Divi’s Laboratories Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Divi’s Laboratories Ltd (DIVISLAB) Q3 FY22 Earnings Concall

Management Update:

• The company capitalized INR196 crores in 3Q22 and anticipate another INR100 crore capex before end of FY22.

Q&A Highlights:

• Tushar Manudhane from Motilal Oswal asked if there was any one-off for the sharp increase in revenue sequentially. Murali Divi MD said that it’s not one-off. The company has several projects that it has been working on and one of the projects has taken little faster.

• Tushar Manudhane from Motilal Oswal asked if the backward integration that helped in the raw material side improving gross margin sustainable in the near to medium term. Murali Divi MD answered that the raw material backward integration is a strategy not only for the sake of saving some cost but also from the point of assurance of supply from the generic and custom synthesis.

• Alankar Garude with Kotak asked that given the big COVID upside in FY22 numbers, how the growth should be looked at over the next couple of years. Murali Divi MD said that COVID drugs may be short lived or it may back soon. Murali added that it’s not the order book, it is how quickly a new product can be accommodated, scaled up and supplied is the order of the day today.

• Alankar Garude with Kotak also enquired about capacity and how the company is placed for the next few years. Murali Divi MD replied that on capacity, the company has never had an issue as it always invest ahead of time. DIVISLAB always keeps two or three blocks ready to take products. The company does not build product specific buildings, it always builds multi-purpose blocks; any product could be produced in those blocks.

• Shyam Srinivasan Goldman Sachs asks about the reason generic API is declining, while using the 43, 57 ratio for the nine month and backing out the generic API. Murali Divi MD said that the company does not believe the generic business has declined. The company did not lose any customer or volume.

• Surya Patra from PhillipCapital enquired that in the next three years what growth company is expecting in custom synthesis and the generic growth and capex. Murali Divi MD answered that in terms of investing, the company has funds in the bank and doesn’t need to borrow or worry.

• Surya Patra from PhillipCapital asked about the opportunity from the China supply chain replacement, particularly on the custom synthesis side or the intermediate for the innovative molecule. Murali Divi MD said that India has lot to gain the next five years in the API industry. The company added that it’s geared up to take all the opportunities, both from the big pharma side and the generic side.

• Chirag Dagli of DSP Mutual Fund queried that on the custom synthesis, typically 4Q is the strongest for the company and if it will be same for 4Q22. Murali Divi MD replied that the company thinks it looks good, opportunities are good, validations of several projects are underway.

• Damayanti Kerai of HSBC Securities asked about the company’s capex plan for the next two years. Murali Divi MD replied that it may be anywhere from INR1,000 crores to INR2,000 crores, based on the company’s investments into the greenfield and brownfield projects.

• Damayanti Kerai of HSBC Securities also asked about maintenance capex for the company per year. Murali Divi MD said that per year it’s about INR100 crores.