Categories Concall Highlights, Earnings, Health Care

Divi’s Laboratories Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Divi’s Laboratories Ltd (DIVISLAB) Q4 FY23 Earnings Concall

Q&A Highlights:

  • [00:11:30] Tushar Manudhane from Motilal Oswal asked if backward integration and softening raw material prices lead to a new normal of 57-58% GM. Murali Divi MD replied that RM prices are decreasing, stabilizing, and expected to continue lowering in the future. This reduction is anticipated to bring benefits in upcoming quarters, potentially reaching previous levels.
  • [00:12:50] Tushar Manudhane from Motilal Oswal enquired about the timeline for going back to the normal GM of 67-68%. Murali Divi MD answered that the timing of the expected improvement is uncertain but anticipated by the end of the year.
  • [00:13:22] Prakash Agarwal from Axis Capital asked about contrast media products, such as the number of products, target market, and ramp-up plan. Murali Divi MD replied that the company is expanding its capacity for iopamidol and iohexol, and has started commercial production of contrast media for a big pharma. This should lead to growth in the coming quarters.
  • [00:15:53] Prakash Agarwal at Axis Capital queried about the current split between custom synthesis and generics in the product mix. Murali Divi MD replied that the company’s target split between custom synthesis and generics is 50:50, but the current split is 56:44 in favor of generics. In 4Q, the split was 59:41 in favor of generics.
  • [00:17:40] Surya Narayan Patra from PhillipCapital asked if there are any unprecedented business conditions that have caused the company’s reported margin and GM to be at their lowest levels in the last 10 years. Murali Divi MD explained that there were no unprecedented events that caused the company’s recent fluctuations in profitability. DIVIS attribute the changes to normal variations in business, including changes in product mix and RM prices, and expect to see a return to normalcy towards the end of the year.
  • [00:21:44] Surya Narayan Patra from PhillipCapital asked about the company’s adoption of Green Chemistry principles and technology upgrades. Murali Divi MD replied that adopting Green Chemistry and new technologies is necessary for doing business with big pharmaceutical companies in the US and Europe. These changes bring advantages such as increased productivity and reduced RM costs, and are essential for the company’s long-term success.
  • [00:25:43] Cyndrella Carvalho at JM Financial enquired about an update on the status of the two custom synthesis projects that were scheduled to be commissioned in 4Q or 1Q. Murali Divi MD said one of the two custom synthesis projects has already gone into commercial production and supply. The second project is in the ramp-up phase and will be available in the coming quarters.
  • [00:26:57] Cyndrella Carvalho with JM Financial asked how is the pricing scenario for generic APIs currently, and how will this affect the company’s realizations. Murali Divi MD said that the pricing scenario for generic APIs is mixed. Some products are still seeing strong demand and pricing, while others are facing pressure due to the COVID-19 pandemic. The company expects prices to stabilize and improve in the coming quarters.
  • [00:30:40] Shyam Srinivasan from Goldman Sachs asked about the reasons for the QoQ growth in custom synthesis and generic API, excluding nutraceuticals and whether it is due to specific projects or other factors. Murali Divi MD answered that the company is investing INR1,200-1,500 crores in Unit 3. This unit will be used to manufacture nutraceutical APIs, advanced intermediates, and sartan materials. The company expects this investment to help it meet the growing demand for its products and expand its market share.
  • [00:38:58] Neha Manpuria at Bank of America asked when will the Phase 1 of the Kakinada unit start manufacturing nutraceuticals and advanced intermediaries. Murali Divi MD replied its is a greenfield project and DIVISLAB has just started there last month of the ground cleanup and expects to commercialize by end of ’24.
  • [00:40:56] Neha Manpuria at Bank of America enquired if the company is still consuming high-cost inventory and facing pricing pressure in generic APIs, which is why GM have not improved as expected. Nilima Divi Director said the company is employing a mix of high-cost and low-cost materials as prices transition, with the expectation of realizing the benefits of lower material costs in the upcoming quarters.
  • [00:44:00] Nikhil from SIMPL asked if the company’s ability to gain market share be restricted by the current inventory destocking and excessive price competition in the API market. Murali Divi MD said the company has two growth engines in generic products: traditional and established products where metal price is the issue and newer generic products where capacity has been increased. It will take 4-8 quarters to see the full benefits of the increased capacity.
  • [00:52:13] Ankush Mahajan with Axis Securities enquired if DIVISLAB can expect revenue for media agents in 1Q and how was the volume uptake for generic APIs like gabapentin and naproxen in 4Q. Murali Divi MD replied that the market for generic products like gabapentin is consistent with only price variations.

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