Divi's Laboratories shares fall 4% after IIFL warns of material risk to earnings

Shares of Divi's Laboratories Ltd. fell as much as 4% on Monday, July 14, after a key negative development with regards to an important cardiac drug.

News developments over the weekend disclosed that MSN has won the patent litigation related to Novartis' blockbuster cardiac drug Entresto, clearing the path for a generic launch in the US after July 15, 2025 for MSN.

Entresto API is expected to be the largest product in Divi's Laboratories' innovator Custom Synthesis (CS) portfolio. It is estimated to contribute as much as 40% of the company's Custom Synthesis revenue and account for nearly 20% of the consolidated topline.

Brokerage firm IIFL has warned that due to this development, Divi's Laboratories' annual Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) could see a potential decline of 12% to 13% over the next year.

Divi's Laboratories is currently trading at a financial year 2027 Earnings Per Share (EPS) multiple of 58 times and 40 times financial year 2027 EBITDA, which prices in a lot of optimism around the GLP-1 / CDMO business, according to IIFL, who also added that in the interim, the Entresto patent cliff poses a material risk to earnings.

IIFL has maintained its "reduce" recommendation on the stock with a price target of ₹5,465, which implies a potential downside of 20% on the stock.

Out of the 31 analysts that have coverage on Divi's Laboratories, 14 of them have a "buy" rating on the stock, seven say "hold", while 10 have a "sell" rating on the stock.

Shares of Divi's Laboratories are currently trading 2.9% lower in early trading on Monday at ₹6,642. The stock has risen 50% in the last one year.