Q3FY23 Preview: Divis Laboratories: Revenue seen at Rs 18,127 million, PAT at Rs 4,556 million

1 Feb 2023 , 10:17 PM

Result date: 3^rd February, 2023

Recommendation: Reduce

Target price: Rs 2,900

Divis Laboratories (Divis) will witness first representative quarter of virtually no Molnupiravir sales, as Molnupiravir shipments declined sequentially from USD37 million to USD2 million in Q3. Hence, the company’s EBITDA margins would continue to remain under pressure, after having moderated from ~44% in H2FY22 (peak of Molnupiravir sales) to ~33.5% in Q2FY23. 

Analysts at IIFL Capital Services estimate that Molnupiravir accounted for 25-30% of Divi’s earnings in H1FY23 and its contribution will decline to <5% in the coming quarters, thereby pressurizing the company’s overall earnings profile.

Divi’s base business export trends also remain weak and below expectations of IIFL Capital Services, as the company’s base business export shipments (ex-Molnupiravir) increased only 11% QoQ in Q3FY23 (on a depressed base of Q2FY23) versus IIFL Capital Services’ earlier estimate of 18% sequential growth for the base business. Although the sequential recovery in Divi’s base business was driven by CS products such as Sitagliptin & Raltegravir and generic products such as Losartan, Gabapentin & Dextromethorphan, improvement in these products would entirely be offset by the significant QoQ decline in Molnupiravir.

Divi’s overall export shipments declined 9% sequentially in Q3FY23 led by Molnupiravir versus IIFL Capital Services’ earlier expectation of 6% sequential revenue growth. 

The company’s EBITDA margin could decline ~1,000 basis points to 34.0%. Profit After Tax (PAT) could decline 50% over the year-ago quarter.

Important management insights to watch out for:

• Outlook on niche products under development in API/Custom synthesis/Nutraceuticals category
• Update on Kakinada capex
• Raw material supply-demand dynamics

	December 2022 estimates	YoY change	QoQ change
Revenue (Rs mn)	18,127	(27)%	(2)%
EBITDA (Rs mn)	6,163	(44)%	(1)%
EBITDA margin	34.0%	(1,013) bps	51 bps
Profit After Tax (Rs mn)	4,556	(50)%	(8)%

Source: IIFL Research