Divi’s needs more than margin rise
₹1,778 crore, lower by 21%. “Compared with about $65 million sales in Q1FY23, we estimate nil molnupiravir sales by Divi’s in Q1FY24. On an ex-molnupiravir basis, Divi’s topline grew at a disappointing pace of just 1.5% y-o-y," said Kotak Institutional Equities analysts in a 14 August report.
Ebitda margin fell by a whopping 926 basis points (bps) y-o-y to 28.3%. This was on account of pricing pressure from the US and European markets in its generic active pharmaceutical ingredient (API) segment. Plus, the season was weak for the CSM segment.
On the other hand, Ebitda margin was up nearly 340 bps sequentially aided by softening of raw material prices and a better product mix. But investors are not impressed. Divi’s shares have fallen marginally since the earnings release on Monday.
Many analysts have cut earnings estimates after its results. The company’s management has guided for double-digit revenue growth for FY24 excluding molnupiravir. On a steady state basis, management estimates Ebitda margin at 35-40%.
Sure, easing input prices could support margin expansion in the coming quarters. “While softening raw material prices and custom synthesis project could help in the near term, we argue it will take a few more quarters to achieve the historical 35-36% margin. We have already assumed this in FY25E numbers, and see very little scope for margin upgrade," said a Nuvama Institutional Equities’ analysts in a report.
For Divi’s, foray into contrast media products, expanded capacity and the addition of new molecules in CSM are key near-term growth drivers. The CSM segment contributed about 40% of the company’s overall revenues in Q1 while the remaining came from generics. In CSM, two projects are at the commercial stage and
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