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Divi's custom synthesis drives revenues amid sustainable margins

ICICI Securities 15 Feb 2022

What’s Buzzing:

Divi's Laboratories quarterly performance was a significant beat vis-à-vis I-direct and consensus estimates amid near normal operations.

Context:

Revenues grew 46.5% YoY to Rs 2493.2 crore (I-direct estimate: Rs 2019.7 crore). Revenue mix for this quarter was ~ 60:40 for custom synthesis and generics. 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).

Our perspective:

 More than a 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 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.

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