DIVISLAB Q3 2024-2025 Call Highlights: Expansion Plans, Generics Growth, and API Challenges!

Divi’s Laboratories Ltd., an Indian multinational pharmaceutical company that manufactures and exports API’s, Intermediates and Nutraceutical ingredients, in its Q3 earnings call elaborated on several strategic initiatives and business segments. The management mentioned that the Kakinada facility’s Phase I will be completed in 6 months, focusing on backward integration and manufacturing starting materials from Units 1 and 2, currently at 80% capacity, while also including Nutraceutical APIs production. In the GLP-1 segment, the company highlighted its competitive advantage through in-house manufacturing capabilities for SPPS, LPPS, protected amino acids, and building blocks, while in contrast media, it’s working with innovators on both Iodine-based and Gadolinium compounds. Management explained the decline in EBITDA margins over the past decade due to increased regulatory compliance costs and logistics challenges, while maintaining a conservative outlook with double-digit growth targets despite pricing pressures in generics.

Divi’s Laboratories delivered strong results, with net profit rising 66% year-over-year, exceeding analyst expectations. Revenue grew 25%, with custom synthesis and generics contributing 53% and 47% respectively, while EBITDA increased 52% with margins expanding from 26.4% to 32%. The company, which serves over 100 countries and major pharmaceutical companies like Novartis as one of India’s largest API manufacturers, commenced commercial operations at its Kakinada Project (Unit-III) on Jan. 1, 2025, investing INR418 crores out of INR433 crores total quarterly capitalization. Management is optimistic about its growth prospects supported by global pharmaceutical companies diversifying supply chains away from China and potential opportunities in the obesity drug market, despite pricing pressure in its generics business.

Continue Reading: Discover the Vital Insights from Divi’s Laboratories Ltd.’s Earnings Call!

Financial/Operational Metrics:

• Revenue: INR2,401 crore, up 25% YoY.
• Net Profit: INR589 crore, up 66% YoY.
• EPS: INR22.20, up 66% YoY.
• Forex Gain: INR10 crores, down 44.4% YoY.

Outlook:

• Expansion Plans: Full operationalization of Kakinada project in ~6 months.
• Logistics & Supply Chain: Expected easing of global disruptions with Middle East ceasefire.
• Patent Expirations: Expected to drive growth in the generics segment.

 

Analyst Crossfire:

• Contrast Media Developments, Tariff Risks & Mitigation (Meet Katrodiya – Niveshaay): Divi’s Laboratories is progressing in both iodine-based and gadolinium-based contrast media, working closely with innovators at various stages, from qualification to commercialization. Regulatory approvals will determine future milestones. No immediate concerns regarding U.S. tariffs under potential policy changes. The company is monitoring the situation and exports to Europe as an additional hedge (Kiran Divi – CEO, Nilima Prasad Divi – CFO).

 

• Kakinada Facility Ramp-Up, Custom Synthesis Pipeline & Scale-Up (Neha Manpuria – Bank of America): Phase I commercialization expected within six months. Initial operations will utilize starting materials from existing units, freeing up capacity for other growth opportunities. Regulatory approvals will dictate further expansion. Multiple opportunities in Phase III and commercialization stages. Growth depends on regulatory approvals, with new projects progressing actively (Kiran Divi – CEO).

 

• Nutraceutical Business Growth, Unit 1 & 2 Capacity Utilization (Surya Narayan Patra – PhillipCapital): Kakinada Phase I will support backward integration, potentially boosting nutraceutical production. Expansion is phased, and further details on Phase II will be shared in due course. Current utilization is at 80%. Kakinada Phase I will shift some production, freeing up capacity while new pipeline projects continue to fill space (Nilima Prasad Divi – CFO, Kiran Divi – CEO).

 

• Competition with China & Global Scaling, Gross Margin & Cost Management (Vivek Agrawal – Citi, Tushar Manudhane – Motilal Oswal): Divi’s differentiates itself with vertical integration in raw materials, unlike competitors such as WuXi. Long-term positioning in GLP-1 remains strong. Backward integration and logistics cost reduction are expected to improve gross and EBITDA margins. The company aims for stable double-digit growth across both generic and custom synthesis businesses (Kiran Divi – CEO, Nilima Prasad Divi – CFO).

 

• Custom Synthesis Demand & U.S. Biosecure Act, Generic Segment Growth Outlook (Vivek Agrawal – Citi): The company has seen a rise in RFPs and customer visits, driven by its reputation for IP security and sustainable chemistry. The U.S. Biosecure Act has led to some new opportunities. Volume growth in generics remains strong, but pricing pressure impacts financials. The company retains a leading market share in key products (Kiran Divi – CEO, Nilima Prasad Divi – CFO).

 

• Capacity Expansion & Operating Leverage, Nutraceutical Segment Outlook (Amarnath Bhakat – Ministry of Finance of Onam): The Kakinada plant’s Phase I is focused on backward integration. Freed-up capacity at other units will support new opportunities, with a cautious yet optimistic outlook on margins. The segment saw a demand dip post-COVID but is now experiencing a steady recovery, driven by global consumer trends (Nilima Prasad Divi – CFO, Kiran Divi – CEO).