Divi's Laboratories Q1 FY27 earnings call

Divi's Laboratories reported a strong Q1 FY27, with consolidated total income reaching ₹3,144 crores, marking a 24.39% year-on-year growth. Consolidated Profit After Tax (PAT) surged by 65.50% to ₹902 crores. On a standalone basis, revenue grew 22.66% YoY, or 10% in constant currency. The business mix saw Custom Synthesis contributing 60% and Generics 40% to standalone revenue, with exports accounting for approximately 90% of standalone revenue, 75% of which came from Europe and North America. The nutraceutical business also showed robust growth, with revenue increasing by 19.20% YoY to ₹298 crores.

The external operating environment remained challenging, particularly concerning global trade routes and sourcing channels linked to West Asia. While raw material availability was largely stable, solvent costs remained elevated, and geopolitical tensions introduced additional uncertainty. Global logistics continued to face issues such as elevated freight rates, port congestion, and extended transit times. To mitigate these risks, Divi's implemented a strategy of stocking material for three months, ensuring production continuity and securing supply, which contributed to a significant increase in inventory to ₹4,413 crores.

Peptides remain a strategic investment area, with customer programs progressing through various development phases and qualification activities. Divi's is expanding its capacity by acquiring additional 3,000-liter SPPS units, leveraging its unique backward integration from basic raw materials to fragments. Unit 3 plays a crucial role in the production network, supporting backward integration through pre-chemistry operations and facilitating the phased transfer of manufacturing activities, thereby enhancing supply assurance and network flexibility.

The company continues to focus on technology development, with progress in continuous flow chemistry, biocatalysis, and advanced automation. These initiatives aim to improve process safety, product producibility, reduce variability, and promote sustainable manufacturing routes. Process intensification initiatives are also being implemented across selected products to enhance productivity and support efficient commercial-scale manufacturing, aligning with Divi's long-term operational strategy.

Three major capex programs are nearing completion, with validations ongoing. Commercialization is contingent on regulatory approvals and customer qualifications, which can take 1-2 years. For new generic products like Brivaracetam and Ticagrelor, commercial volumes are expected to move out in the next 3 to 6 months. In the Iodine-based contrast media segment, long-term contracts are being signed with two customers, with commercialization for one already started and the second expected to begin in the next few months^⏳, promising substantial quantities.

Management clarified that recent price increases observed in the generic market are primarily a 'market correction' driven by substantial increases in raw material costs, particularly solvents, which have seen prices double or triple due to issues in the Middle East. These cost increases are being passed on to end customers by most generic houses. This indicates that the observed price movements are a response to input cost pressures rather than an end to the broader generic pricing pressure cycle.