DIVISLAB - Divi's Laboratories Ltd. Share Price

During the earnings conference call held on May 17, 2025, management of Divi's Laboratories provided an insightful outlook for the company, highlighting key operational progress and strategic initiatives.

For the financial year 2024-25, Divi's achieved a consolidated total income of Rs.9,712 crores, up from Rs.8,184 crores in the previous year. Profit before tax (PBT) rose to Rs.2,916 crores from Rs.2,163 crores, while profit after tax (PAT) increased to Rs.2,191 crores from Rs.1,600 crores. The management emphasized strong growth in the custom synthesis segment, with healthy engagement from customers, evidenced by a notable long-term agreement for advanced intermediates with a leading global pharmaceutical company.

Management outlined significant forward-looking points, including:

1. Continued Double-Digit Growth: Management anticipates maintaining a double-digit growth trajectory across all segments, supported by resilience in the generic business despite pricing pressures.

2. Custom Synthesis Momentum: Due to a high rate of customer engagement, the company sees strong growth prospects in the custom synthesis space, with numerous projects in various phases of development.

3. Kakinada Facility Contribution: The phased production at the Kakinada plant is already in progress, essential for backward integration and cost management, with total spending on this project reaching Rs.1,497 crores as of March 31, 2025.

4. Innovation Investments: Management plans to further invest in next-generation technologies, such as Continuous Flow Chemistry and Biocatalysis, to enhance manufacturing capabilities.

5. Logistics Management: The company has proactively navigated global supply chain challenges, ensuring timely delivery of products through enhanced logistics planning.

The management's optimistic outlook underscores the potential for enhanced competitiveness and capabilities in the evolving pharmaceutical landscape.

Question 1: "Could you discuss the growth number we are witnessing in the generic business, particularly its drivers and impacts on margins?"

Answer: Our generic performance is indeed facing high competition, maintaining stable volumes despite continual pricing pressure. Growth is not predominantly driven by price rises but is supported through consistent market share and the introduction of new off-patent molecules. I believe our strategy in sustaining our leadership position will help maintain competitive margins moving forward.

Question 2: "Can you elaborate on whether the margin improvements observed are sustainable or cohort-specific?"

Answer: The observed margin improvements were heavily influenced by product mix and may change quarter by quarter. It's prudent to view margins from a yearly perspective rather than focusing on a single quarter, as this better reflects our operational dynamics.

Question 3: "What is your outlook on RFQs and customer engagement in the custom synthesis space, especially post-Biosecure Act?"

Answer: Our engagement within custom synthesis remains robust. We have long-term relationships and contracts in place and our continuous pipeline of RFQs reflects confidence from our clients. While changes in the industry landscape like the Biosecure Act have heightened interest, our business has always existed independently of such factors.

Question 4: "Has the backward integration from your Kakinada facility started reflecting in gross margins?"

Answer: Yes, Kakinada's production commenced in January, and while benefits are emerging, the primary goal is to secure a continuous supply of critical raw materials for our customers rather than solely impacting pricing. The phased expansion will further enhance our operational efficiency and stability.

Question 5: "In your peptide capabilities, do you target areas outside GLP-1s and are there initiatives in ADCs or nucleotides?"

Answer: Currently, our focus is primarily on manufacturing peptides for GLP-1s and related products, while investments in solid- and liquid-phase capabilities enable us to address evolving client needs. We're exploring ADCs and nucleotides but cannot disclose details until further developments occur.

Question 6: "How do recent large capital expenditures by US pharma companies affect your business?"

Answer: We've noticed that large pharmaceutical companies are reshaping their manufacturing strategies, which opens new opportunities for us in custom synthesis. However, our existing long-term contracts provide us with security and we are prepared to adapt to the changing landscape as needed.

Question 7: "When should we anticipate the impact of your recent long-term supply agreements?"

Answer: We expect to see commercial impacts from these agreements by late 2026 or early 2027, depending on regulatory approvals and production timelines.

Question 8: "Can you provide guidance on CAPEX for the upcoming financial year?"

Answer: Our expected CAPEX for the next financial year is approximately Rs. 1,400 crores, which includes maintenance CAPEX. This investment will support ongoing and new projects to enhance our production capabilities.

Question 9: "With inventory levels remaining around Rs. 3,000 crores, how do you view inventory management going forward?"

Answer: Our inventory levels have stabilized due to the diverse product portfolio and consistent material availability from various sources. As we aim for double-digit growth, maintaining lean inventory will continue to be a priority, allowing us to adapt quickly to market demands.

Question 10: "What guardrails do you follow in determining whether to invest in dedicated manufacturing blocks?"

Answer: The decision for dedicated blocks is influenced by product volume and business potential. We balance multi-purpose capabilities with specific investments for high-volume contracts, ensuring optimal resource allocation tailored to customer needs without compromising flexibility.