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Divi’s Laboratories Ltd, the niche pharmaceutical manufacturer, has got a shot in the arm from the strong trial results for molnupiravir announced by US drug maker Merck. Molnupiravir is an oral antiviral drug for treating covid patients and is said to reduce the risk of hospitalization or death for patients with mild to moderate covid.

Divi’s is the authorized manufacturer of molnupiravir API (active pharmaceutical ingredients) for Merck, which is also known as MSD outside US and Canada. Divi’s has remained the custom synthesis partner for Merck and has been supplying required quantities of the drug during clinical trials, say analysts. A robust trial result for Merck increases the chances of approval and by extension will boost Divi’s earnings. Merck has begun stockpiling the drug in anticipation of approval as the firm has a supply contract with the US government, according to analysts.

“We believe Divi’s has already ramped up its supply of API and we include molnupiravir in our estimates," said analysts at HSBC Securities and Capital Markets (India) Pvt. Limited. In their base case, they assume Divi’s will supply API for 1 million courses in FY22 and 0.7 million in FY23, resulting in revenues of $53 million and $44 million, respectively.

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Healthy growth

The firm has a strong presence in the API and contract research and manufacturing space. Having built its custom synthesis (CRAMS) business on the basis of its long-standing relationship with big pharma firms, Divi’s is set to show steady improvement in growth. The global CRAMS industry is expected to witness 9% compound annual growth rate (CAGR) in CY19-23, analysts said. “Given its technical leadership and large-scale facilities, we expect a 29% CAGR in custom synthesis over FY21-23," said analysts at Motilal Oswal Financial Services Ltd.

Scale-up in legacy products and new introductions in the generic API business are further expected to drive growth. Besides, the company produces niche generic ingredients and benefits by having backward integration for this. It has also undertaken brownfield expansions and some greenfield expansions such as those at Kakinada are underway.

Capacity expansion and backward integration will drive growth for Q2, said analysts at Phillip Capital India Research. Notwithstanding a high base, they expect the company to report 8% revenue growth during Q2 with margins at 42%, led by integrated manufacturing.

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