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Informist, Saturday, Aug 3, 2024

--Divi's Labs: Supply chain challenges still persist, freight costs high

--CONTEXT: Divi's Labs mgmt comments in post-earnings call

--Divi's Labs: Spent 10.2 bln rupees on Kakinada plant as on Jun 30

--Divi's Labs: Cash in hand 42.3 bln rupees as on Jun 30

--Divi's Labs: Inventories high due to logistic challenges

--Divi's Labs: Kakinada plant to add to revenue only after 2 yrs

--Divi's Labs: Increased interest for contract mfg svcs from US

--Divi's Labs: Inventories at 31.08 bln rupees as on Jun 30

By Narayana Krishna

HYDERABAD - Supply chain challenges and higher inventory have impacted the performance of specialty chemicals and high-value bulk drugs manufacturer Divi's Laboratories Ltd for the June quarter, resulting in earnings slightly below analysts' estimates. The Hyderabad-based drugmaker reported a net profit of 4.30 bln rupees, up 24.6% year-on-year, on a revenue of 20.63 bln rupees, up 19.3% year-on-year. Sequentially, the company's net profit fell 19%, and revenue was down 8.7%. Analysts had estimated Divi's Labs Apr-Jun net profit at 4.72 bln rupees on a revenue of 21.18 bln rupees.

Divi's Labs management said supply chain challenges, such as the diversion of shipments and higher freight costs, are still posing difficulties, and the company is maintaining higher inventories to avoid any disruptions in supplies. About 86% of Divi's Labs' total revenue comes from exports, largely to the US and Europe.

Despite these challenges, a good product mix helped the company report growth and maintain margins, the management said. The custom synthesis segment, which yields high margins, contributed about 51% of total sales, while the generic bulk drugs segment accounted for 49%. Inventories as of Jun 30 were at 31.08 bln rupees.

Divi's Laboratories' earnings before interest, tax, depreciation, and amortisation margins for the quarter improved 172 basis points year-on-year to 30.10%, with EBITDA at 6.2 bln rupees. Analysts had expected EBITDA margin in the range of 28.7-32.1%, with EBITDA of 6.4 bln rupees.

Refraining from giving specific guidance, Divi's Labs management said it is working towards achieving double-digit revenue growth while aiming for higher EBITDA levels.

Besides custom synthesis and generic bulk drugs, contrast media operations are also expected to drive growth moving forward. The company’s nutraceutical business revenues were flat year-on-year at 1.78 bln rupees, the management said. Divi's Labs is also receiving several enquiries from global pharmaceutical companies for its contract research and development organisation services.

KAKINADA PLANT UPDATE

Divi's Labs management expects Phase I of its upcoming plant at Kakinada in Andhra Pradesh to be ready by the end of March. However, it may take 2 years to add revenues from this plant, as it takes 1-2 years to acquire complete regulatory approvals and begin manufacturing on a commercial scale.

The management said it has spent 10.2 bln rupees on capital expenditure as of Jun 30 on the Kakinada plant. The company had previously stated it might invest over 12 bln rupees in the first phase of the Kakinada unit. The company has 42.3 bln rupees cash in hand as of Jun 30. As the current capex plans are in progress, the company has not decided on any new capex for the coming quarter, the management said, adding it may detail future capex plans during Jul-Sep.

On Friday, shares of Divi's Labs closed at 4,991.25 rupees on the National Stock Exchange, up 1.5% from its previous close.  End

Edited by Manisha Baxla

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