Divis Lab’s H2FY22 earnings grew 40% YoY to Rs. 40bn, driven by Custom synthesis and Nutraceuticals segments

Divis Lab’s Q2FY22 growth was majorly driven by Custom synthesis segment and Nutraceuticals segment. The overall revenue growth was a robust 40% YoY to Rs. 20bn in 1HFY22, while for the same time period, Generic API segment suffered by declining to 6.3% YOY to Rs. 16.6bn. Gross margin remained flat at 67.1% YoY, EBITDA margin declined by 180bp to 41.5% YoY, EBITDA rose by 9% YoY to Rs. 8.3bn, PAT grew at 15% YoY to Rs. 6.1bn. 

Exports stood at 88% of sales, of which 72% came from export sales in the US and Europe. Inventory levels are high for both CS and Generics to ensure a seamless supply chain and it has enough capacity to meet the demands of Molnupiravir. 

The backward integration in products for which Divis Lab holds 70% market share has been completed while It is yet to achieve backward integration on new introductions which will be done once they reach a considerable market share. 

In the API segment, no impurities were found in DIVI’s Sartan APIs, Nitrosamine or Azido, hence this should help drive up sales and gain market share. Even though the Generic API segment declined by 6.3% YoY 1HFY22, it is estimated that the revival of the segment will be supported by increase in market share of existing molecules by backward integration and addition of 16 new molecules that are under various development stages. Its strength and scale is estimated to increase 15% revenue CAGR in the Generic API segment to Rs. 47bn over FY21-23E.

On the contrary, which Divis has the one of the best recovery in iodine recovery rates, the pricing is key to remain competitive in media products. The commercialization of these products is expected in the next 1-2 years as it is already working on validation batches.

Divis has successfully built long-lasting relationships with its innovators on the basis of its chemistry and process skills, manufacturing scale from clinical to commercial qualities, and project execution. The supply contract for Molnupiravir API with Merck/MSD proves that DIVI is a favourite of global innovators for critical projects. It also has the requisite chemistry skills to work on any further Antiviral drug, including, the treatment of COVID-19. 

Divis is estimated to achieve 41% CAGR in CS to Rs. 56bn over FY21-23E given its technical leadership and large scale facilities. The company expects the construction of Kakinada to begin as soon as the land is handed over since the legal hurdles are settled. The estimated capex is ~Rs. 10-20bn and will be spread over the next 2-3 years. DIVI has already incurred capex worth ~Rs. 25bn since FY18. At present, the WIP capex stands at Rs. 4.3bn, which will be completed in FY22 and in the second half, an additional INR3b expected to be spent.