Divis Laboratories Ltd:Annual Report 2023-24 Analysis

Divi’s Laboratories Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Divi’s Laboratories Limited was established in 1990 by Dr. Murali K. Divi.

Headquarters Location and Global Presence: The company is headquartered in Hyderabad, India. They have a global presence with manufacturing facilities and offices across India, and international offices in North America and Europe.

Company Vision and Mission: While the exact articulated vision and mission statements can vary over time, Divi’s focuses on being a leading manufacturer of APIs (Active Pharmaceutical Ingredients) and intermediates, committed to quality, innovation, and sustainability, and serving global pharmaceutical companies.

Key Milestones in their Growth Journey:

• Early Years (1990s): Establishment and focus on custom synthesis and contract manufacturing.
• Expansion (2000s): Significant investments in infrastructure, capacity expansion, and development of complex APIs.
• Global Recognition (2010s): Emergence as a leading global supplier of APIs and intermediates, with strong regulatory compliance record.
• Continued Growth (Present): Focus on innovation, sustainability, and expansion into new therapeutic areas.

Stock Exchange Listing Details and Market Capitalization: Divi’s Laboratories Ltd. is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Market capitalization fluctuates based on market conditions, but it is generally considered a large-cap company.

Recent Financial Performance Highlights: Divi’s financial performance has been strong in recent years, driven by increased demand for its APIs and intermediates.

Management Team and Leadership Structure: The leadership team includes:

• Dr. Murali K. Divi: Chairman & Managing Director
• Mr. Kiran S. Divi: CEO
• Mr. Madhusudana Rao Divi: Whole Time Director

Notable Awards or Recognitions: Divi’s has received numerous awards and recognitions for its performance, quality, safety, and sustainability initiatives.

Their Products #

Complete Product Portfolio with Categories:

• APIs (Active Pharmaceutical Ingredients):
  • Analgesics
  • Anti-inflammatory drugs
  • Antihistamines
  • Antiretrovirals
  • Cardiovascular drugs
  • Contrast Media
  • Central Nervous System Drugs
  • Other therapeutic areas
• Intermediates: Key building blocks used in the synthesis of APIs.
• Custom Synthesis: Manufacturing of specialized compounds for pharmaceutical companies.

Flagship or Signature Product Lines: APIs in therapeutic areas such as Naproxen, Dextromethorphan, Gabapentin, Levetiracetam and Contrast Media are considered important product lines.

Key Technological Innovations or Patents: Divi’s focuses on developing cost-effective and efficient processes for manufacturing APIs and intermediates.

Manufacturing Facilities and Production Capacity: Divi’s operates multiple large-scale manufacturing facilities in India, with significant production capacity for APIs and intermediates.

Quality Certifications and Standards: Divi’s adheres to stringent quality standards and has certifications from various regulatory agencies, including:

• US FDA (United States Food and Drug Administration)
• EDQM (European Directorate for the Quality of Medicines)
• PMDA (Pharmaceuticals and Medical Devices Agency, Japan)

Unique Selling Propositions or Technological Advantages:

• Large-scale manufacturing capabilities.
• Cost-competitive production.
• Stringent quality standards and regulatory compliance.
• Strong R&D capabilities for process development.

Recent Product Launches or R&D Initiatives: Divi’s continues to invest in R&D to develop new APIs and intermediates, focusing on innovative processes and therapeutic areas.

Primary Customers #

Target Industries and Sectors: Pharmaceutical industry (generic and innovator companies).

Geographic Markets (Domestic vs. International): Primarily international, supplying APIs and intermediates to pharmaceutical companies worldwide.

Major Client Segments: Global pharmaceutical companies.

Distribution Network and Sales Channels: Direct sales to pharmaceutical companies.

Major Competitors #

Direct Competitors in India and Globally:

• Sun Pharmaceutical Industries Ltd.
• Laurus Labs Ltd.
• Aarti Industries Ltd.
• Dr. Reddy’s Laboratories Ltd.
• TeVa Pharmaceutical Industries Ltd.
• Viatris Inc.

