Divi's Laboratories Limited (DIVISLAB.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of Divi's Laboratories Limited for Q2 FY '26. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. M. Satish Choudhury. Thank you, and over to you, sir.

Good afternoon to all of you. My name is Satish Choudhury, Company's Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to the earnings call of the company for the quarter and half year ended 30th September 2025. From Divi's Labs, we have with us today Dr. Kiran S. Divi, Whole-Time Director and Chief Executive Officer; Ms. Nilima Prasad Divi, Whole-Time Director, Commercial; and Mr. Venkatesa Perumallu Pasumarthy, Chief Financial Officer. During the day, our Board has approved unaudited financial results for the quarter and half year ended 30th September 2025, and we have released the same to the stock exchanges as well as updated the same in our website. Please note that this conference call is being recorded, and the transcript of the same will be made available on the website of the company. Please also note that the audio of the conference call is the copyright material of Divi's Laboratories Limited and cannot be copied, rebroadcasted or attributed in press or media without the specific and written consent. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectation of future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Divi's Labs or its officials does not undertake any obligation to publicly update any forward-looking statements, whether as a result of future events or otherwise. Now, I hand over the conference to Dr. Kiran Divi for opening remarks. Over to you, sir.

Good afternoon, everyone, and welcome to Divi Laboratories earnings call for the second quarter of financial year '2025, '26. Thank you for joining us today. We truly value the continued trust and interest you have placed in us. And I hope you and your families are doing well and in good health. I would now take you through the key developments across our business, including operational updates, strategic initiatives and community impact. As we review the second quarter, I'm pleased to share that Divi's has continued to navigate global trade dynamics with resilience and has delivered value across all business segments. Our performance this quarter reflects the strength of our ability and adaptability to respond quickly to evolving market conditions. Let me begin with an update on our generic business. We have maintained consistent volumes across our core portfolio despite ongoing pricing pressures. Our backward integration model continues to enable us to manage input costs effectively. Our Unit 3 facility in Kakinada, which became operational earlier this year, is also supporting our supply chain by enabling in-house production of starting materials and intermediates. Moving to custom synthesis. We continue to see high engagement levels with a steady flow of RFPs and site visits from global innovators. We are -- we currently have multiple projects advancing through development and validation stages. A few of them are expected to move into commercial manufacturing over the next 1 to 2 years. Coming to our peptide offering, we are seeing a strong momentum in peptide synthesis. We have inaugurated our peptide Center of Excellence where multiple projects of various customers are undergoing development. We are actively engaged with several big pharmas at various stages in their Phase I, Phase II and Phase III programs. As these programs advance through regulatory milestones, we are prepared to further scale up investments to meet their demand. At present, Divi's continues to invest in large capacities, both at pilot and commercial scale, where validation of fragments are taking place for several projects. This approach is aligned with our long-term strategy of becoming a world leader in complex peptide manufacturing. Along these advancements, our Nutraceutical segment continues to evolve as a key growth driver with our manufacturing strength in carotenoids and other value-added ingredients. Divi's Nutra is well positioned to leverage the growing global focus on health, nutrition and wellness. On the technology front, we now offer advanced platforms in flow chemistry, biocatalysis and green chemistry, following into commercial manufacturing with all three. These capabilities are increasingly important as sustainability and efficiency became three key priorities for our global partners. We are currently executing three major CapEx programs backed by long-term supply commitments. These investments are focused on implementing new technologies expanding capacities and advancing key strategic projects. Finally, I would like to touch on our community initiatives [Audio Gap] to reach thousands of students and we remain committed to inclusive that -- through targeted interventions in nutrition, infrastructure and scholarships. We are also deepening our efforts in providing safe drinking water and have already reached 8 lakh people, reflecting our belief that business success must go hand-in-hand with social progress. Thank you. I will now hand over the call to Nilima Divi, who will talk about the financial highlights.

