Q3FY22 Results: Robust performance continues

Revenues grew 46.5% YoY to Rs 2493.2 crore (I-direct estimate: Rs 2019.7 crore). EBITDA margins improved 338 bps YoY to 44% (I-direct estimates of 40.5%) mainly due to lower employee and other expenditure offsetting the lower gross margins (down 240 bps YoY to 66.6%). Subsequently, EBITDA grew 58.7% YoY to Rs 1097.2 crore (I-direct estimate: Rs 817.6 crore). Net profit grew 91.7% YoY to Rs 902.2 crore (I-direct estimate: Rs 592.4 crore). Delta vis-à-vis EBITDA mainly due to lower interest and tax expense

Divi’s Laboratories’ quarterly performance was a significant beat vis-à-vis Idirect and consensus estimates amid near-normal operations in Q3. More than strong quarterly performance, the important narrative for Divi’s is its unprecedented capex plans to further augment capacities besides preparing for growing opportunities arising due to China plus one factor. It has earmarked an aggressive capex of Rs 1000–2000 crore (including greenfield Kakinada plant) over the next two years in order to take a chunk of US $ 20 billion opportunity of APIs going off-patent over FY23-25. Divi’s remains a quintessential play on the Indian API/CRAMs segment with its product offerings and execution prowess

Q3FY22 Earnings Conference Call highlights 

Raw material prices are inflated due to the energy crisis in China but due to the diversified geographical presence and long-term contracts, Divi’s is facing issues at a lower scale.

Some logistical challenges are present in incoming raw material and outbound shipment. Overall, due to de-bottlenecking and backward integration, the company is guiding for sustainable EBITDA margins

Generics sales account for 43% of total sales in 9MFY22 while custom synthesis share is 57%. However, the management reiterated its aspiration to maintain 50:50 mix

Divi’s has long-term contracts with customers with a built-in mechanism for both supplier and buyer to make changes during volatile price scenarios. Newer generics will take some time before getting in long term contracts

The company is operating at 80-85% of production capacity.

Exports contributed 90% of total sales during 9MFY22 while the share was 92% during Q3FY22.

Europe and US contributed 79% of total exports during Q3FY22 and 77% in 9MFY22.

APIs worth US $20 billion are to go off-patent over FY23-25. Divi’s is looking to scale up by driving sales from this opportunity.

The management guided for Kakinada agreement to be reached soon.

The company undertook capex of Rs 196 crore in Q3FY22 and is expected to incur a capex of Rs 100 crore in Q4FY22. The total capex over the next two to three years is expected to be in the range of Rs 1000-2000 crore