Competitive Advantages and Disadvantages:

• Advantages: Large-scale manufacturing, cost competitiveness, strong regulatory compliance.
• Disadvantages: Susceptibility to pricing pressures, reliance on a limited number of products.

How they differentiate from competitors: Focus on high-volume APIs, cost-effective manufacturing, and strong regulatory compliance.

Market Positioning Strategy: Divi’s positions itself as a reliable, high-quality, and cost-competitive supplier of APIs and intermediates to global pharmaceutical companies.

Future Outlook #

Expansion Plans or Growth Strategy: Divi’s continues to expand its manufacturing capacity, invest in R&D, and explore new therapeutic areas.

Upcoming Products or Innovations: Continues to develop new APIs and intermediates, focusing on complex molecules and niche therapeutic areas.

Sustainability Initiatives or ESG Commitments: Divi’s is committed to sustainability and has implemented various initiatives to reduce its environmental impact and promote social responsibility.

Industry Trends Affecting Their Business:

• Increasing demand for generic drugs.
• Growing importance of regulatory compliance.
• Focus on sustainability and environmental responsibility.

Long-Term Vision and Strategic Goals: Divi’s aims to maintain its position as a leading global supplier of APIs and intermediates, while focusing on innovation, sustainability, and creating value for its stakeholders.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Total Income decreased by 11.31% in FY2023, followed by a marginal increase of 0.35% in FY2024.
• Profit Before Tax (PBT) decreased by 35.98% in FY2023 and a further 9.43% in FY2024.
• Profit After Tax (PAT) decreased by 38.69% in FY2023 and a further 12.83% in FY2024.
• Net Worth increased by 8.67% in FY2023 and 6.13% in FY2024.
• Earnings Per Share (EPS) decreased from ₹110.91 in FY2022 to ₹68.05 in FY2023, and further to ₹59.37 in FY2024.
• EBITDA decreased from FY22’s ₹3,988Cr, with a more pronounced decline of 32.37% to ₹2,697Cr in FY2023 and a further decline to 2,511Cr in FY24.
• EBITDA to Revenue Margin declined to 31.38% in FY24 from 44.36% in FY2022.
• RoNW % (PAT/Net Worth) decreased to 11.69% in FY24 from 25.22% in FY2022.

Business Segment Performance #

• Generics Portfolio: Maintained stability, with ongoing demand for established products, facing pricing pressure.
• Custom Synthesis Portfolio: Showed significant progress, driven by two major Big Pharma projects.
• Contrast Media: Major advancements, scaling up high-value projects, and expanding into Gadolinium compounds.
• Nutraceuticals: Not separately reported, but the company is a major carotenoid supplier.

Major Strategic Initiatives and Their Progress #

• Unit III Greenfield Project: An investment of ₹1,500 crores in Phase I, with gradual production commencement expected in FY2025.
• Peptide Opportunity: Active involvement in manufacturing peptide building blocks and forward integration into fragments for GLP-1 drugs.
• Contrast Media portfolio expansion: Expansion with Iodine-based contrast media and Gadolinium compounds for MRI.

Risk Landscape Changes #

• Geopolitical Risks: Crises, especially in the Red Sea, impacted supply chain management.
• Pricing Pressure: Mentioned in generic markets.

ESG Initiatives and Metrics #

• GHG emissions reduced by ~19,000 tCO2e in FY2024.
• Water conservation of ~130,300 KL in FY2024.
• Energy conservation of ~164,900 GJ in FY2024.
• Plastic waste reduction of ~40 MT in FY2024.
• CSR beneficiaries: ~1,228,000 in FY2024.
• CSR commitment for FY2024 was 57.97Cr.

Management Outlook #

• Expects growth from patent-expiry products (LOE) beyond FY2025.
• The custom synthesis portfolio will contribute to growth, with multiple molecules at various regulatory stages.
• Focus on expanding opportunities across portfolios.
• Confident about growth with free capacity at Units I and II.
• Committed to responsible business practices.