Good afternoon, ladies and gentlemen. Thank you for joining the earnings call as we review Divi's Laboratories' operational and financial performance for the second quarter of fiscal year 2025, '26. We appreciate the opportunity to provide an update on our activities during the period and value your ongoing interest in the company. The quarter has marked by a complex good global environment with ongoing shifts in trade patterns and geopolitical developments affecting supply chain. In this context, we have continued to prioritize disciplined execution, operational stability and prudent strategic planning. Our established operating practices have supported continuity of supply, fulfillment of customer requirements and adherence to our long-term objectives in pharmaceutical intermediates and active pharmaceutical ingredients sector. Concurrently, we have pursued measured investments in process improvements, research and development and capacity enhancements to address anticipated needs. Regarding procurement and supply chain activities, raw material prices were broadly stable during the quarter, aided by reliable availability from our diversified supplier base. We continue to monitor macroeconomic factors, including the effect of U.S. tariffs on suppliers from China and sanctions related to Russia, which may influence costs for certain raw materials, intermediates and solvents. As a precautionary step, we have maintained appropriate inventory levels, expanded our sourcing options across regions and progressed vendor qualifications where necessary. Our backward integration program, particularly through the Unit 3 facility in Kakinada, has supported supply security and cost management. This development has also released GMP compliant capacity at our other units, facilitating timely validations and product introductions. I will now present an overview of our group financial performance for the second quarter of fiscal year 2025, '26 and first half year of FY '25, '26 which ended on September 30, 2025. We have achieved a consolidated total income of INR 2,860 crores for the current quarter, representing a 17% increase from INR 2,444 crores in the corresponding quarter of previous financial year. Profit before tax for the quarter stands at INR 912 crores compared to INR 722 crores in Q2 FY 2025. Profit after tax for the quarter is INR 689 crores as against INR 510 crores in Q2 FY '25. Material consumption for the quarter is about 39.5% of the sales revenue, consistent with our recent trend. Exports for the quarter accounts for 90% of the total sales revenue with exports to Europe and United States contributing a combined 74%. The product mix for the quarter is 44% generics and 56% custom synthesis. We recorded a ForEx gain of INR 63 crores for the quarter. On a constant currency basis, revenue growth for the second quarter has been 10.79%. The Nutraceutical business contributed INR 242 crores during this quarter. For the 6 months ended 30th September 2025, the consolidated total income rose to INR 5,389 crores, a 16% increase from INR 4,640 crores for the corresponding first half of the previous fiscal year. Material consumption improved to 39.6% of the sales revenue as against 40.9% for the corresponding first half year of FY '24, '25. Profit before tax for the current half year is INR 1,645 crores as against INR 1,326 crores for the corresponding half year of previous year. Profit after tax for the current half year is INR 1,234 crores. Exports for half year is about 90% of the total sales revenue. Export to Europe and United States combined are about 73%. Product mix for generics to custom synthesis for the current half year is 45% and 55%, respectively. We have a ForEx gain of INR 102 crores for the current half year. On constant currency basis, revenue growth for the half year has been at 12.3%. Nutraceutical business revenue has amounted to INR 492 crores for this half year. During the half year, we capitalized assets worth INR 463 crores with INR 201 crores capitalized during this quarter. Capital work in progress stood at INR 2,030 crores. As of 30th September 2025, we have cash on book of INR 3,451 crores, receivables of INR 2,614 crores and inventories of INR 3,433 crores. Thank you.

Thank you, madam. With this, we would request the moderator to open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Amey from JM Financial.

Congrats to the management on good set of numbers. First question I have on the -- our very important custom synthesis project, which have seen a recent expiry in one of the key markets in the U.S. There is also patent expiry happening in EU next year. Is it possible for the management to guide us how much volumes which we are currently supplying would be linked to these patent expiring in two regions?

I'm sorry, I cannot comment on any specific product, customer impact or volumes. Because it is -- I'm bound by confidentiality. I do understand that you're asking us specific to a few things, but I do not -- I'm not at the liberty to speak about anything.

Sure. Second question I have is on the API generic side. This quarter, the performance continues to remain weak with like low single-digit decline in that segment. When can we see the revival happening in the generic side of the business? And is the pricing pressure still positive in the business at present?

See, as I explained you in the last few calls, okay, we are facing pricing pressure on generic molecules. Although we have not lost a single customer or even any loss in volume, okay? And the reason why we are able to manage this is because of our backward integration, where even the Kakinada facility has been helping us in manufacturing several of our in-house raw materials and our in-house intermediates, giving us an edge to further keep the product and the volume along with us. Again, to say that, did we lose any volume? No. We have not lost any volume. We have not lost any customer. Now the pricing pressure, we do not have an idea how long will it be there? But we are hopeful, like I explained in the last call, we're hopeful in the next few quarters, it may stabilize and things may come back to normal.

