Multi-bagger pharma company Divi's Laboratories is expected to report double-digit growth in top-line and bottom-line, when it reports first quarter numbers today. However, the margin may see contraction on year-on-year basis.
While the stock has delivered five-fold returns in last five years, it has been under pressure for past 10 months. Shares have fallen more than 26 per cent since October last year, underperforming the Nifty Pharma index that is down 12 per cent during the same period.
"We build in 23 per cent YoY overall sales growth for Divi's Labs in Q1FY23. On a sequential basis, we estimate a 4 per cent decline," Kotak Institutional Equities. Compared to around $90 million sales in Q4FY22, the brokerage estimates around $60 million Molnupiravir sales by Divi's in Q1FY23. "Molnupiravir sales have benefited from delay in availability of Paxlovid, particularly in low and middle-income countries (LMIC)."
On a YoY basis, the Kotak note goes on to add, "We factor in flattish generic active pharmaceutical ingredients (API) sales in Q1FY23, owing to continued pricing pressure and marginal impact on volumes. For Nutraceuticals, we bake in 18 per cent YoY growth on a low base."
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Divi's is Merck’s authorised manufacturer of Molnupiravir, an antiviral medicine that is used to treat COVID-19 in some cases. US-based Merck and Ridgeback Biotherapeutics, a biotech company focusing on infectious diseases, claim that the oral antiviral medicine Molnupiravir has significantly reduced the risk of hospitalisation or death in non-hospitalised patients with mild-to-moderate COVID-19.
Profit is likely to grow in the range of 21-35 per cent for the quarter ended June FY23, compared to corresponding period last fiscal. On the operating front, the margin is expected to see contraction on account of higher input cost, China lockdowns, and rise in shipping costs.
According to Kotak, owing to lower Molnupiravir contribution as well as higher pricing pressure in the US, Divi's could see 130 bps QoQ compression in EBITDA margin in Q1FY23, while the year-on-year fall in margin may be 86 bps.
Another note by KRChoksey Research sounds similar caution, saying "the EBITDA margin is expected to decline by 530 bps YoY, due to higher raw materials costs caused by geopolitical conflicts in the CIS region, China lockdowns, and increased other expenses, due to the rise in shipping costs and oil prices."
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