Divi’s Laboratories shares gain another 5% after Q2 results. Here’s why Jefferies raised target price by 23%

Shares of Divi’s Laboratories rallied another 5% to Rs 11,656, extending gains for a second session in a row and rallying 13% over the same period after the pharmaceutical company's strong second-quarter results lifted investor sentiment.

The rally followed the company's report of a 64% year-on-year (YoY) increase in consolidated net profit to Rs 1,127 crore for the September quarter of FY27 (Q2 FY27). Revenue from operations also rose 35% YoY to Rs 3,676 crore during the quarter.

Divi’s Laboratories reported a foreign exchange gain of Rs 24 crore in Q2 FY27, compared with Rs 63 crore in the corresponding period last year.

Jefferies on Divi’s Labs

Jefferies raised its target price on Divi’s Laboratories to Rs 12,550 per share from Rs 10,200, while retaining its 'Buy' rating on the stock.

The brokerage said Divi’s September quarter earnings delivered a significant beat against its estimates, with all three business divisions reporting strong growth. The CDMO business recorded 50% year-on-year growth in Q2, while generics revenue grew 18%, marking its highest growth in several years. EBITDA margin also climbed to its highest level since the Covid period.

Jefferies attributed the strong financial performance to validation batches, with several programmes now approaching the commercial production stage.

The brokerage continues to view Divi’s as the best-in-class CRDMO franchise in its coverage universe, citing strong long-term growth visibility and a pipeline of potential blockbuster products, including complex peptides and GLP. It has raised its FY27-FY29 EPS estimates by 17-22%, factoring in higher sales growth and improved EBITDA margins.

Nuvama on Divi's Labs

Nuvama described Divi’s Laboratories' latest performance as another strong quarter, noting that the company continued to maintain its growth momentum. Revenue, EBITDA and profit exceeded consensus estimates by 15%, 33% and 29%, respectively. The brokerage maintained its 'Buy' rating on the stock with a target price of Rs 12,000 apiece.

The brokerage attributed the outperformance to a favourable custom synthesis (CS)-led business mix, alongside double-digit growth in the generics and nutraceutical segments.

The brokerage remains positive on the company's growth prospects despite its ongoing capital expenditure cycle. Its optimism is supported by strong traction in the CS business, three dedicated capex projects approaching commercialisation over the coming quarters and the growing peptide CDMO opportunity. The installation of new 3,000-litre SPPS lines, along with healthy visibility in generics and nutraceuticals, are additional growth drivers.

Elara Capital on Divi's Labs

Elara Capital also acknowledged the company's robust Q2 performance, with revenue, EBITDA and profit surpassing its estimates by 12%, 30% and 34%, respectively.

The brokerage pointed out that the management had retained its double-digit growth guidance for FY27 but offered no clear indication of whether the elevated margins could be sustained. Elara does not expect the current margin levels to continue through the entire financial year. It added that its negative stance on the stock was primarily due to what it considers unjustifiably high valuations.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here