Detailed Analysis #

Financial Position Analysis of Divi’s Laboratories Limited #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Standalone) #

Significant Changes in Major Line Items (>10% YoY) (Standalone) #

• Current Assets (Mar 31, 2024 vs. Mar 31, 2023): Increased by 12.2% due to increases across several line items, notably a reduction in income tax assets, and a rise in cash/bank balances and trade receivables.
• Current Liabilities (Mar 31, 2024 vs. Mar 31, 2023): Increased by 26.24%, majorly due to an increase in Trade Payables.
• Other Equity (Mar 31,2024 vs Mar 31,2023): Increased to 13,431 Cr from 12,652Cr.

Working Capital Trends (Standalone) #

• Working capital has increased, driven mainly by the rise in current assets, exceeding the increase in current liabilities.

Asset Quality Metrics (Standalone) #

• Property, Plant & Equipment Turnover:

  • 2024: 7,665 / ((4,737+4,719)/2) = 1.62
  • 2023: 7,625 / ((4,719+4,321)/2) = 1.68
  • 2022: 8,880 / ((4,321+3,699)/2) = 2.21 *There is a decreasing trend in Asset turnover.

• Inventory Turnover Ratio:

  • 2024: 7,376 / ((2,822 + 2,982)/2) = 2.54
  • 2023: 7,299 / ((2,982 + 2,491)/2) = 2.67
  • 2022: 8,653 / ((2,491+1,831)/2) = 4.00 *There is a decreasing trend in Inventory Turnover.

• Trade Receivables Turnover Ratio:

  • 2024: 7,665/((2,273 + 1,964)/2) = 3.62
  • 2023: 7,625/((1,964 + 1,690)/2) = 4.18
  • 2022: 8,880/((1,690+1513)/2) = 5.54

• There is a decreasing trend in the Trade Receivable Turnover.

Debt Structure and Maturity Profile (Standalone) #

• Debt Structure: The Company has zero long-term debt. Current borrowings are classified as “Loans payable on demand” from banks and includes both working capital loans and overdraft facilities.
• Maturity Profile: All borrowings are short-term and payable on demand.

Off-Balance Sheet Items (Standalone) #

• Contingent Liabilities: Disputed demands for excise duty, customs duty, sales tax, service tax, and GST amount to 97 crores as of March 31, 2024, and 95 crores as of March 31, 2023.
• Commitments: Capital commitments (net of advances) are 1,114 crores as of March 31, 2024, and 614 crores as of March 31, 2023, related to property, plant, and equipment. Other commitments related to bonds or legal agreements are`80 crores as on March 31,2024, and 77 crores as of March 31, 2023.

Divi’s Laboratories Limited Financial Analysis #

Revenue Breakdown by Geography and Growth Rates #

• Europe: FY24 revenue was ₹4,003 crores (52.3% of total), a growth of 30.7% from FY23.
• America: FY24 revenue was ₹1,587 crores (23.3% of total), a decrease of 27.7% from FY23.
• Asia: FY24 revenue was ₹1,017 crores (13.3% of total), a decrease of 2.3% from FY23.
• India: FY24 revenue was ₹1,038 crores (13.4%), a growth of 12.7% from FY23.
• Rest of the World: FY24 revenue was ₹350 crores (4.6%), a growth of 4.6% from FY23.

Cost Structure Analysis #

• Raw materials consumed: ₹3,216 crores in FY24, representing 41.9% of total revenue from operations, versus ₹2,947 crores (38.6%) in FY23.
• Employee benefits expense: ₹1,144 crores in FY24, versus ₹1,070 crores in FY23.
• Other expenses: ₹1,825 crores in FY24, representing 23.9% of total revenue from operations.

Margin Analysis #

• EBITDA Margin: 31.38% in FY24, a decrease from 33.82% in FY23.
• Net Profit Margin: 19.70% in FY24, down from 22.67% in FY23.
• PBT margin: 27.8% in FY 24, down from 30.9% in FY23.

