Pharma is the favourite
This year, the pharma sector has been the poster boy of the stock market, with covid-19 wreaking havoc in stocks of many other sectors. Q1FY21 was a washout for most of India Inc., but pharma stocks have given sizeable returns.Divi's in NIFTY
Divi’s Laboratories Ltd, though, stands out for another reason. Its research and contract-manufacturing divisions are being seen as subcategories that could drive efforts on research on a wider scale.
Investors are seeing the generic active pharma ingredient segment (API) as an opportunity, as pharma companies seek to diversify their supply chains outside China.
This could be attributed to manufacturing issues with Chinese companies or resistance in purchasing from them.
Divi's laboratories is one of the largest players in this segment in the world - having built a strong and reputable track record of manufacturing facilities.
Risks to watch out for
But investors have to watch out for some of the competitive risks to the business as well. About 47% of its revenue come from top-five molecules, which increases concentration risks in the business.
The company is nevertheless incurring capital expenditures of about ₹1,800 crore to commission new capacities, which will go on-stream in the second half of the year.
Analysts said it will fuel growth for the next few years. That is because - Historically, Divi’s is known to incur capex only when they have strong growth visibility.
Even so, the sentimental lift to pharma stocks has driven the stock price up far too much. Analysts said the stock’s valuations are about 50% higher over its historical average.
Divi's Stock has almost doubled in the past one year.
Source : www.nseindia.com
(Disclaimer : This blog is for education purposes and not to provide any kind of advise or solicit any business. Stock market investing is a with risk investing including risk on principal invested. Please take an informed decision)
