Kotak Securities expects a potential downside of 27 percent on drugmaker Divi's Laboratories Ltd. as concerns over its Custom Synthesis (CSM) segment persist. It has reiterated its sell rating on the stock with a price target of Rs 2,600.

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The brokerage said that Divi's CSM segment remains a black box, as unlike its global peers in this segment, there is absence of guidance, lack of disclosures on order books as well as active projects, exact delivery model and customer count.

However, Dalal Street continues to lean on its optimism on the Hyderabad-based pharma company's new deal wins and ongoing capex, Kotak wrote in its note.

The brokerage has factored in 21 percent compound annual growth rate (CAGR) sales in the CSM segment between financial year 2023-2026 as compared to 12 percent CAGR over financial year 2011-2023. This projection is excluding sales of Molnipiravir.

Molnupiravir capsules are used to reduce risk of Covid-19. On these elevated estimates, Kotak Securities said that the stock of Divi's Laboratories stays expensive at 41 times of financial year 2025 price-earnings ratio.

In the March quarter, Divi's Laboratories posted a 64.1 percent year-on-year (YoY) decline in net profit at Rs 321 crore as compared to Rs 895 crore in the year-ago period.

The company's total revenue was at Rs 1,950.8 crore during the period under review, declining 22.5 percent against Rs 2,518.4 crore in the corresponding period of the preceding fiscal.

Shares of Divi's Laboratories ended 0.7 percent lower at Rs 3,558.40. The stock is up 5.5 percent on a year-to-date basis.