Divi’s Laboratories Ltd’s Q2 performance was driven by strong growth in the Custom Synthesis (CS) segment. CS segment revenue grew 42% year-on-year (y-o-y), led by some moderation in generic segment sales, which declined 5% year-on-year.
Analysts said changes in demand patterns and shipments impacted generics segment sales during the quarter. However, its distinctive generic filings and strong portfolio of products provide comfort. Revenue witnessed a healthy growth of 13.6% year-on-year.
The firm’s margin at 41.5% was down from 43.3% in the year-ago quarter and 43.5% in the previous quarter. Cost escalation is posing some risk, despite strong backward integration with the firm for raw materials. Analyst at Jefferies India Pvt Ltd. Ltd. said, “We now focus on flat margins due to buoyancy in raw material prices.”
The firm said Divi’s 67% gross margin for Q2FY22 was in line with the previous quarter, but it may not be protected from higher prices in the coming quarters. The company’s CS segment sales came from the supply of COVID treatment drug Molnupiravir API (Active Pharmaceutical Ingredients) to Merck during the quarter. Divi’s is an authorized manufacturer of molnupiravir API for Merck. The market remained optimistic on the scale of supply following the success of the product.
However, last week’s release of test data for its product by Pfizer raised some concerns about high competition for Merck’s product, analysts said.
As such, analysts have cut earnings estimates for the firm after the second-quarter results. Analysts at Motilal Oswal Financial Services have lowered their FY22E/FY23 earnings estimates by 5% and 2%, respectively, factoring in near-to-medium-term moderation in generic API prospects, and increased operating expenses related to expanded capacity Is.
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