EPS Analysis #

• Basic EPS: ₹59.37 in FY24, compared to ₹68.15 in FY23.
• Diluted EPS: ₹59.37 in FY24, compared to ₹68.15 in FY23.

Working Capital Management Efficiency #

• Inventory Turnover Ratio FY24: 2.31
• Inventory Turnover Ratio FY23: 2.44
• Inventory Turnover Ratio decreased by 5.35%.
• Trade Receivables Turnover Ratio FY24: 3.64
• Trade Receivables Turnover Ratio FY23: 3.39
• Trade Receivables Turnover Ratio increased by 7.44%.
• Trade Payables Turnover Ratio FY24: 4.43
• Trade Payables Turnover Ratio FY23: 4.37
• Trade Payables Turnover Ratio increased by 1.35%.
• Net Capital Turnover Ratio FY24: 1.94
• Net Capital Turnover Ratio FY23: 2.09
• Net Capital Turnover Ratio decreased by 7.00%.

Capex Analysis #

• Capital Work-in-Progress (CWIP) additions for FY24 were ₹968 crores, compared to ₹483 crores in FY23. CWIP relates primarily to roads, buildings, plant & machinery, and associated internal development costs.

Dividend Trends #

• Dividend Payout Ratio FY24: 50.51%
• Dividend Payout Ratio FY23: 44.03%.
• Dividend Per Share FY24: 1,500% (₹30 per share).
• Dividend Per Share FY23: 1,500% (₹30 per share).
• Dividend paid increased, reflecting a higher payout ratio on decreasing net profit.

Liquidity Position #

• Current Ratio for FY24 is 7.04
• Current Ratio for FY23 is 7.93
• Current Ratio decreased by 11.21%, showing strong, slightly decreasing liquidity.

Operational Metrics #

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• Return on Equity (ROE): FY24: 11.69%, FY23: 14.23%, FY22: 25.22%. A declining trend is observed.
• Return on Assets (ROA): FY24: 10.60%, FY23: 13.07%, FY22: 23.57%. Showing a decreasing trend over the three years.
• Return on Capital Employed(ROCE): FY24:15.62%, FY23: 18.57%, FY22: 32.15%. Consistently declining over three years.
• Net Profit Margin: FY24: 19.70%, FY23: 22.67%, FY22: 32.80%. The margin shows a downward trend.
• EBITDA/Total Income %: FY24: 31.38%, FY23:33.82%, FY22: 44.36%. Decreasing trend observed.

Liquidity Metrics #

• Current Ratio: FY24: 7.99, FY23: 9.00. The current ratio is decreasing, indicating a slight decrease in short-term liquidity.

Efficiency Ratios #

• Inventory Turnover Ratio: FY24: 2.54, FY23: 2.69. The ratio decreased slightly.
• Trade Receivables Turnover Ratio: FY24: 3.78, FY23: 3.52. Showing slight improvement.
• Net Capital Turnover Ratio: FY24: 1.44, FY23:1.55, Slight decrease over the period.
• Asset Turnover Ratio: (derived from Total Revenue/Total Assets for FY24):0.52, FY23: 0.58.

Leverage Metrics #

• Debt-to-Equity Ratio: FY24 and FY23: Not applicable, as the company reported no debt obligations.

Comparison with Industry Averages and Deviations #

Without specified industry data, direct comparisons cannot be made. All ratio changes are internal observations. Any deviation must be referenced against available pharmaceutical industry benchmark data.

Divi’s Laboratories Limited: Financial Analysis #

Revenue and Profitability #

• Overall Revenue: FY24 total income was ₹8,002 crore, a growth of 0.35% from FY23’s ₹7,974 crore.
• Overall Profit Before Tax (PBT): FY24 PBT was ₹2,132 crore, a decline of 9.43% from FY23’s ₹2,354 crore.
• Overall PAT: FY24 profit after tax was ₹1,576 crore, down 12.83% from FY23.
• EBITDA: FY24 EBITDA was ₹2,511 crore, showing a decrease of 6.90% compared to FY23.
• EBITDA to Revenue: FY24, 31.38% compared to 33.82% in FY23.
• Net Profit Margin: FY24 showed 19.70%, lower than FY23’s 22.67%.

