Divi’s Laboratories Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from Divi’s Laboratories Ltd (DIVISLAB) Q4 FY22 Earnings Concall

Management Update:

• DIVISLAB said it reached milestone revenue for FY22 of $1 billion with decent profitability despite the hurdles faced during the pandemic.

Q&A Highlights:

• Tushar Manudhane of Motilal Oswal asked if the company’s steady-state growth of 13-15% would continue in FY23. Murali Divi MD answered that the company is fulfilling all contracts and the future is good, but with so many things happening in the world on various fronts it is very difficult to give projections at this moment.

• Tushar Manudhane from Motilal Oswal also enquired about the sharp increase in receivables over the past six months. Murali Divi MD said that there are no bad receivables. All receivables are as per the contract. And what is reflecting is the increase in sales that has happened in the fourth quarter. That’s what is reflecting.

• Tushar Manudhane of Motilal Oswal queried if the Kakinada’s capex has started. Murali Divi MD answered that the company is still waiting for the government clearance to go ahead, though DIVISLAB has all the licenses received. And as soon it comes, the company will be investing.

• Neha Manpuria with Bank of America asked about the company’s current capacity utilization. Murali Divi MD answered that the capacity is around 80% right now, and it varies QonQ 80%, 85%.DIVISLAB also said it has two buildings that are ready now to take up new products constructed already.

• Surya Patra with PhillipCapital asked about how the antiviral drug opportunity will be panning out throughout CY22 for the industry and DIVISLAB in FY23. Murali Divi MD said it’s difficult to quantify, but added that the company will not lose any opportunities that come to it from the big pharmas.

• Jiten Doshi from ENAM Asset asked about the sustainable growth rates and margins in the next five years. Murali Divi MD said the company expects good growth, not in the next one, two years; but in five years.

• Jiten Doshi of ENAM Asset also asked if in the next five years the company would be spending about INR7,000-8,000 crores of capex to accomplish DIVISLAB’s vision. Murali Divi MD replied that the plan in the next 2-3 years is to spend about INR2,000-3,000 crores. But if opportunity requires, the company said, it won’t mind spending INR4,000-5,000 crores because DIVISLAB’s reserves do permit such expansion.

• Shyam Srinivasan from Goldman Sachs asked about custom vs. generic vs. nutraceutical, which is the largest product and total sales contribution to total sales for FY22. Murali Divi MD clarified that it don’t disclose by product, by company, or by customer. The company’s wishful thinking is that it maintains 50%-50%.

• Cyndrella with JM Financial enquired that looking at the INR2,800 crore inventory number, should it be considered as the visibility for growth in FY23. Murali Divi MD answered that the inventory related to the actual products DIVISLAB is manufacturing, there is no risk to the inventory at all.

• Cyndrella of JM Financial also asked if there is any risk to the 44% EBITDA margin that DIVISLAB envisages? Murali Divi MD clarified that the company doesn’t see any risks on the EBITDA. The bottom line depends on the company’s efficiency and productivity because of the process development work. And it varies, but the company will try to maintain it at 40%.