HSBC upgrades Divi's Laboratories stock rating to Buy on growth potential

HSBC has upgraded Divi’s Laboratories Ltd (NS:DIVI) to Buy from Reduce, significantly raising its price target to INR7,900.00 from INR5,020.00. This upgrade reflects HSBC's positive outlook on Divi's custom synthesis segment, driven by its critical role as a global supplier of peptide fragments for Eli Lilly’s tirzepatide and other diversified growth areas, projecting a 24% revenue CAGR for the segment and 23% EPS CAGR for the company through FY25-28.

Analysis

HSBC has issued a significant upgrade for Divi’s Laboratories Ltd, moving its rating from Reduce to Buy and increasing the price target by over 57% to INR 7,900.00 from INR 5,020.00. This revision is driven by a more constructive outlook on the company's custom synthesis segment, which is now projected to achieve a 24% revenue Compound Annual Growth Rate (CAGR) between FY25 and FY28. The primary catalyst for this optimism is Divi's established role as a key global supplier for Eli Lilly’s high-demand anti-obesity drug, tirzepatide, for which it is qualified to supply two of the four necessary peptide fragments. Beyond this single product, the growth thesis is supported by a diversified client base for peptides that includes Roche and AbbVie, a strong recovery in demand for contrast media supplies, and continued momentum in API for sacubitril valsartan. These combined factors are expected to drive a company-wide EPS CAGR of approximately 23% over the same period, signaling a strong growth trajectory based on HSBC's analysis.

Key Decisions for Investors

• Investors should assess the new INR 7,900.00 price target and the projected 23% EPS CAGR through FY28 as a strong bullish signal, potentially justifying a new or increased long position in Divi's Laboratories.
• It is crucial to monitor Divi's execution within the custom synthesis segment, particularly any news related to its supply contract for Eli Lilly's tirzepatide, as this is the core driver of the upgraded valuation.
• Consider the diversification within the growth story; while the Eli Lilly contract is a primary catalyst, the noted traction in contrast media and other API supplies for clients like Roche and AbbVie provides a buffer and additional avenues for growth.