Shares of Divi’s Labs ended at Rs 2,800.15 on NSE on Monday, up Rs 8.65 or 0.31%.
The stock has underperformed Nifty50 and given negative 35% returns over a 1-year period as against a negative 2.1% return given by the benchmark index, according to data sourced from Trendlyne.
A further decline is likely for this Hyderabad-based pharma company based on current price trends and fundamental triggers.
Technical View
Divi’s Labs shares fell to their 52-week low of Rs 2,730 on the intraday basis on 14 March 2023 and recovered by Rs 70 or 2.5%.
The stock has a downside of Rs 200 or nearly 7% from Monday’s closing price, Nilesh Jain, Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking said. Divi’s could see a pullback up to Rs 2,900-Rs 3,000 but no major upside is visible, Jain added.
He said that investors must adhere to a stop loss of Rs 2,700.He advised investors against making any new position in this counter considering the current negative trends. People who are holding this stock with a long-term view may look to hold it for the above price targets, this analyst said.
The stock has traded with low volatility at a 1-year beta of 0.64, the Trendlyne data further said.
Momentum indicators RSI and MFI are in a medium range of 38.2 and 31.8. A number below 30 indicates that the stock is trading in an oversold zone while above it, the stock is believed to be trading in the overbought zone.
Fundamental View
Brokerage firm Motilal Oswal maintained a neutral rating on this scrip with a price target of Rs 2,620, estimating a 6% downside.
The domestic brokerage firm finds current valuations to be on the higher side considering flat earnings growth in FY24 (43x FY24E earnings/33x FY25E earnings).
“We value DIVI at 30x 12M forward earnings to arrive at a price target of Rs 2,620,” the report said.
The stock is trading at a price-to-book value of 6.34 which is high in the industry, Trendlyne data said, highlighting a trailing-twelve-month PE at 31 which it said was “above industry median”.
Source: Motilal Oswal
Work In Progress
Improvement in outlook is encouraging as cost pressures ease, it noted adding that profitability could improve, going forward.
“The outlook for the contrast media segment remains encouraging, given Divi’s capability to have better Iodine recovery and limited investment by formulators to manufacture API”, the Motilal Oswal report said.
“The green-field capital expenditure at Kakinada would not only cater to the company’s growth requirements from FY25 onwards, but also, would reduce the concentration of DIVI business at Hyderabad/Vizag,” the report further said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