Sure. Just last question I can take on the custom synthesis. We are seeing a lot of RFPs coming to India, and many players have started participating in these quotations. So, considering we have large capacities available with us, does it give us edge to compete in terms of pricing? And also what else -- what other factors are involved when it comes to pricing? Are we -- is there a hurdle rate in terms of gross margin, et cetera, what we can meet? What are the decisions which go into deciding the price?

Firstly, I would like you to understand Divi's has been in custom synthesis for the last several years since the inception. So this is not something new for us. And I mean, there are several players you're seeing who are entering the market now, because RFPs are coming in. Divi's has an edge because we have a long-term customer relation both in terms of proven track record, in terms of supply chain management and their confidence in our deliverable execution. That being said, I cannot comment on what others are seeing, what price factors are there. We have a strong pipeline that is with us which we are working on, and we would see the outcome in the next 1 to 2 years.

Sure. I just had a follow-up. So, what I wanted to ask is having available capacity, does it give us an edge to go aggressive on the pricing? Because earlier 10 years back, Divi was one of the few players to compete from India, but now we have several players who are competing for the same molecules. So, that's the reason I'm asking.

Yes. So the reason is when you see multinationals or MNCs, right, they don't only look at price as the own factor. They look at EHS, they look at sustainability. They look at whether you're SBTi compliance. They have several factors before they even come to polythene. Pricing is one factor. Capacity is one factor. Divi's always is one step head in terms of capacity in terms of looking at forward thinking in terms of creating capacity. But that is not the only thing. There are several factors you have to look at, unless you tick all the boxes, any multinational would not work with any firm. So, if that answers your question.

[Operator Instructions] Our next question comes from the line of Kunal Dhamesha from Macquarie.

The first one on the CapEx. So, in quarter 1, we had guided for around INR 2,000 crores of CapEx for FY '26. But if I see the cash flows, we already spent around INR 1,550 crores in the first half. So is second half going to be more or less muted? Or are we going to raise the CapEx guidance further for FY '26?

Can you please repeat your question again?

So, our CapEx guidance, ma'am, was around INR 2,000 crores for FY '26. If I see the spend on the property, plant and equipment for the first half, it's almost around INR 1,550 crores. Right? So, is there more room for us to do more CapEx in the second half? So, would the CapEx be higher than INR 2,000 crores for FY '26?

Yes, it would be higher in FY '26.

And what would be the new CapEx guidance?

See, right now, we are looking at several new projects, and we did mention earlier in the stock market -- to the SEBI release, that we are getting into three new projects and the CapEx is also being included for that. So, this is an ongoing thing wherein we would be creating capacity as and when needed.

Okay. And these capacities, which plant would these capacities be focused on these new capacities?

It would totally be based on what is the stage at which the manufacturing is. So they would be spread across all the three units, not a single unit would be getting the entire CapEx.

Sure. And one question for Kiran, sir. You alluded to being a global leader in peptide manufacturing in coming years. So what would it entail in terms of investment capacities, differentiation from the longer-term perspective?

So, to answer about peptides, right? Divi's has been in peptides since the last 20 years. We have been manufacturing protected M&A assets which gives us an edge in terms of supply issues, in terms of manufacturing, what you call, consistency and also impurity profile management. That gives us an edge to get into dipeptides, tripeptides, tetramers, octamers are different mers which are required by several companies across the world. Saying this in terms of investment, I'm not at the liberty to talk because several investments are based on what customers require, and I'm bound by CDAs. But we have opened our Center of Excellence for peptides, where we are developing several molecules for several customers, which we will be a part of their pipeline going forward. So, that is giving us a strong momentum in peptide synthesis.

Our next question comes from the line of Tushar Manudhane from Motilal Oswal Financial Services.

And this is the composition of generics and custom synthesis. It seems the custom synthesis business has scaled up really well over the last 1 to 2 years. Specifically, if I have to connect this to the gross margin, which has been pretty stable at 60% year-on-year or even quarter-over-quarter for 2Q FY '26. So, does it mean that we are broadly at a similar gross margin across both the segments? Or am I missing something here?

This would completely vary on product mix, like you can -- you do observe for the last few years, if you see every quarter, there will be some quarters where the product mix would be slightly more favorable and sometimes the product mix wouldn't be that favorable. So, it's mainly based on quarter-on-quarter, like how the product mix takes place.

Okay. So, 60% is something as a base case to assume? Or there could be a upside risk to the gross margin?

I would say, it would be continuing same, similar manner.

Got it. Secondly, just if you could also share the constant currency growth for us on a year-on-year basis?

