Numerous components augur nicely for our expectation of a 21% gross sales CAGR to Rs 8 bn over FY20–23.
Divi’s Labs (DIVI), along with having a sturdy base enterprise, is enhancing its product choices within the generic API house – no less than sixteen molecules are beneath numerous phases of growth and within the subsequent DMF submitting stage. Significantly, we discover DIVI’s work fascinating within the Distinction Media phase. Whereas there’s complexity related to Iodine-based merchandise, DIVI’s sturdy chemistry ability set and expertise within the Distinction Media house have enabled it to deliver the Iohexol API to the validation part. We consider DIVI is well-placed to capitalise on the carotenoid alternative, with a 21% gross sales CAGR to Rs 8 bn anticipated over FY20–23. This might be pushed by wholesome demand, product choices, built-in manufacturing, and the doubling of capability.
We proceed to worth DIVI at 36x 12M ahead earnings to reach at TP of Rs 4,530. We reiterate Purchase, inspired by promising demand prospects and a number of progress levers – (i) new product additions, (ii) a powerful chemistry ability set, (iii) environment friendly manufacturing capabilities, (iv) scale-led benefit in legacy molecules, (v) minimal monetary leverage, and (vi) enough money obtainable for brand new tasks.
Iohexol – area of interest alternative in Distinction Media house Distinction media brokers have a market dimension of ~$5 bn. Decrease genericisation and restricted competitors, coupled with DIVI’s specialised chemistry capabilities, present an inexpensive enterprise alternative. We count on the Iohexal API US market dimension to be $100–120 m. The genericisation of Omnipaque might present a possible upside of $40–50 m for DIVI – publish the profitable validation and subsequent approval for its formulator buyer.
Carotenoids – one other limited-competition prospect for DIVI DIVI has absolutely built-in the Nutraceutical facility (Unit II) for the API/completed type of carotenoids. In actual fact, it has doubled its capability over the previous 12 months and is well-positioned to profit from the rising demand for carotenoids. Numerous components augur nicely for our expectation of a 21% gross sales CAGR to Rs 8 bn over FY20–23.
Reiterate BUY DIVI has reported ~Rs 25 bn capex since FY18. This has been towards capability additions in addition to to extend backward integration. Contemplating enhanced product choices and elevated asset utilisation, we count on a 27% gross sales CAGR over FY20–23. This, coupled with higher working leverage, would drive a 38% earnings CAGR over FY20–23E. Preserve Purchase.