Divi’s reported its highest ever quarterly revenues of Rs 24.7 bn (+48.9% y-o-y, +25.4% q-o-q) and Ebitda margins of 44.6% in Q3FY22, a large part of which can be attributed to gains from molnupiravir API supplies to MSD. In our understanding, molnupiravir accounted for ~$100 m of sales in Q3 (~30% of Q3 revenues) compared to ~$35-40 m in Q2. Due to molnupiravir gains, sales mix was heavily tilted towards the custom synthesis (CS) segment – 60:40 between CS and generics in Q3 vs 40:60 mix a year ago. Carotenoids (part of generics) revenues at Rs 1.6 bn grew 7.6% y-o-y (-7.1% q-o-q).
Gross margins at 66.5% were steady qoq despite volatility in global commodity prices, higher logistics charges etc. (margins fell 252bps y-o-y). It hasn’t faced any supply issues.
Long-term outlook remains intact: Further gains from molnupiravir remain uncertain as it depends on MSD’s ability to procure supply orders while a better perceived drug – Paxlovid from Pfizer – is available in the market. While there are concerns on sales moderations from recent highs, we expect Divi’s to sustain mid-teens revenues growth over the longer term on visible drivers for the base business. Its generic API sales largely stabilised in Q3 (~10% y-o-y decline in 9M) and we build in mid-teens revenue growth in FY23/24e. Custom synthesis revenues were up 76% y-o-y in 9MFY22 on molnupiravir benefits; we assume 14% revenue growth in FY24e.
Retain Buy with TP of Rs 5,300 (from Rs 5,730): We retain Buy rating as we continue to like Divi’s visibility on long-term growth drivers across segments and consistent delivery on cost efficiencies. Any impact of current macro issues (e.g. higher raw material and logistics costs) and imminent decline in molnupiravir sales should subside over the next few quarters. A strong net cash position of c`23 bn and consistent cash generation allows it to comfortably invest for future drivers. Post Q3, we change our estimates per current outlook which leads to a 13.5% increase in our FY22e EPS estimate and cut of 7.7%/7.5% in FY23/24e EPS estimates. Our revised TP is Rs 5,300 (from Rs 5,730).
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