Divi’s Labs Q1 results: Profit beats estimates

Divi’s Laboratories Ltd.’s first-quarter profit rose, beating estimates, but margin narrowed.

Net profit of India’s second-largest drugmaker by market value jumped 26% year-on-year to Rs 702 crore in the three months through June, according to its exchange filing. That compares with the Rs 660-crore consensus estimate of analysts tracked by Bloomberg.

Key highlights (YoY)

• Revenue up 15% at Rs 2,255 crore (Estimate: Rs 2,228 crore)
• Operating profit down 1% at Rs 847 crore (Estimate: Rs 922 crore)
• Operating margin at 37.6% vs 43.5% (Estimate: 41.4%)

Earnings call highlights

• While demand has stabilised, cost pressures and logistical pressures continue to persist leading to pricing pressures.
• Its overall exports for the year stood at around 90%, of which 74% was to the regulated markets of the U.S. and Europe.
• Prices of raw materials specially solvents have gone up. While some costs have been contained partially because of long-term contracts and backward integration, “solvents prices gone up by 30-50% and in some cases as high as 100%.”
• Even energy prices have gone up, they said. Coal price increased from Rs 6 per kg to Rs 8 per kg and the cost of power generation has gone up from Rs 30-40 per unit to Rs 60-80 per unit, the company said.
• They launches three new active pharmaceutical ingredients in the quarter across multiple countries. Of this one is a contrast media API.
• Murali Divi, managing director, said, “Contrast media could be a big growth driver for the next two years.”
• Newer generics, the management said, will occupy less capacity and will have higher margins, medium volume and higher value. Since the current capacity utilisation is at 83%, it has sufficient capacity to take on newer projects. It has planned a capex of Rs 500-600 crore towards newer technologies at existing facilities. The new custom synthesis facility is also ready now.
• Of the quarterly revenue, 53% is from custom synthesis while the remaining 47% comes from generics. They wish to maintain this ratio at 50-50%, going forward.
• The management has guided for “Ebitda margin of above 40%, including other income.”
• They are still awaiting approvals for Kakinada plant and the company has a cash balance of Rs 3,431 crore as on June 30.

Shares of Divi’s Labs closed 5.56% lower on Aug. 12, after the quarterly results and the earnings call, compared with a 0.22% rise in the benchmark S&P BSE Sensex. BQ Prime