Shares of Divi's Laboratories Ltd. continued to tumble in early trading as analysts cut target price estimates after fourth-quarter earnings, citing falling sales of Covid-related drugs and entry barriers to some of the new products it targets.
India's second-largest drugmaker by market value saw custom synthesis or compounds prepared on behalf of customers contributing 59% of its revenue in the quarter ended March. The remaining 41% came from generic molecules.
Total revenue rose 41% over a year earlier, while net profit jumped 78%, driven by sales of Molnupiravir, a Covid-related drug, in January-March.
The company's stock fell fell 5.59% in intraday trade to a 52-week low of Rs 3,680 apiece in early trading on Tuesday. That compares with a 0.37% fall in Nifty 50.
Divi's shares tumbled 9.45% on Monday after company reported fourth-quarter numbers.
Here's what brokerages have to say about Divi's Labs' Q4 FY22 results:
Motilal Oswal
Recommends 'buy' with a target price of Rs 4,480 apiece, implying an upside of 15%.
The company delivered a better-than-expected Q4FY22, with the highest ever quarterly sales and Ebitda.
The performance was largely led by strong traction in the custom synthesis segment.
While gross margins contracted due to changes in product mix, Ebidta margin expanded due to lower other expenses/employee costs as a percentage of sales.
Lower estimates to factor in reduced sales of Covid-related products as cases fall globally; a gradual uptick in growth in the generics segment; and delay in implementation of Kakinada capex.
The management said it has over 100 acres at Unit 1/2, which can meet its capex needs over the next two to three years.
Divis Labs continues to work on contract research and manufacturing services; develop its generics API pipeline; and build capacity to meet sustainable as well as situational opportunities.
Contrast media, or dyes used for diagnostic imaging, is a high-entry barrier segment, with iodine recovery being one of the most important outcomes with its price moving to $70 a kilogram from $25/kg. There are a few key players in the market, said the management.
Jefferies
Maintains 'underperform'; cuts target price to Rs 3,535 from Rs 3,965 apiece, implying a downside of 18%.
Q4FY22 revenue/Ebidta/net profit showed a double-digit beat to estimates driven by Molnupiravir sales.
Financials of the company are likely to be under pressure as Molnupiravir sales dry up. (From currently $200 million to $20 million in FY23)
On a quarter-on-quarter basis, revenue/Ebidta/net profit and Ebidta margin were flat.
During FY23-25, products worth $20 billion (Rs 1.6 lakh crore) will be going off-patent. These will be the key growth drivers for Divi's Labs in the coming years apart from its contrast media and sartan (hypertension drug) business expansion.
In custom synthesis, it has two long-term contracts which will help boost the top line.
Kakinada plant delay will not affect capabilities said the management. The company has enough land bank in its existing Vizag and Hyderabad units.
Even the Molnupiravir plant is multipurpose and it has 15-20% spare capacity which it can use for new projects.
Edelweiss Securities
Recommends 'neutral'; cuts target price to Rs 4,380 from Rs 4,760 apiece, implying an upside of 12%.
Posted Q4FY22 revenue/Ebidta 7%/12% ahead of estimate. The outperformance was likely driven by Molnupiravir supplies, leading to a record quarterly revenue.
The company expects the contribution from Covid-related products to start slowing from Q1.
Divi's said its growth drivers will stem from its inherent chemistry strength, ongoing R&D for products losing patents in FY24-26, nutraceuticals, contrast media and headroom in sartans. However, execution risk is stronger than before.
Cut estimates to factor in dwindling Covid revenue.
Divi's has maintained Rs 1,000-crore-plus annual capex guidance for the next couple of years, but is willing to invest more if the opportunity arises.
For its Kakinada plant, Divi's still awaits land possession.
H2FY22 was largely driven by Molnupiravir/Covid-related drugs.
Although this may continue, albeit on a declining scale, Divi's faces a few headwinds in the near-term from price pressure in generic APIs that has led to a sub-par growth in FY22.
The next leg of growth relies heavily on molecules where Divis is yet to make a mark--sartans, mesalamine, carbidopa/levodopa, where its growth share is less than 20%.
Divis' investments in contrast media has better pricing but also higher entry barriers. While these opportunities are promising, there are execution risks too, which are not fully factored in.
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