Latest News on Divi’s Laboratories
Divis Laboratories signs long-term manufacturing and supply pact with international pharmaceutical company.
Divis Laboratories has secured a long-term manufacturing and supply agreement with a global pharmaceutical company. Under the terms of the agreement, Divis will manufacture and supply advanced intermediates to the pharma company, with the details of the commercial terms already agreed upon by both parties. This development is expected to contribute significantly to Divis’ revenue.
To facilitate the manufacturing requirements under this agreement, Divis plans to undertake capacity additions. The estimated cost for these additions is between Rs.650 crore and Rs.750 crore. Notably, the funding for this expansion will come from the capacity reservation advance that the customer has proposed to pay in phases, as outlined in the agreement.
The agreement is a strategic move for Divis Laboratories, positioning it for long-term growth and financial stability. By securing a long-term contract with a global pharma company, Divis ensures a steady stream of income and demonstrates its capabilities in the pharmaceutical manufacturing sector. The outsourcing of manufacturing to Divis by the global pharma company also underscores the Indian company’s quality standards and manufacturing prowess.
The fact that the cost of capacity expansion will be funded by advances from the customer reduces the financial burden on Divis and allows for the efficient execution of the agreement without significant upfront investment. This approach is beneficial for both parties, as it ensures the pharma company has a reliable supply chain while Divis can expand its manufacturing capabilities without incurring substantial debt.
This partnership highlights the growing importance of India in the global pharmaceutical landscape, with companies like Divis Laboratories playing a crucial role in supplying high-quality intermediates to international markets. As the pharmaceutical industry continues to evolve, such agreements are likely to become more common, driven by the need for specialized manufacturing capabilities and the advantages of strategic outsourcing.
Overall, the agreement between Divis Laboratories and the global pharma company marks a significant milestone for the Indian pharmaceutical sector, underscoring its potential for growth, innovation, and global partnerships. It is expected to contribute positively to Divis’ financial performance and reinforce its position in the industry.
Citi cites low risk of US tariffs on Indian pharma, favoring Torrent Pharma and Divi’s.
Citibank has analyzed the potential impact of US tariffs on Indian pharmaceutical companies and has assigned a low probability to such an event. The brokerage firm simulated a 10% tariff scenario and found that companies with a high exposure to US generics, such as Zydus, Dr. Reddy’s Laboratories, and Aurobindo Pharma, could face a 9-12% reduction in earnings before interest, taxes, depreciation, and amortization (EBITDA). However, if part of the tariffs is passed on to buyers, the impact could be reduced to 5-6%.
On the other hand, companies with lower exposure to US generics, such as Torrent Pharma, Sun Pharma, and Divi’s Laboratories, would be less affected, with an estimated 1-3% hit to EBITDA. Citi’s preferred picks in the Indian pharmaceutical sector, these companies have diversified portfolios and are less reliant on the US generics market.
The report also notes that if tariffs are imposed, they may not be fully passed on to US buyers due to various factors, including competition, industry fragmentation, and the influence of buying consortiums focused on lowering prices. Citi believes that the probability of tariffs on Indian generics is low, citing the limited manufacturing of generics in the US, the high dependence on Indian generics, and the risk of drug shortages if Indian suppliers exit the market.
The brokerage firm concludes that while the imposition of tariffs is a low-probability event, the potential impact on Indian pharmaceutical companies varies significantly based on their exposure to the US generics market. Overall, the report suggests that investors should focus on companies with diversified portfolios and lower reliance on the US generics market, such as Torrent Pharma, Sun Pharma, and Divi’s Laboratories.
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