Divi's Laboratories — Q1 FY24
Divis Laboratories reported a consolidated total income of INR 1,859 crore for Q1 FY24, down from INR 2,343 crore in the same quarter last year, reflecting the absence of COVID-...
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Did management answer the analysts?
Every material analyst question, graded on whether management actually answered it — with the verbatim exchange and quantitative claims checked against filed numbers.
38%Questions answered5Evaded / deflected12Questions audited
Partial answer
High priority
Scope of passing lower raw material prices to customers and sustainable gross margin.
Asked by Tushar Manudhane, Motilal Oswal Financial Services
Management discussed pricing dynamics but did not provide a specific sustainable gross margin figure.
no specific margin number given
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Question
Sir, on your comments with respect to raw material prices moving down, would there be a scope of passing this to customers? What should be the sustainable gross margin to look for, particularly?
Murali Divi, Managing Director
In the generic portfolio, based on the competition, if the general prices of raw materials have come down, probably the demand from the generic industry may be there to optimize to bring down the prices. Where we are in generic industry, generic products, where there's long-term arrangements, usually we don't have that, so we will be able to retain the extra margin.
Partial answer
High priority
Sustainability of gross margin improvement and scope for further expense reduction.
Asked by Cyndrella Carvalho, JM Financial
Management listed drivers but did not quantify the expected margin improvement.
no quantification of margin improvement
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Question
How should we see this, the gross margin, A, is, do we see some improvement in our generic, pricing scenario also, or is this purely by the raw material? The B part is on the expense side, should we see, further scope of improvement as we go ahead?
Murali Divi, Managing Director
Only, not only the some of the there is an improvement in the raw material prices, but also there is an improvement happening in the coming quarters by profit improvement or by yield improvement and reducing manufacturing costs by energy-efficient operation.
Partial answer
Medium priority
Overall API pricing scenario and new product opportunities.
Asked by Cyndrella Carvalho, JM Financial
Management gave general commentary but did not name specific new products or quantify pricing trends.
no specific new products named
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Question
Any, any thoughts on the overall API pricing scenario? Do you see or you highlighted that there is a pricing pressure across, but you also highlighted that there is scope for an emerging opportunities that you see, coming, going ahead in terms of generic filing that we are doing. How should we see the overall pricing scenario and any new products that you may want to highlight for us to track going ahead?
Murali Divi, Managing Director
On the number growth engine, the growth engine on established products where, like Naproxen sodium, Galantamine, products like that, they are stabilized. The price pressures, they're question mark in some of them. As most of the generic, I think they are settled and there are no price pressures now.
Partial answer
High priority
Why generic and nutraceutical growth is subdued despite double-digit guidance.
Asked by Shyam Srinivasan, Goldman Sachs
Management acknowledged single-digit growth but did not explain how it aligns with double-digit guidance.
did not reconcile with double-digit guidance
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Question
Just on the split of generic and custom that was just shared. When I just add generic piece and the nutraceutical pieces together and look at growth on a YOY basis, seems to be still subdued, like low single digit, flattish kind of a YOY trends. Even if I look at it, compared to the quarter before also, it seems to have declined. Just want to understand, and also reflect upon our guidance for fiscal 2024, when we exclude Molnupiravir, where we were-- we are looking at double-digit growth. If you can help us understand that, sir.
Murali Divi, Managing Director
I won't say there is a decline in the quantity of generic APIs or the. I agree with you, the growth of the matured generic is in the single digits, yes. When you say that they compound the 5,000 tons, even a single digit can be substantial, like 6%, 5% growth. We are talking about, say, 250 tons growth year-on-year.
Evasive
High priority
Path forward for custom synthesis and expected growth in Q2.
Asked by Shyam Srinivasan, Goldman Sachs
Management declined to provide specific growth expectations for Q2.
refused to give quarterly guidanceno timeline for growth
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Question
Just a second question on the custom synthesis. With the current base, I'm assuming, you know, there is no one-off or special opportunities like Molnupiravir in the case anymore. I, I remember you have said that you have shifted some time back, but just trying to understand the path forward for custom synthesis. The 40% number, should we now start assuming that the projects that you mentioned also the commercialization of, say, Sartans and even the second project, you will likely see a sequential or a YOY growth in Q2?
Murali Divi, Managing Director
I don't think we should look it on quarter to quarter. They say that Molnupiravir, Molnupiravir is not the only one. We have seen several opportunities. We don't know which one will become, again, all of us when Molnupiravir. We are working on number of projects with number of big pharmas in the small molecule segment.
Partial answer
High priority
When will high-cost inventory be liquidated and margins normalize?