Currently, the half year is about 10.79%, and we are assuming that for the rest of the year also, it would be around the similar number.

Understood. But that, ma'am, that also is not sort of helping to get sort of better gross margins?

See, as I said earlier, this is all based on the product mix, and we cannot look at it quarter-on-quarter basis. We need to look at it at a whole year. And if you see historically, we do see ups and downs in every quarter. And this difference between like generics and custom synthesis does take place between quarters. So, my current assumption would be like, yes, my constant currency growth rate would be about 10.79%.

Understood. And just lastly on peptides, sir, we have been into peptide space for really long number of years. But is there -- like if you could just, sort of, share your experience in terms of the changes that would have happened that -- let me put it this way, like the CDMO orders or the contract research orders as well have picked up significantly over the last 3, 4 years. Is that understanding right? Or this has been the case historically?

No, I think the peptide synthesis and the peptide drug molecule and the drug products have reached -- have been in the market for some time, but with several new therapeutic categories being available and then coming into the market, has spiked interest into several innovators where they have started doing their research, and we had the opportunity of being a part of their journey.

Our next question comes from the line of Surya Narayan Patra from PhillipCapital India Private Limited.

Congratulations on a great set of the numbers on the custom synthesis front, sir. This quarter, we have seen the best custom synthesis...

We are unable to hear you. Could you please repeat? Your voice is not audible.

Sorry, sir, just give me one moment. Yes. So I was telling that congratulations for the great set of number on the custom synthesis front. So, what I see is that, this is the first ever -- the best ever kind of custom synthesis revenue per quarter that we are witnessing in Q2. Not only that, even in terms of revenue mix also, it is the highest ever. So given that, the same margin point comes here that over the year, 3, 4 years, let's say, the gross margin or even EBITDA margin that has moved from a certain level to around 40%. You mentioned it has moved marginally here and there. But in fact, the mix has significantly improved almost like 15%, 16% revenue mix in favor of the custom synthesis. So given that, is it fair to believe that the margin, the upside risk is limited in the business -- in the overall business model what we are currently having?

Can you be more elaborate in your question? The last part?

Okay. So, we have seen there is a significant shift in the revenue mix for the custom synthesis from the level of 40-odd percentage over the years to now 56%, which is the highest ever. But the margin profile remain in the around 32%, 33% in that range. So is it fair to believe, ma'am, the margin, the upside risk is nothing or limited? Because even if there is a rise in the revenue mix favoring custom synthesis, margins remained around that level. So, is it fair to believe that this is the kind of sustainable margin level and scope of appreciation may not be there?

I would say, it's mainly to do with the product mix, though the custom synthesis has increased over the last few years as a percentage. We need to also remember that 45% is still generics where it is facing the huge pricing pressures. So when you combine both the margins do look similar. Because that's where we are like trying to sustain the generics business, the volumes not to lose them, maintaining the kind of quantities and the capacities that we have with our customers. So, while maintaining that, we will see a hit on the margins there, which you see like a normal gross margin level across the entire product portfolio.

Okay. Okay. So then, the growth will really drive the kind of -- I mean, the volume growth will really drive the earnings growth. That is the right way to think?

I think, Kiran will answer this question.

So, you have to understand a few things, right? In terms of growth, we have both the generic side and the CS side. We also have products which are coming off pattern that we are launching with our customers who have -- once the patent comes off, we will be getting into the market. So, there will be a certain amount of drive from there. There are new -- there are old CS projects, which have been there in the company for the last 10 to 12 years, which have matured. You also have to understand that Divi's manages a lot of late life cycle management for branded companies, which has a different revenue model. So, it's very difficult for us to justify saying the revenue growth comes from CS or from generics or from Nutra. That's why we always say from the inception that it is a product mix that we have, which drives the overall growth.

Okay. Okay. Got it, sir. Sir, just one more point on the custom synthesis side. So obviously, the three dedicated project, which are likely to start possibly from the fourth quarter of FY '27, which will drive growth. But in the interim, what can drive growth for the custom synthesis business? Is it the peptide projects what you have indicated in the opening remarks? So, that is the kind of a near-term contributor to the growth for the custom synthesis business?