Market Share and Competitive Position #

• Divi’s is recognized as one of the top 3 API manufacturers globally.
• The company is the world’s largest API manufacturer for 10 of the 30 generic APIs it produces.

Key Products/Services Performance #

The company is focused around three core business portfolios:

• Generic APIs: World’s largest API manufacturer for 10 of the generic APIs manufactured. R&D team comprising over 600 scientists.
• Nutraceuticals: Major supplier of carotenoids, including Beta Carotene, Astaxanthin, Lycopene, Canthaxanthin, Lutein and Vitamins.
• Custom Synthesis: Partnered with 12 out of the top 20 Big Pharma.

Geographic Distribution and Market Penetration #

• Europe: Accounted for 52.3% of sales in FY24 (₹4,003 crore), up from 40.2% in FY23.
• America: Represented 28.9% of sales in FY24 (₹2,196 crore), a decrease from 43.1% in FY23.
• Asia: Contributed 13.7% of sales in FY24 (₹1,041 crore), a very slight increase in percentage, though a slight reduction in crore, from 13.4% in FY23.
• India: 12.6% of FY24 sales, represented as ₹960 crore, a slight decrease from 12.7% in FY23.
• Rest of the World: 4.6% share of sales, an incremental increase from prior years.

Capital Expenditure and ROIC #

• Overall Gross Fixed Assets: Increased from ₹6,832 crore in FY23 to ₹7,234 crore in FY24.
• Unit III: The Company has invested 1,500 crore in Unit III’s Greenfield project.

Operational Efficiency Metrics #

• Inventory Turnover Ratio: There was a -5.35% decline in FY24 compared to FY23.
• Trade Receivables Turnover Ratio: Increased by 7.44% in FY24.
• Trade Payables Turnover Ratio: FY24 had only an increase of 1.35%.
• Net Capital Turnover Ratio: showed a -7.00% variance.
• ~1,64,900 GJ Energy conserved.
• ~1,30,300 KL Water conserved.

Growth Initiatives and Challenges #

• The company is facing pricing pressure in generic markets.
• Contrast Media: The company reports scaling up high-value contrast media projects and advancing in Gadolinium compounds.
• Peptide Opportunity: The company is manufacturing peptide building blocks, with a focus on forward integration into fragments for GLP-1 drugs.
• Unit III Expansion: Phase I of Unit III (200 acres) is expected to commence operations gradually during FY25, with an additional 300 acres available for future development.
• Geopolitical crises, particularly in the Red Sea, impact the company’s supply chain.

Risk Assessment: Divi’s Laboratories Limited #

Strategic Risks #

Risk: Business Model Concentration #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but with increased investment
• Mitigation Strategies: Diversification through forward-looking statements, Nutraceuticals
• Control Effectiveness: Medium
• Potential Financial Impact: Revenue, as API pricing pressures exist

Risk: Geopolitical Risks, crisis in the Red Sea #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Supply chain management
• Control Effectiveness: High
• Potential Financial Impact: Revenue, Logistics costs

Risk: Product Portfolio Concentration #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but monitoring of patent expirations in the Generic API portfolio is needed
• Mitigation Strategies:
  • Portfolio diversification
  • New Generics
  • Contrast Media
  • Peptides
• Control Effectiveness: Medium
• Potential Financial Impact: Loss of revenue and profitability if sales of key APIs decline

Operational Risks #

Risk: Manufacturing Capacity & Expansion #

• Severity: Medium
• Likelihood: Medium
• Trend: Improving, significant capital investments pending
• Mitigation Strategies: Phased project implementation for Unit III (Phase I of 200 acres, additional 300 acres for future development)
• Control Effectiveness: High
• Potential Financial Impact: Delayed ROI

Risk: Supply Chain Disruptions #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing, because of geopolitical instability
• Mitigation Strategies: Backward integration to basic starting materials
• Control Effectiveness: Medium
• Potential Financial Impact: Increased cost of materials

