Divi’s Laboratories Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from Divi’s Laboratories Ltd (DIVISLAB) Q3 FY24 Earnings Concall

• Growth and Performance
  • Witnessed a steady 3Q driven by expanding market opportunities and slight decline in raw material prices.
  • Generic business remains stable with sustained demand for established products.
  • New opportunities from patent expiry products continue to create positive prospects.
  • Custom synthesis segment is rising with two major Big Pharma projects entering full scale production, expected to further increase contribution in coming quarters.
• Business Expansion
  • Actively involved in peptide building blocks used in new antidiabetic and anti-obesity drugs.
  • Production activity to commence in Q2 2024-2025 for 200 acre Phase 1 greenfield project as part of Unit III infrastructure.
• Global Crisis Impact
  • The Red Sea crisis has introduced global supply chain disruptions, leading to increased freight costs and shipment delays.
  • With vessel diversion and longer voyages, international freight rates and insurance premiums are rising.
• China Opportunity
  • Big Pharma looking to curb exposure to China manufacturing, translating into business for Indian CDMOs.
  • Seeing huge growth opportunities as Big Pharma works more with Indian and European companies.
• Peptide/Protein Progress
  • Supplying protected 3-4 amino acid chains; working with innovators using these in GLP-1 drugs made at their sites.
  • Commercial opportunities expected around 2025 after 1+ year qualification process.
  • Experience with amino acid protecting groups like tBoc, Fmoc, Dboc used in solid phase peptide synthesis.
  • Currently supplying protected amino acids, dipeptides, tripeptides; under qualification for supply of longer 30-40 amino acid peptides.
  • Focus on building blocks for now rather than final API.
• Custom Synthesis Growth Drivers
  • Two major projects commercialized and ramping up volumes, benefiting custom synthesis share.
  • Several molecules in late regulatory stages with customers, ready with capacity for opportunities.
  • Custom synthesis share varies quarter-to-quarter, more relevant to see full year share.
• Generic Business Outlook
  • Pricing pressures currently driven by competitors destocking inventory, expect stability in 2-3 quarters.
  • Maintained market share despite pricing pressures; increased capacity in major APIs.
  • Future patented molecules coming off patent from 2025 onwards a growth driver.
  • Kakinada Production to start end of Q2 next fiscal year.
  • Target is equal growth in generics and custom synthesis.
  • Multiple growth levers in generics and custom synthesis, so no skew expected.
• Kakinada Update
  • Production to start end of Q2 next fiscal year.
  • Commercialization by Q3 2024-25 following regulatory approvals given export focus.
  • Will have a mix of both generics and custom synthesis products.
  • Most manufacturing blocks are multi-purpose rather than dedicated.
  • Current investments of INR 458 crores for seven production blocks.
  • Additional 300 acres available for future expansion as opportunities increase.
• Nutraceuticals Outlook
  • Running at full capacity currently in niche products like astaxanthin.
  • Worldwide soft demand and prices, cautious on growth.
  • Steady 10% YoY growth, may add capacity if opportunities increase.
• GLP-1 Update
  • Have enough capacity currently to meet initial customer demand.
  • If volumes grow beyond expected, may need to invest in additional dedicated capacity.
  • Have dedicated capacity of few hundred tonnes ready for GLP-1 commercialization.
  • Waiting on innovator customer approvals to start supply.
  • GLP-1 products expected to be accretive to overall gross margins.
• Capacity Utilization
  • Current quarter capacity utilization around 80%.
  • Added capacity in last 2 years now being utilized for higher volumes.