MUMBAI: A strong show by Divi’s Laboratories during the March quarter meant that the stock rose over 4% on Monday. Driven by its custom synthesis, generic API, and nutraceuticals businesses, the company reported a revenue growth of 22% year-on-year. The core generic API (Active Pharmaceutical Ingredients), which contributes more than half to sales, grew 24% year-on-year. Sales in the custom synthesis segment were up an impressive 41%, while nutraceuticals marked a 9% growth.

A better product mix saw the company report strong margins at 40.1% as earnings before interest, tax, depreciation and amortisation (Ebitda) grew 61%. Adjusted net profit rose 59% year-on-year.

The performance will likely sustain going ahead. The strength of the company lies in its niche product range which is difficult to manufacture and thus enjoys leadership and limited competition. Besides, it is also working on more molecules to drive future prospects.

Analysts at Sharekhan said, “strong growth in existing molecules would well complement the growth plans from the new molecules." They were also confident about benefits accruing from emerging opportunities in the custom synthesis business.

The company’s strong relationship with many leading pharma firms is an added advantage. Given that its major capacity expansion plans are near conclusion, the company is best placed to cater to increasing demand from global pharma companies, said Sharekahn analysts.

Divi's, which has continued working on capacity enhancements, said the new brownfield DC and DCV SEZ Units (Vishakhapatnam) and the debottlenecking / backward integration programmes taken up by the company last year, have become fully operational during the year. Modernisation and upgradation of wastewater treatment plants at the manufacturing sites have also been implemented.

The company had undertaken a capacity expansion project at an estimated Rs400 crore during the last fiscal for fast-tracking a customs synthesis project. A part of the project has been completed and became operational while the rest will be completed this year. Its long-pending greenfield expansion at Kakinada may also get a push with a favourable court order.

Capacity expansions, backward integration, growth prospects of existing, portfolio and new product introductions have led to analysts being optimistic on future growth prospects. Analysts at Kotak Institutional Equities believe that market share gains across existing API portfolio and introduction of new products through capacity additions will help drive 17?rnings CAGR over FY2021-24.

Analysts at Motilal Oswal Financial Services Ltd, in their note, said Divi’s has about 16 products under various phases of development, with the formulation market size at $10 billion and is expected to go off-patent over CY23-25. They expect 180 basis point margin expansion on process and productivity improvements in addition to a 32?rnings CAGR over FY21-23.