DIVISLAB - Divi's Laboratories Ltd. Share Price

Management's outlook for Divi's Laboratories emphasizes a strong commitment to growth and operational resilience despite external challenges. Dr. Kiran S. Divi highlighted the focus on execution, supply reliability, and long-term capacity planning.

The company recorded a consolidated total income of Rs.11,067 crores for FY 2025-26, representing a robust growth from Rs.9,712 crores in the previous year. Profit before tax reached Rs.3,388 crores, while profit after tax was Rs.2,568 crores, up from Rs.2,191 crores year-on-year. Management noted a consistent demand for their products, with export revenues contributing nearly 89%, of which Europe and the United States accounted for approximately 74%.

For FY 2026-27, management targets double-digit revenue growth, driven by operational efficiencies and strategic investments. They acknowledged ongoing freight-related cost pressures but expressed confidence in their procurement strategy and supply chain management, which have been fortified over recent years.

The capital work in progress stood at Rs.2,113 crores, contributing to a projected continued capex around Rs.1,500 crores in FY 2027. Management believes that while margins are projected to remain stable due to fluctuating raw material costs, the new dedicated projects may contribute positively in the long run.

Key forward-looking points include:

• Targeting a 6.82% constant currency growth with an aim for double-digit revenue growth in FY 2027.
• Anticipated demand for custom synthesis, backed by existing long-term contracts.
• Continuous investment in technology and infrastructure to meet customer needs, particularly in peptide synthesis and custom products.

Overall, the management's outlook reflects an optimistic yet cautious perspective, balancing current challenges with strategic plans for sustained growth.

Here are the major questions and answers from the Q&A section of Divi's Laboratories' earnings conference call:

1. Surya Patra: "Is it fair to believe that the worst is behind us already regarding raw material availability, particularly methanol?" Nilima Prasad Divi: "The impact has been minimal year-round since the war began. We're currently facing sourcing challenges but maintaining production. We're actively reviewing our needs quarterly and ensuring our customers are informed. While sourcing is tough, we're managing without production stoppages."

2. Surya Patra: "What is your capex plan for FY27, and what's your margin outlook given the challenges?" Nilima Prasad Divi: "Our ongoing capital work in progress stands at Rs.2,113 crores, with a large expansion at Kakinada underway. We aim for double-digit revenue growth, and while projecting future margins is challenging, we expect them to remain stable."

3. Amey Chalke: "Why did the constant currency top-line growth slow to 6% despite significant capex?" Nilima Prasad Divi: "The capex primarily materialized late in the last quarter. We're anticipating more consistent revenue growth rather than focusing solely on constant currency figures impacted by exchange rate fluctuations."

4. Tushar Manudhane: "With the increase in API revenue, is it driven by existing volumes or new molecule additions?" Dr. Kiran S. Divi: "The revenue increase is from our existing portfolio as we await new product launches, expected as earlier projects come off patent."

5. Neha Manpuria: "Will increased raw material costs be passed to customers, and is it timely to assess API price increases?" Dr. Kiran S. Divi: "While we face rising raw material prices, most of our API contracts include clauses for variable pricing. This helps mitigate cost pressures, but we also balance spot buys with negotiations."

6. Ritika: "What are the expected timelines for your three dedicated capacities to start utilization?" Dr. Kiran S. Divi: "These projects are in validation stages. We're hopeful that by 2027, they will be commercialized, subject to our customers' regulatory approvals."