Why did Divi’s Labs stock fall despite such good numbers?

India’s largest manufacturer of active pharma ingredients (API) and one of the leading API manufacturers in the world, Divi’s Laboratories, hit a 52-week low of Rs3,708. It is surprising that the stock has lost close to 15% in a span of just 2 days after the results. The real surprise is that the stock prices have cracked despite rather positive profit growth of 78% reported by Divi’s Laboratories for the March 2022 quarter. Revenues were also higher.

The correction in the stock has been explained in a note by Motilal Oswal which has cut the EPS estimates by 12-14% for Divi. According to the report, the immediate headwinds for Divi are the reduced sales of COVID-related products due to the cessation of the COVID focus. In addition, there has also been a delay in implementation of the Kakinada project. These concerns caused the stock to fall. However, the Board had recommended a dividend of Rs30 per share or 1,500% on face value, and is subject to shareholder approval.