Risk: Environmental Sustainability #

• Severity: Medium
• Likelihood: Medium
• Trend: Improving. The Company has set goals to reduce GHG emissions, conserve water, decrease energy consumption, and minimize waste.
• Mitigation Strategies: Green initiatives and Sustainable Chemistry
• Control Effectiveness: Medium
• Potential Financial Impact: High, could impact on expenses

Financial Risks #

Risk: Foreign Exchange Fluctuations #

• Severity: Medium
• Likelihood: High
• Trend: Stable, but needs continued monitoring
• Mitigation Strategies: Natural hedging through a balanced geographic revenue mix
• Control Effectiveness: Medium, not fully hedged, as the Company believes the Indian Rupee will continue to devaluate
• Potential Financial Impact: Impact on the profit after tax

Risk: Interest Rate Risk #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Maintain low debt levels
• Control Effectiveness: High
• Potential Financial Impact: N/A

Risk: Credit Risk #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Credit limits and continuous monitoring of customer creditworthiness
• Control Effectiveness: High
• Potential Financial Impact: Minimal provision for expected credit losses

Compliance/Regulatory Risks #

Risk: Regulatory Compliance (cGMP) #

• Severity: High
• Likelihood: Low
• Trend: Stable, positive recognition from regulatory bodies
• Mitigation Strategies: Adherence to Good Manufacturing Practices (cGMP) for the past 25 years
• Control Effectiveness: High
• Potential Financial Impact: High costs

Risk: Tax disputes #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Work with Legal Counsel
• Control Effectiveness: Medium
• Potential Financial Impact: Claims against the Company not acknowledged as debts in respect of Disputed demands for excise duty, customs duty, sales tax, service tax and Goods and service tax for various periods 525 M INR

Emerging Risks #

Risk: Technological Advancements in the pharma sector #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable, positive for the company, the document states there are opportunities for expansion.
• Mitigation Strategies: Investment and expansion
• Control Effectiveness: Medium
• Potential Financial Impact: Expenses in research and development

Strategic and Management Analysis of Divi’s Laboratories Limited #

Long-Term Strategic Goals and Progress #

• Divi’s Laboratories aims for sustainable leadership in chemistry, focusing on high-quality Generic APIs, Custom Synthesis, and Nutraceutical Ingredients.
• Progress is evident in their Unit III Greenfield project, with a C 1,500 crore investment, expected to commence operations in FY 2025, and their planned expansion in peptides.

Competitive Advantages and Market Positioning #

• Divi’s is among the top 3 API manufacturers globally, holding the largest market share for 10 of its 30 generic APIs.
• The company is a trusted partner for major pharmaceutical companies, including 12 of the top 20 Big Pharma.
• Backward integration to basic starting materials provides a cost advantage and supply chain security.
• API-exclusive model with no competition with their customers

Innovation Initiatives and R&D Effectiveness #

• Divi’s R&D team, with over 600 scientists, focuses on process innovation and optimization.
• The effectiveness is demonstrated by the granted process patents and a focus on green chemistry principles, reflected by reduced carbon footprint and water usage.
• Investment in developing peptide building blocks

Management’s Track Record in Execution #

• Divi’s has a 25-year track record of adhering to cGMP and has received positive feedback from the USFDA.
• Unit III, their greenfield project, is progressing, with the first phase going live during FY2025.
• Successfully scaled up high value contrast media projects.

Capital Allocation Strategy #

• The strategy prioritizes long-term impact, evident in the significant investment in Unit III.
• A disciplined approach enhances sustainable growth.
• Consistent dividend payouts (1,500% for the last three years) demonstrate shareholder returns.

Organizational Changes and Their Impact #

• Dr. Devendra Rao Sureddi was appointed as a Whole-time Director effective May 25, 2024. This could signify a focus on strengthening specific areas of the business.
• Changes in members of the ‘Relative of Key Management personnel’ list.

