Divi’s Laboratories Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Divi’s Laboratories Ltd (DIVISLAB) Q2 FY24 Earnings Concall

• Business Overview
  • Anticipating growth opportunities in contrast media, sartans, soon-to-expire patented products.
  • Demand for established generics remains stable despite pricing pressure.
  • Pursuing comprehensive business strategy, new DMF filings to drive growth.
  • Custom synthesis garnering customer interest with expanded capacity and reduced lead times.
  • Sartans family now in top 10 products by revenue and scaled up as expected to become a major product segment.
• Manufacturing and Capacity
  • Construction underway on 200-acre greenfield project, to start production in Q1 FY25.
  • New facilities to free up existing plants for custom synthesis and new generic opportunities.
• Financial Performance
  • Q2 total income at INR1,995 crores, up 3% year-over-year.
  • Q2 profit before tax at INR469 crores.
  • Exports were 87% of revenues in Q2, with Europe and US exports being 68% of Q2 revenues.
  • Generics were 60% of Q2 revenues, custom synthesis 40%.
• Unit III Capacity
  • Will increase operational expenses as new facilities come online.
  • Expenses will be proportional to volume loaded into facilities.
• Custom Synthesis Growth
  • Growth distributed across several therapeutic segments.
  • Driven by two large custom synthesis projects now at full production.
  • Resumption of delayed custom synthesis opportunities post-COVID.
  • Growth to accelerate in Q3 based on sales visibility.
  • Working with large pharma companies, not small startups for late-stage pipeline projects or those acquired from smaller firms.
  • Not seeing slowdown in opportunities that some CDMOs are facing.
• Pricing Pressures
  • Seeing pricing pressure in some large volume established generics.
  • Impacting gross margins despite growth in custom synthesis.
  • Expect pricing and margins to improve going forward once inventories are depleted.
  • Not seeing major pricing pressure in newer generic launches.
• Generic API Business
  • Seeing good volume growth in generic APIs, pricing pressure is impacting revenues.
  • Estimating double-digit volume growth and mid-single digit price erosion.
• Contrast Media Update
  • Supplying two iodine-based contrast media currently.
  • Entering two more iodine-based contrast media.
  • Gadolinium-based contrast media in final process stage.
  • Targeting gadolinium-based supplies in FY25 after approvals.
• Peptide Opportunity and Regulatory Needs
  • Significant opportunity in peptide building blocks for diabetes and weight loss drugs like GLP-1 agonists.
  • DIVISLAB can supply at scale versus competitors.
  • Huge potential to expand into di/tri-peptides.
  • May not need USFDA approval for early stage peptides, but later stage peptides likely to need regulatory approvals.
  • Qualifications very stringent and tough.
• Peptide Product Timeline
  • Company sees initial sales starting in fiscal year 2025, with bigger sales numbers coming after that.
  • Currently working on approvals and qualifications that will be completed prior to 2025.
  • Existing facilities have capacity to produce needed building blocks like di- and tripeptides.
  • Do not require additional capacity for the peptide opportunity.
• Nutraceutical Growth Drivers
  • Limited competitors in Divi’s niche products.
  • Strong in animal nutrition complex products.
  • Seeing steady 10-15% growth.