Divi's Labs: Geojit downgrades stock to 'Reduce' with Rs 5,400 target

Shares of Divi's Laboratories Ltd may face near-term headwinds despite a steady Q1 FY26 performance, according to domestic brokerage Geojit Investments, which has downgraded the stock to Reduce with a target price of Rs 5,400. This implies nearly a 10 per cent downside from its current market price of Rs 6,000.

For the June quarter (Q1 FY26), Divi's reported a consolidated revenue of Rs 2,410 crore, up 13.8 per cent year-on-year (YoY). However, revenue fell 7 per cent sequentially, largely due to pricing pressures in its generics business. While the custom synthesis segment grew a healthy 23.1 per cent YoY to Rs 1,277 crore -- driven by multiple projects across R&D, pilot and validation stages -- the generics division struggled with intense price competition and higher shipping and logistics costs.

EBITDA for the quarter stood at Rs 729 crore, rising 17.2 per cent YoY with margins expanding 90 basis points (bps). Sequentially, however, EBITDA fell 18 per cent, with profitability hit by rising costs and weak generics pricing.

On the outlook, Geojit said Divi's remains well-positioned in the long term due to increasing traction from global innovators, a healthy pipeline of RFPs, expansion of scientific and technological capabilities, and steady growth in nutraceuticals. Although, the brokerage flagged near-term risks, including regulatory delays of 12–24 months for peptides, contrast media and the Kakinada facility approvals.

Additionally, the company faces the risk of losing business from sacubitril/valsartan (marketed as Entresto), which could intensify competitive pressures in the generics segment.

"Persistent pricing pressure in generics and higher cost escalation compared to custom synthesis are weighing on margins. Given the premium valuations, we downgrade the stock to Reduce with a target price of Rs 5,400, based on 45x FY27E adjusted EPS," Geojit noted.