ESG Framework at Divi’s Laboratories #

Environmental Metrics and Targets #

• Reduce absolute GHG (Scope 1 and Scope 2) emissions by 5% and intensity-based GHG emissions by 25% by 2030.
• GHG emissions reduced by approximately 19,000 tCO2e in FY2024.
• Reduce groundwater and surface water intake by 30% and intensity-based water consumption by 25%.
• Water conservation initiatives saved approximately 130,300 KL of water in FY2024.
• Reduce intensity-based energy consumption by 25%.
• Energy conservation measures saved approximately 164,900 GJ of energy in FY2024.
• Target a 25% reduction in intensity-based waste disposal.
• Approximately 40 MT of plastic waste was reduced during the reporting period.
• ~10,40,000 trees were planted, that may have generated ~56,500 MT of Oxygen.
• Carbon sequestration reached approximately 77,900 MT.
• ~3,038 KL rainwater was harvested.

Social Responsibility Programs #

• CSR initiatives benefited approximately 1,228,000 individuals in FY2024.
• CSR commitment for FY2024 totaled C 57.97 crores.
• Key CSR focus areas include child empowerment (impacting ~1,00,500 students), and safe drinking water access (~5,56,500 beneficiaries).
• Community development efforts in preventive healthcare reached ~189,500 beneficiaries, and village development projects impacted ~252,700 individuals.
• Animal welfare and dairy development programs involved ~22,000 beneficiaries.
• Women’s empowerment focused on skill-building and self-employment opportunities, impacting ~800 people.

Governance Structure and Effectiveness #

• Shareholder grievances resolution rate was 100%.
• Average Board meeting attendance was 97%.
• Independent Directors constitute 55% of the Board.
• Two out of eleven Directors are women.

Sustainability Investments #

• Unit III’s Greenfield project represents a significant sustainability investment with C 1,500 crores.

Regulatory Compliance #

• Adherence to Good Manufacturing Practices (cGMP) for the past 25 years.
• Manufacturing facilities have undergone audits by regulatory authorities, including the USFDA.
• EHS management system is certified by ISO 45001 (OHSMS) and ISO 14001 (EMS).
• Aims at adhering to the Principles of Green Chemistry.

Forward Outlook #

Future Projections and Guidance #

Management Guidance and Assumptions #

• Management aims for sustainable leadership in chemistry, focusing on high-quality Generic APIs, Custom Synthesis, and Nutraceutical Ingredients.
• Management assumes pricing pressure will continue to impact Generic APIs, with increasing opportunities from patent-expiry of products.
• Management guidance indicates Big Pharma projects within Custom Synthesis are poised to contribute significantly in subsequent years.
• The company assumes a benefit from Iodine-based and Gadolinium compounds in the Contrast Media space.
• Management will prioritize manufacturing peptide building blocks, focusing on developing the portfolio and capitalizing on the promising opportunities, along with manufacturing PAAs, forward-integrating into the fragments required for various GLP-1 drugs.

Market Growth Forecasts #

• Increasing demand for affordable products and the emergence of newer innovative therapies.

Planned Strategic Initiatives #

• Divi’s is focused on unlocking higher growth potential by expanding on emerging opportunities across various portfolios.
• The company is actively pursuing opportunities in newer generics.
• Divi’s is expanding production capacity for both large and small-volume products in the custom synthesis portfolio.
• The company is leveraging its expertise in Iodine-based contrast media and making advancements in Gadolinium compounds.
• Strategic focus on developing the peptide building blocks portfolio.
• Unit III’s Greenfield project phase I will commence production activity gradually in FY2025.

Capital Expenditure Plans #

• An investment of ₹1,500 crores has been made in Unit III’s Greenfield project.
• Unit III, a 200-acre Phase I project, will commence production gradually during FY 2025.
• 300 acres of additional land is available in Unit III for future development and investment.

