Earnings set-up keeps getting better, Reiterate Buy

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Divis Laboratories

Earnings set-up keeps getting better,

Reiterate Buy

Reiterate Rating: BUY | PO: 8,920 INR | Price: 8,056 INR

Strong start to FY27 with positive commentary

02 August 2026

Divi’s reported a solid qtr with revenue growth at 28% YoY (vs. 14% est) largely driven

by 45% growth in custom synthesis business as company indicated validation batches

for all 3 capex projects being supplied during the qtr. The higher custom synthesis

contribution at 60% (vs. 55% in FY26) along with likely superior margins for validation

supplies drove gross margins at 68% despite cost headwinds due to West Asia conflict.

This drove the large EBITDA beat (Rs12.5Bn vs. Rs8.5-9Bn est) with 41% margins. The

lumpiness in CDMO business does make it tough to extrapolate the trends, but the

positive commentary on dedicated capex, peptide expansion, generic APIs, etc. does

provide confidence on improving growth momentum over the next few years. We revise

our FY27-28E EPS by 8%/2% (details in Ex-7) and reiterate Buy with revised PO of Rs

8920 (vs. Rs7500, roll-fwd by 6 months, 50x vs. 49x previously).

Equity

Key standouts over the call

There were multiple positive developments highlighted during the earnings call, which

should drive earning upgrade in street estimates (FY28 BofAe ~10% higher). These

developments also address concerns sacu/val moderation in FY27 weighing on CS

growth till the new projects ramp-up. These include – a) Dedicated capex projects

tracking ahead of expectations (ongoing validations for all three projects) implying

commercial supplies staring end FY27 vs. our expectation of supplies being 2HFY28

weighted, b) Multiple peptide projects in pipeline with some fragments being validated

& commentary on meaningful capacity addition (multiple 3000L SPSS being installed)

reflecting demand visibility from customers; c) Signing of long-term agreements for

iodine based contrast media with 2 customers for substantial quantities (one started &

2nd in a few months); d) 4 Gx API DMFs filed with multiple customers undertaking

qualification & commercial supplies for one of the products likely over next 3-6 months.

Estimates (Mar) (Rs)

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