues like a high base and one-offs, the stock is already trading at a Price to Earnings (P/E) valuation of 41 times FY26 EPS, which is in line with its one-year forward average P/E over a five-year period.</p>
<p>Analysts at Antique Stock Broking highlighted that despite a near 5% improvement in revenue contribution from the CDMO segment, gross margin remained stable due to pricing pressures in the CDMO market. They foresee headwinds in the CDMO business due to the upcoming patent cliff and the predominance of low-value small molecule opportunities.</p>
<h3><strong>Dividend Announcement</strong></h3>
<p>Divi's Laboratories has recommended a final dividend of ₹30 per share (i.e., 1,500%) per equity share of face value ₹2 each for the financial year 2023-24.</p>
<h3><strong>Conclusion</strong></h3>
<p>In summary, Divi's Laboratories has delivered a robust Q4 performance, leading to a significant rise in its share price and earnings upgrades from analysts. However, caution is advised as the current stock price may already reflect these positive developments. Investors should consider both the potential and the risks before making any decisions.</p>