See, all I can say is, we have three active projects. Apart from the previous ones, we have disclosed to the stock exchange. All of them are being either in the stage of validation. Some of them are being constructed for the customer, which will go into validations in the future, which are at various stages. It is very difficult for me, a, to put a date, because it's subjected to EU qualifications, U.S. qualifications. And all I can say, things will happen in the next 1 to 2 years is a fair statement for me to give provided all regulatory approvals are in place. And these are -- CS projects, I cannot put a label saying this is API or peptide or some specific therapeutic category. All I can say is, it belongs to our CS side of the business. And we believe if all regulatory approvals and qualifications take place on time, in the next 1 to 2 years, you should see commercial benefit.

Sure, sir. Just one clarification, sir. Now we are kind of scaling up our activities in the peptide side. So, is it possible -- I mean, is it right to think that we can even tap the generic opportunities in the peptide side, including the GLP-1s? That is one. And one more clarification, if you can give, currently, what is the revenue share of -- for Contrast Media that we are having?

Okay. To answer your first half, right? Divi has strategically decided that we will not look at generic part of peptide synthesis. We are right now fully occupied with the amount of CS projects we have. So, we do not want to venture into that mode. Coming to your second point, which is in terms of...

Contrast Media revenue share.

Yes. We cannot individualize each segment. We look at it as a total whole and a product mix.

Our next question comes from the line of Harshit Dhoot from Dymon Asia.

Congratulations on the great set of numbers. A couple of questions from my side. As you said, you are witnessing increasing engagement level from the clients, RFPs, site visits. So, is it fair to assume that the incremental or the higher interest of the business is coming from the shift of the China?

Could you repeat your last part, please?

The kind of increase in interest of the business that we are witnessing in the custom synthesis part, is it more a function of the shift of business from the China, sir? Is our innovators are diversifying from China?

As of now, to be honest, what we are seeing is a bunch of new RFPs, either other Phase I, Phase II, Phase III. Like I mentioned during my speech, and also we are seeing several interest that is coming from our regular customers who have been with us for a long time. So for me, it is very difficult to say, is this something they brought from China, or is this an old molecule they brought in. Because most of them that we are working with them are either -- they are ready to launch or it's in their new portfolio or we are a part of their existing portfolio. For us, we do not know.

Okay, sir. And the other one more from the Indian CDMO industry perspective. A few innovators are saying that they are looking for a big investment in India, like recently said they are looking for a $1 billion investment in India. So is it fair to assume that the CDMO industry of India is on the verge of a big CapEx cycle going ahead, if you see -- if you think from the next 3 to 4 years' perspective, from industry perspective, sir?

See, I cannot comment on the industry or what specific MNCs are planning to do. But what we can say is about Divi's, we have a strong pipeline, and then we are looking at ongoing as and when our projects are coming into life, we will start investing. And we see quite a positive outcome in the next 1 to 2 years.

Okay, sir. So let me ask another perspective. Last 10 years versus next 5 years, is the upcoming time more exciting for Divi's? Is it a fair understanding, sir?

We are always hopeful that it has to be exciting, right? Because these are Phase III molecules coming into life. We are also investing heavily with long-term sustainable contracts. So, I mean it's always good to be hopeful to be positive.

Yes. And the last one, sir, the kind of the new business that we are witnessing the Phase III molecules and all, is it fair to understand that the new business that we are getting is a high-margin business?

Again, at this point, I cannot comment on that. Because I'm bound by CDA. All I can tell you is in the next 1 to 2 years, once they come off -- I'm sorry, once all the regulatory approvals come into place, we will start seeing the outcome of the results. Apart from that, also a few of our generics, which are coming off patents will also come in. So, based on this product mix, we will see how the future is, as and when it moves on.

Okay. Sir. And then lastly, are you seeing any upside risk in the CapEx guidance or what we have think internally for the CapEx in next 3 to 4 years' perspective?

Can you repeat the question a little bit more elaborately?

Yes, sure, ma'am. So, what we were planning for the CapEx internally from next 3 to 4 years' perspective, but with the increase in the interest, engagement and RFPs, are we seeing any upside risk to our CapEx assumptions that we have built in internally?

I wouldn't say we are seeing any risk. But, yes, we see...

I mean upside risk. Are you seeing increasing spends towards CapEx that you would have think a few years before for next 3 to 4 years?

See, for us, nothing happens overnight. It's pretty strategically planned, taking decisions which are thought through and where our strengths match. It's not like, okay, today, there's an opportunity, so let's jump on the bandwagon and go. It's a thought-through process. So nothing is like, that hasn't been envisioned and worked on. It has been a long-term planning that we have done over a period of time. And we are happy that we have taken certain decisions because of which we are here today.