Divi's Laboratories Q1 Results: Profits Rises 20%; Meets Estimates

Divi's Laboratories Ltd.'s first-quarter profit rose in-line with market estimates. The company's net profit increased 20.7% year-on-year to Rs 430 crore in the quarter ended June, according to its exchange filing. That compares with the Rs 455 crore consensus estimate of analysts tracked by Bloomberg. Sequentially, the profit declined 20%.

• Revenue up 19.12% at Rs 2118 crore vs Rs 1778 crore (Bloomberg Estimate: Rs 2090 crore)

• Ebitda up 23.4% at Rs 622 crore vs Rs 504 crore (Bloomberg Estimate: Rs 626 crore)

• Ebitda margin at 29.3% vs 28.3% (Bloomberg Estimate: 30%)

• Net Profit up 20.7% at Rs 430 crore vs Rs 356 crore (Bloomberg Estimate: Rs 455 crore)

Financial Performance

1. Generics Business:

   Sales: Rs 989.4 crore

   YoY Growth: 4.8%

   QoQ Decline: 4.5%

2. Custom Synthesis (CCS) Business:

   -Revenue: Rs 950.6 crore

   -YoY Growth: 44.9%

   -QoQ Decline: 11.9%

3. Nutraceuticals Segment:

   -Revenue: Rs 178 crore

   -YoY: Flat

   -QoQ Decline: 5.3%

1. Stable demand for most established generic products.

2. Custom Synthesis: Working on several phase 2 & 3 molecules.

3. Production at Kakinada to begin in FY25; regulatory approvals for next phases to take up to 2 years.

4. The company expects to grow double digit on the back of Contrast Media, GLP-1’s intermediates, foray into new generics closer to patent expiry, ramp up in sartans and other recently launched generics

1. Gross Margin: 60%, down 232 basis points quarter on quarter due to changing product mix.

2. Management indicates that historical high EBITDA margin of 35% is not sustainable given the target product mix of 50:50 in generics & custom synthesis.

3. Current Custom Synthesis to Generics mix: 49%:51%; aiming for a 50:50 ratio.

4. Reported forex loss of Rs 1 crore this quarter versus a gain of Rs 3 crore in Q1FY24.

5. Constant currency growth in Q1FY25: 18%.

Market and Pricing

1. Experiencing pricing pressure across large volume products like Naproxen, Gabapentin, and Dextromethorphan over the past 2 years.

2. Despite pricing pressure, Divi’s maintains or moderately grows market share in these major molecules.

3. Management expects pricing pressure to taper off in the near future.

Capex and Investments

1. Long-term Supply Agreement: Entering an agreement with an MNC for capacity expansion.

   -Investment: Rs 650-700 crore, funded via internal accruals.

   -Facility operations to commence by January 2027.

2. Maintenance Capex Guidance for FY25: Rs 250 – 300 crore

Shares of Divi's Labs closed 1.12% higher on Friday, a day prior to the results, compared to a 1.17% decline in the benchmark Nifty.