Divi’s Laboratories Ltd Q2 FY23 Earnings Conference Call Insights

Key highlights from Divi’s Laboratories Ltd (DIVISLAB) Q2 FY23 Earnings Concall

Management Update:

• [00:06:48] DIVISLAB stated that though global logistics scenario has improved and is seeing receding sea and air-freight costs in 2Q23, minor disruptions stemming from issues like manpower shortages continues.

• [00:07:12] DIVISLAB also said that prices of some base metals like lithium and iodine multiplied several times since last year and the company expects this trend to persist.

Q&A Highlights:

• [00:11:29] Prakash Agarwal of Axis Capital asked about the custom synthesis business outlook for 2H23 and FY24. Murali K Divi MD answered that this business looked very optimistic and much better than at any given time.

• [00:12:57] Prakash Agarwal with Axis Capital also enquired if there will be any qualitative guidance on the GM and EBITDA margin going forward, given the volatility. Murali K Divi MD said that on margins, the material consumption remains the same at 36%.

• [00:16:34] Cyndrella Carvalho from JM Financial asked about the new generic launches and DMF filings, when can these launches be expected. Murali K Divi MD answered that the patent expiry of these new molecules will start from 2023 to 2025. So 2024 onwards, opportunities should be looked at.

• [00:24:51] Neha Manpuria of Bank of America asked about the Kakinada capex and if any progress is happening. Murali K Divi MD answered that that it stands same as of last time. There is not much movement from the government and DIVISLAB is still waiting for clearance.

• [00:25:27] Neha Manpuria of Bank of America enquired about the utilization in 2Q23. Murali K Divi MD replied that utilization is around 80-83%.

• [00:28:56] Shyam Srinivasan with Goldman Sachs asked about generic API nutraceuticals, on a low base it has grown, but on a 1-2 year CAGR it’s still flat. Murali K Divi MD answered that it has nothing to do with losing any business. The price pressures are still there. And one of DIVIS’ competitors is leaving the business and in that case DIVIS will have a large chunk.

• [00:30:31] Sameer Baisiwala of Morgan Stanley enquired about the custom synthesis new projects, what’s the size of these opportunities. Murali K Divi MD said that it believes it’s not the size of COVID drugs, but are big compounds.

• [00:35:51] Sameer Baisiwala of Morgan Stanley asked about the update on the Sartan opportunity. Murali K Divi MD clarified that DIBVISLAB has become stronger as the company is the only entity to be backward integrated in it.

• [00:37:56] Tushar Manudhane from Motilal Oswal asked about the capacity utilization of nutraceutical business. Murali K Divi MD replied that the company is about 80% on the nutraceutical utilization, with whatever capacity that’s been doubled over past one year.

• [00:44:36] Surya Patra of PhillipCapital asked about the new units created over the last 2 year period, how many units are currently under manufacturing. Murali K Divi MD answered that most of the units have already commenced. Two units; small volume high potency compound is under completion and another block for commercial.  Other than these two, all are done.

• [00:51:18] Ritwik Sheth from One-Up Financial enquired about Kakinada capex, what’s the timeline in terms of starting and commissioning, assuming the govt. approval is done.  Murali K Divi MD said that once the approval is done, it should be completed in one year and start seeing the results from the second year.