Some analysts are even more bullish on the best-performing large-cap Indian stocks in 2020. In just two weeks, at least four brokerages have raised their price targets on shares of Divi’s Laboratories – one of the top producers. of active pharmaceutical ingredients – the estimate of Jefferies India Pvt. a gain of nearly 20% over the next 12 months being the most optimistic of the data compiled by Bloomberg.
Optimism stems from plans to expand the company’s capabilities and the potential to gain more business as India reduces its dependence on Chinese suppliers.
“Capital discipline has been a hallmark of this company,” said Siddhant Khandekar, analyst at ICICIdirect.com. “Divi’s is known for making optimal use of capital. There must be tangible orders on hand and that’s why they spend.”
The company’s second-quarter profits exceeded estimates in early November. Divi’s began building a production plant near Kakinada, in the Indian state of Andhra Pradesh, she said in an exchange brief the following month.
Overall, in absolute terms, the 12-month average analyst target price for Divi stock has risen to around Rs 134 in the past four weeks, the biggest increase among 10 companies in the MSCI index. India Health Care. The stock currently has 17 buy ratings, two takes and three sell recommendations, data compiled by Bloomberg shows.
“The stock could continue its momentum this year,” said Tushar Manudhane, analyst at Motilal Oswal Financial Services Ltd. in Mumbai. “They have a lot of experience in using new capabilities effectively.”
Still, the potential rise in the share price over the next 12 months is capped at around 20%, based on even the analyst’s most optimistic estimate. That’s tiny compared to the stock’s 108% rise in 2020, which marked a fourth straight year of gains.
One of the reasons for this is the evaluation. Divi shares are now trading at nearly 45 times its 12-month forecast earnings, up from a five-year average multiple of 26.6, according to data compiled by Bloomberg.
In addition, a risk that could resurface this year for Indian pharmaceutical companies as a whole is regulatory scrutiny. They were largely spared from U.S. Food and Drug Administration inspections in 2020, thanks to the pandemic.
That said, even as vaccine deployments encourage a rotation of pandemic winners to beaten sectors, analysts are seeing certain trends play in Divi’s favor over the long term.
“Divi’s, although expensive, continues to benefit from favorable winds in favor of Indian companies in the manufacture of APIs,” wrote Abhishek Sharma, analyst at Jefferies in Mumbai, in a note dated Jan. 5.
Indian API exporters have increased their share of the US market at the expense of Europe and their China-based rivals, he wrote. Divi’s derived nearly 90% of its revenues from exports during the fiscal year ended in March 2020.
(Except for the title, this story was not edited by The Bharat Express News staff and is posted Platforms.)