Divi's Laboratories (NSE: DIVISLAB) significantly outperformed expectations in its latest quarter, reporting an 18% year-over-year (YoY) increase in revenue and a 50% rise in EBITDA. This growth was largely driven by the Custom Synthesis (CS) segment, which saw a 38% quarter-over-quarter (QoQ) and 47% YoY increase, thanks to two major projects reaching full-scale production.

CS now contributes 51% of the revenue mix. Meanwhile, the generics segment declined by 5% YoY due to pricing pressures, despite volume gains. Divi's reported a margin (excluding other income) of 31.7%, 400 basis points above Goldman Sachs' (NYSE: GS) estimates.

Key Highlights:

1. Commercialization of Kakinada Phase 1: Expected in the second half of FY25, freeing up capacity at existing units.
2. Market Share Gains: Opportunities in key molecules like Carbidopa, Levodopa, and others where Divi's holds a substantial global share.
3. Investments in New Areas: Growth from Peptides, Sartans, and Contrast media.
4. Upcoming Patent Expirations: New generics going off-patent between 2025-2028, worth $20 billion.
5. Unique Technology Projects: Long-term agreements with significant capital expenditure (INR 7 billion) for custom synthesis.

Financial Outlook:

Goldman Sachs raised its EPS estimates for FY25 to FY27 by up to 6% due to better topline performance and operating leverage benefits. The 12-month target price increased to INR 4,020 from INR 3,640. Despite this, Goldman Sachs maintains a Neutral rating due to balanced risk-reward considerations.

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