Divis Labs earmarks Rs 15 bn for capex as greefield Kakinada project stalls

Active pharmaceutical ingredients (APIs) and drug intermediates maker Divis Laboratories Limited is creating additional capacities by spending as much as Rs 15 billion at its existing facilities in the next 15 months to more than make up for the delayed greenfield project plans in Kakinada.  

The company said it would be investing Rs 6 billion each at its Unit-2 of Vizag SEZ in Andhra Pradesh and Unit-1 of its Nalgonda SEZ in Telangana to build additional capacities, besides spending another Rs 3 billion for debottlenecking of the Unit-2 in Vizag.

The capacity expansion is expected to be completed by the end of calendar year 2019. At present, the company operates four multi-purpose manufacturing facilities out of these two sites.

The management said the brownfield expansion was taken up in order to cater to the increasing opportunities in generic and big pharma business. The company is engaged in the manufacturing of key ingredients used to make final products by the formulations companies. 
 

Its portfolio has two broad segments -- generic APIs & nutraceuticals and custom synthesis of APIs, intermediates and speciality ingredients for innovator pharma giants.  

One of the largest API makers from India, it exported 87 per cent of its products to various global pharmaceutical companies in Europe, the US and other countries in 2017-18. The European market accounted for 44 per cent of its exports, while the US market contributed 29 per cent of its total revenues.

Divis has a portfolio of 122 products used in finished dosages and formulations manufactured across diverse therapeutic areas by the global pharma players.

Divis' scrip touched a 52-week high on Monday at Rs 1,450.40, or 15 per cent higher than the previous day's close, on the back of the significant rise in revenue and profits in the second quarter. The company reported a 47 per cent jump in revenues at Rs 13.6 billion and a near doubling of net profit at Rs 3.98 billion for the quarter ended September 2018. Last year, its total revenues stood at close to Rs 40 billion.
 

Two years ago, the company had planned to build its third greenfield manufacturing facility, which would be of a size similar to the existing sites, in Kakinada, keeping in view upcoming business opportunities. After facing some issues related to land acquisition, the company decided to go ahead with the brownfield expansion without losing time till the issues were cleared for the Kakinada project.   

Last year, the company faced an import alert from the US Food and Drug Administration (US FDA). The US drug regulator lifted the import ban in November last year as the company was able to quickly resolve the regulatory issues within eight months time.