Drug maker Divis Laboratories may take a call on shifting its proposed factory to an alternate site in the next 1-2 two quarters, the company said at its recent analyst call. The unit is currently being set up near port city Kakinada in Andhra Pradesh.
The company, among the top 10 pharma players in the country, didn’t specify whether it has found an alternate site or not.
The Rs 700-crore project has been hit by ongoing court cases related to land acquisition, as local farmers refuse to part with their land. Locals also claim the factory will result in air and water pollution.
Divis operates at almost full capacity at its two sites near Visakhapatnam and Hyderabad, and has been trying to augment capacities and also de-risk operations with greenfield expansion in Kakinada to manufacture generic active pharmaceutical ingredients or the key raw materials that go into making formulation drugs.
The company has earlier guided the new facility to be operational in the second half of financial year 2017-18, but except for minor civil works the construction hasn’t progressed much.
Supply constraints have compounded when the company received import ban by USFDA on its Unit-II facility near Visakhapatnam in December 2016. The import ban was revoked by USFDA in November last year.
The company has already incurred about Rs 34 crore towards the cost of land and minor civil works at the site.
“While we started the preliminary procedures for securing the land and applications for permissions for setting up the facility, several farmers or earlier owners whose land has been acquired by the Government have filed writ petitions before the High Court of Telangana and Andhra Pradesh contesting such acquisition or seeking additional compensation,” the company said in its latest annual report.
“The company hopes that the Government would resolve the legal issue with the contestants paving the way for registration of the balance land after which the company would be able to set up its manufacturing facility,” Divis said.
So far the Andhra Pradesh government has registered land to an extent of 351.72 acres in favour of the company, out of the promised 505 acres of land at Ontimamidi village, Thondangi Mandal.
Divis said it has initiated expansion of capacity additions at its existing units. The company has already spent Rs450 crore till first nine months of FY18 and plans to capitalize an additional Rs175 crore in fourth for Unit-I new block addition.
Analysts however aren’t pleased with delays of Divis proposed Kakinada plant, at a time when crucial Unit-1 near Hyderabad is up for US FDA inspection. Unit-I accounts for 35 percent of total revenue and its exposure to the US market stands at 11 percent of total revenue. This plant was last inspected in June 2014.
“Divi’s currently operates at almost full capacity and has been unable to initiate fresh capex at Kakinada,” said Edelweiss in its latest report on the company.
“With no alternate site finalised yet, we rule out any chances of meaningful growth over next two years,” Edelweiss report added.
Divis problems mirrors the pitfalls investors face in India in acquiring land to set up factories.
India’s 2013 Land Acquisition, Rehabilitation and Resettlement Act replaced a colonial-era law with an aim to protect poor farmers. However the law requires consensus to buy the land, a social impact assessment, rehabilitation for those displaced and compensation of up to four times the market value.
But states say the law has become a major impediment in land acquisitions for key industrial projects needed to spur economic growth.
Shares of Divis dropped 3.82 percent in last two trading days. Divis shares on Tuesday ended Rs 1078.15 down by 1.40 percent, the benchmark Sensex declined 0.69 percent to close at 36,033.73 points.
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