Efficiency Improvement Targets #

• The company focuses on continuous process innovation to increase process efficiency, adhering to the Principles of Green Chemistry.
• R&D centers are focused on continuous process improvement, technological upgradation, and implementation of Green Chemistry Principles.
• Goals, relative to an unstated base year, have been set to reduce energy consumption by 25%.
• Goals, relative to an unstated base year, have been set to reduce emissions by 5% absolute and by 25% intensity-based.

Potential Challenges and Opportunities #

Challenges #

• Volatile market conditions and geopolitical crises, particularly in the Red Sea, impact supply chain management.
• Pricing pressure continues across generic markets.

Opportunities #

• Loss of exclusivity (LOE) for patent-expiry products is expected to fuel growth beyond FY 2025.
• The custom synthesis portfolio is progressing, with contributions from major Big Pharma Projects.
• Significant strides have been made in the contrast media portfolio, with scaled-up high-value projects.
• The peptide building blocks portfolio presents a promising opportunity.
• The company’s integrated business model is designed to turn challenges into opportunities.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditor, Price Waterhouse Chartered Accountants LLP, issued an unmodified opinion on both the standalone and consolidated financial statements, stating they give a true and fair view of the financial position, performance, and cash flows in accordance with Indian Accounting Standards.
• The auditor has confirmed that no material exceptions were found during the audit.
• The auditors report there exists an internal control system, though they observed that SAP application does not capture ‘old value’ and ’new value’ of changes made.

Key Accounting Policies #

• The Company uses the historical cost convention for property, plant, and equipment, and the straight-line method for depreciation, consistent with Schedule II of the Companies Act, 2013.
• Revenue recognition occurs when control of goods is transferred to the customer, net of rebates and discounts.
• Inventories are valued at the lower of cost (weighted average) and net realizable value.
• The company has not made any change to it’s key accounting policies during the financial year.

Internal Control Effectiveness #

• The Company has an internal audit system commensurate with its size and nature of business.
• The auditor’s report states that the Company maintained, in all material respects, an adequate internal financial controls system with reference to standalone financial statements, which were operating effectively as of March 31, 2024, based on internal control over financial reporting criteria.
• Material weakness was disclosed regarding SAP’s audit trail feature, which does not capture ‘old value’ and ’new value’ of changes made.

Regulatory Compliance Status #

• The Company is compliant with the provisions of Sections 185 and 186 of the Companies Act, 2013, regarding investments.
• The Company is required to maintain cost records as per Section 148(1) of the Act, and the auditors have broadly reviewed them.
• The Company is regular in depositing undisputed statutory dues.
• The Company is compliant with the number of layers prescribed under the Companies Act, 2013.
• The financial statements comply with the Accounting Standards specified under Section 133 of the Act.
• The company has not made any transaction with companies struck off under the Companies Act.

Legal Proceedings and Their Potential Impact #

• There are disputed demands for excise duty, customs duty, sales tax, service tax, and Goods and Service tax, amounting to a contingent liability of ₹103 crores.
• A show-cause notice was received, alleging erroneously claimed IGST refund of ₹82 crores, with a subsequent order confirming the demand along with interest and penalty. The Company obtained a stay order from the High Court.
• The exact timing and outcome of these proceedings are currently indeterminable.

Related Party Transactions #

• Transactions with related parties were in compliance with Sections 177 and 188 of the Companies Act, 2013.
• Related party transactions and balances are disclosed in Note 31 (standalone) and Note 32 (consolidated) of the financial statements.
• Key Management Personnel (KMP) remuneration is disclosed, along with transactions with subsidiaries, relatives of KMP, and other related entities.

Accounting Quality Analysis #

• The use of consistent accounting policies (historical cost, straight-line depreciation) is seen.
• The valuation of inventories use accepted methodology.
• A conservative approach is being taken for potential liabilities.

Regulatory Risk Assessment #

• Moderate regulatory risk is present, with a noted weakness in the audit trails.
• Ongoing legal disputes regarding tax matters represent a potential financial risk, although stays have been obtained.
• Adherence to statutory dues payments, related party transaction regulations, and cost record maintenance indicates good compliance.
• The Company has not traded or invested in crypto currency or virtual currency.