Investor interest in Divis Laboratories continues to be robust on the back of growing demand for Indian CDMO (contract development and manufacturing outsourcing) services. In July 2024, we recommended investors hold the stock, citing healthy growth prospects but high valuations – one-year forward earnings at 55 times then. The company delivered revenue/PAT growth of 13 per cent/17 per cent year on year in FY26, but the stock has gained 49 per cent from the time of the call. With the stock continuing to trade at a premium valuation of 55 times one-year forward earnings (12 per cent premium to the last five-year average), and growth prospects remaining intact, we reiterate the hold call on the stock.The company operates across Generics (36 per cent of FY26 revenues), Nutraceuticals (9 per cent) and Custom Synthesis (CS) (55 per cent). In the generics segment, the company is a leading producer of around 30 API generics (by volume) and is a world leader in 10 APIs. The nutraceutical division manufactures ingredients for food, dietary and animal feed manufacturers. The CS division designs and develops APIs and advanced ingredients partnering innovators in their development process.Growth opportunitiesAs shown, the CS segment is expanding significantly, aided by increased interest in Indian CDMO. The company has also reported an increased interest and RFPs from customers in the last couple of years.The CS segment works on three types of projects. First, it supports innovator projects in Phase-I to Phase-III clinical trials. Second, it supplies APIs and ingredients as an additional source for ongoing innovator development projects. Third, it helps with late life-cycle projects, where an innovator losing patent protection may need a more efficient manufacturing or synthesis process to support a generic version.The segment reported 19 per cent CAGR revenue growth in FY23-26, supported by increasing projects on hand. Additionally, the company is likely to add revenues from supplies to commercialised products belonging to clients. Three products have gained commercial scale after the innovators’ Phase-III trials. Divis has created dedicated capacities to supply the API and ingredients for the three products and expects commercial supplies from FY28. These are expected to bring in higher volumes at higher realisations/margins and provide 8-10 year revenue visibility, which should further strengthen the division.Divis has created a Peptide Centre of Excellence under the CS segment, which will be a longer-term growth driver. Peptides are complex chains of amino acids used in biologics (immunotherapy, oncology and diabetes) and are difficult to manufacture. The company has been manufacturing and selling protected amino acids (basic building blocks) and is now moving up the value chain into fragments, which are chains of four-eight amino acids. Some of the fragments are under validation by clients, while a few have been cleared. The clients’ clinical trials using the fragments are under studies and also include GLP-1 peptides used in treatment for diabetes. The company plans to scale up its commercial infrastructure for fragment manufacturing in line with client demand as clinical trials progress over the medium term..Generics and contrast mediaThe generics segment has been facing pricing pressure leading to low constant currency growth, but has been aided by the rupee depreciation; it has reported 8 per cent year-on-year growth in FY26. The company expects the pricing pressure to stabilise on an eroded base in the current fiscal. Divis will also add to the portfolio of 30 generic APIs in the short term, depending on patent expiries of the targeted products in the US/EU. The company has commercialised Unit-3 to add capacity and should support the expanded portfolio.Divis is also eyeing a strong presence in contrast media APIs. These are products used in the manufacture of injectables that enhance visibility for X-Rays, CT scans and used widely in labs and hospitals. Iodine-based contrast media has been commercialised and Divis is scaling up operations with three leading manufacturers. For Gadolinium-based contrast media products, the company is working with innovators in clinical stages and should see commercialised supplies in the next one-two years.Financials, valuationDivis reported 11 per cent CAGR revenue growth in the last three years to ₹10,560 crore. Despite pricing pressure in generics, strong growth in other divisions supported growth. The rupee depreciation in the last one year also helped. The company EBITDA margins have declined from a high of 43 per cent in FY22 to a low of 30 per cent in FY24 and have recovered to 33 per cent in FY26. Loss of the Covid drug portfolio impacted the company in FY22-24, followed by the generic pricing pressure. A strong product mix, led by the CS division, has offset the decline. While EBITDA margins may not rebound to earlier highs, there could be improvement as generic pricing pressure subsides and the current raw material costs (crude derivatives) subside.The company’s growth outlook is supported in the near term by the CS division’s commercial supplies, expansion in the generic portfolio and the contrast media segment’s scale-up plans. The longer-term drivers are built around the peptide division, where the company has been supplying the base product and has validated (partially) products higher up the value chain. Industry tailwinds from the growing interest in CDMO services continue to support the company. With one-year forward earnings trading at a premium valuation of 55 times, the positives are factored into valuations.Published on July 4, 2026