Asked by Surya Narayan Patra, PhillipCapital India
Management described the trend but did not give a specific quarter for margin normalization.
no specific timeline for normalization
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Question
So from the annual report, if I see, we both are in front of the raw material inventory as well as means the working progress inventory. Both have gone up by INR 500 crore kind of levels from the normalized level. So when do you think that this high cost inventory or what portion of this is a high cost inventory, and when do you think that it would be liquidated so that you can get to your normalized margins?
Nilima Prasad Divi, Director
The high cost inventory was being reflected at that time, and that's why, you know, there has been a higher raw material consumption at that point in time. The materials that have been procured at higher price have been diminishing. Right now, what in the quarter Q1 that you have been seeing, the reduced production in the raw material consumption has been taking place mainly because of consuming the lower cost one.
Evasive
Medium priority
Portion of elevated inventory that is high-cost.
Asked by Surya Narayan Patra, PhillipCapital India
Management did not provide a specific portion or amount of high-cost inventory remaining.
no quantification of remaining high-cost inventory
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Question
Is it possible to kind of delineate, let's say, what portion of this elevated inventory is relating to the high cost base, so that, you know, the process of blending the low cost one and managing your margins, that process will continue?
Nilima Prasad Divi, Director
Well, as I mentioned earlier, the most of the high cost procured material has been consumed, which has been reflected in the earlier quarter.
Answered
Medium priority
Pricing trend and capacity utilization in Carotenoids.
Asked by Surya Narayan Patra, PhillipCapital India
Management provided specific capacity utilization and expansion timeline.
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Question
What is the pricing trend, sir? That is one. Secondly, we have been seeing since last few quarters that it is kind of a saturated at that level, and it is very narrow range. Are we operating currently at 100% utilization? Unless until we see expanded facility, we may not see growth in the Carotenoids. That is one question. Secondly, whether the prices of Carotenoids has also seen some impact given because of the current situation.
Murali Divi, Managing Director
We have not seen any price pressures in the Carotenoids. In fact, our plant of Carotenoids is running in the 90%-95% capacity. In fact, we needed more capacity of the API of Carotenoids. Where the Unit 3, we are putting in additional capacity of Carotenoids, which will come in line sometime in the Q1, Q2 of next year.
Declined
Medium priority
Peak sales range relative to gross block of INR 6,800 crore.
Asked by Anirudh Shetty, Solidarity Investment
Management explicitly said they do not calculate such a relationship.
refused to provide range
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Question
In fiscal 2023, we had a gross stock of about INR 6,800 crore, and I presume this is just Unit 1 and 2. Wanted to get a sense of what is the broad range of peak sales, that you can kind of relate to this gross stock?
Murali Divi, Managing Director
We do not calculate because we have a peculiar situation of projects of custom synthesis, projects of, generic and nutraceutical. So we don't. Some of them need more equipment- which will give more value, less value, like some of our 5,000 tons of methoxy, 3,000 tons of carbamazepine.
Answered
High priority
Steady-state EBITDA margin target.
Asked by Anirudh Shetty, Solidarity Investment
Management provided a specific EBITDA margin range of 35%-40%.
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Question
When you think about more long-term steady-state numbers, what kind of EBITDA margin do you think you can achieve? When you look at your history, I think for a long period of time, you have been between 35%-40%, and 2021 and 2022, you broke that and went, you know, 40%, 43%. What is the steady-state number that, you know, you, you want to get in the stream?
Murali Divi, Managing Director
I think we used to be 35%-40% before the COVID, and the COVID up and down, and the COVID just came again, it went up. We see a stable, probably steady 35%-40%. I think that's what we can comfortably say.
Evasive
High priority
Timeline for custom synthesis projects to contribute to revenue.
Asked by Neha Manpuria, Bank of America
Management gave a vague 'coming years' without committing to FY25 or FY26.
no specific timeline given
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Question
You mentioned that, you know, custom synthesis have a lot of projects that are doing very well. You mentioned the, you know, conversion of these products into, let's say, revenue monetization. You know, based on the progress that you're seeing, would you say some of the start contributing in the FY25, FY26? You know, how should we... Different, what conversion rate of which pipeline?
Murali Divi, Managing Director
I think I would like to say in general, based on the strength we have in Sartans, based on the strength we have in contrast media, we should be able to see a good growth in the coming years.
Evasive
Medium priority
Whether INR or USD growth better indicates core business growth.
Asked by Chirag Dagli, DSP
Management avoided the question by discussing COVID disruption.
did not answer which metric is better
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Question
If I look at the last 4, 5 years, your CAGR in INR terms is about 12%, and in USD terms, US dollar terms, is about 8%. When you think of your business, you think, you know, which of the two numbers kind of broadly indicates the core, core business growth?
Murali Divi, Managing Director
it's very difficult to say about the last 3, 4 years, because first of all, we are fortunate we are alive escaping the COVID. I think that's true with everybody. there are a lot of opportunity with reference to launch of new products of other therapeutic segments, investment into research of other therapeutic segments.