Ladies and gentlemen, good day, and welcome to the earnings conference call of Divi's Laboratories Limited for Q3 and FY 2024. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal the operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. M. Satish Choudhury. Thank you, and over to you, sir. Good afternoon to all of you. I am M. Satish Choudhury, Company Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to the earnings call of the company for Q3 FY 2024. From Divi's Lab, we have with us today, Dr. Kiran S. Divi, Full-time Director and CEO, Ms. Nilima Prasad Divi, Full-time Director, Commercial, Mr. L. Kishore Babu, Chief Financial Officer, and Mr. Venkatesa Perumallu, General Manager, Finance and Accounting. During the day, our board has approved financial results for the quarter and nine months ended December 31st, 2023, and we have released the same to the stock exchanges as well as updated the same in our website. Please note that this conference call is being recorded and a transcript of the same will be made available on the website of the company. Please note that this audio conference call is the copyright material of Divi's Laboratories Limited and cannot be copied, rebroadcast, or attributed in press or media without the specific and written consent. Let me draw your attention to the fact that we, on this call, our discussion will include certain forward-looking statements, which are predictions, projections, or other estimates about future events. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Divi's Lab or its officials does not undertake any obligation to publicly update any forward-looking statement, whether as a result of future events or otherwise. Now, I hand over the conference to Dr. Kiran Divi for opening remarks. Over to you, sir. Good afternoon, ladies and gentlemen. Welcome to our earnings call for the third quarter of the financial year 2024. We are pleased to have all of you here, and I hope that you and your families and loved ones are in good health. I shall commence with a review on the operational performance of Divi Laboratories. Divi's witnessed a steady quarter, driven by expanding market opportunities, slight decline in raw material prices, subdued by persisting pricing pressure across the generic markets. Coming to our generic business segment, the business remains stable with sustained demand for most of our established products. While opportunities from patent expiry products continue to create positive prospects, we expect the products with recent regulatory filings to fuel our growth beyond the financial year 2025. The custom synthesis segment is on the rise, particularly with the two major projects from the Big Pharma entering into full-scale production, where we expect their contribution to further increase in the coming quarters. We have several molecules at various regulatory stages at our customers, and with the expanded production capacity for both large and small volume products, we are ready for the new opportunities. Likewise, we are actively involved in the peptide building blocks used in the new anti-diabetic and anti-obesity drugs and are strategically focused on developing this specialized portfolio. On the CapEx front, our forward momentum continues with Unit III infrastructural establishment. The production activity in the 200 acres, phase I greenfield project, will commence on Q2 of 2024-25. Moreover, Divi's remains committed to and responsible business practices and making positive contributions to the communities we operate. Throughout the year, we have actively undertaken infrastructural improvements, road development, and sanitation systems renovations in villages across Telangana and Andhra Pradesh. As a part of our CSR initiatives, we dedicate ourselves to projects empowering children and women and encouraging education and supporting rural healthcare along with long-lasting impacts. Now, Ms. Nilima Divi will present you with the financial highlights of the quarter. Thank you. Good afternoon, ladies and gentlemen. I extend my warmest greetings to each one of you. Thank you for joining us today as we gather to discuss the financial outcomes of the third quarter, FY 2023-24. During the quarter, we sustained uninterrupted customer shipments, efficiently meeting their deadlines. However, the ongoing Red Sea crisis has introduced disruptions to the global supply chain, leading to escalations in freight costs, mandatory war risk insurance, and noticeable delays due to rerouting. With increased vessel diversion, resulting in longer voyages and increased oil prices, international freight rates and insurance premiums are in rise. While the resolution of the situation remains uncertain, we remain vigilant regarding potential challenges stemming from ongoing events and implications for global trade. Nonetheless, strengthened by a resilient supply base, streamlined inventory management, and the implementation of various adaptive strategies, we continue to respond swiftly and closely monitor every shipment to ensure normal and timely supplies. I will now provide an overview of the financial performance for the second quarter of the fiscal year 2023-24. We have achieved a consolidated total income of INR 1,950 crores for the current quarter, as against an income of INR 1,821 crores for the corresponding quarter of last year. Our total income for the immediate previous quarter, that is Q2, was INR 1,995 crores. Material consumption for this quarter worked out 99% of the revenue, due to favorable product mix and softening of raw material prices. Profit before tax for the quarter amounted to INR 489 crore, and we have a profit after tax of INR 358 crore for the quarter. Exports for the quarter continue to be around 87%. Exports to Europe and America is about 71% for the quarter. Product mix for generics to custom synthesis is 54% and 46% for the quarter. We have a Forex gain of INR 18 crore for the quarter, as against a gain of INR 47 crore in the corresponding quarter of last year. Our constant currency growth for the quarter has been 7%, while it is negative at 10% for nine months. Our nutraceutical business amounted to INR 153 crore for the quarter. For the nine-month period of FY 2023-24, our consolidated total income came to INR 5,804 crores, and we have a PBT of INR 1,450 crores and PAT of INR 1,062 crores. We have a Forex gain of INR 32 crores for the current nine-month period. We have capitalized assets of INR 77 crores during the quarter and INR 202 crores for nine months period. We have a capital work in progress, inclusive of advances of about INR 712 crores at the end of the quarter. On Kakinada project, we have spent INR 458 crores during this financial year. You may recall that we have spent INR 76 crores on this project till the end of last financial year. As of 31st December, we have cash on book of INR 3,913 crore, receivables of INR 1,792 crore, and inventories of INR 3,201 crore. Thank you. Thank you, madam. With this, we would request the moderator to open the lines for Q&A. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, we also request that you please restrict your questions to two questions per participant. You may rejoin the queue for follow-up questions. The first question is from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead. Hi, thank you for the opportunity. Sir, ma'am, in your discussions with CDMO customers, do you get the impression that Big Pharma companies are really looking to curb their exposure to China? I mean, there has been a lot of anticipation on this over the last four years now, since COVID. By when do you think this would start translating into business for Indian CDMO companies like us? We are seeing a huge amount of growth and a lot of opportunities coming on our side, especially since there is a direction that the Big Pharma should work more with Indian companies and towards European companies. So we are seeing good opportunities with our existing customers. Also opportunities from new customers, which are coming in, which we will see in the next few years what will happen with them. Understood, sir. Then sir, the second question is, within the peptide segment, you had a lot of prior experience in protecting groups like t-Boc and Fmoc, within solid phase synthesis. I think you also developed Di-Boc. Now, for Semaglutide, Tirzepatide, as well as the upcoming GLP-1 combinations, can either of these protecting groups be used? Or, or I mean, is it just few of these protecting groups or only one? Or, there's some or maybe some protecting group is more appropriate than the other? So, I cannot mention the name of the drugs, unfortunately, but what I can mention is, for any amino acid, to create a protected amino acid, you need either a Boc or an Fmoc. So we protect, we produce protected amino acids, chain of protected amino acids, where there's a dipeptide, tripeptide. They're basically a group of three amino acids or four amino acids. Some of the compounds are have about 30-40 amino acids to create the, the drugs, and in some cases they almost have about 45. So these are done by the innovators or the innovator contract manufacturers. What we produce are the building blocks. These building blocks are either used an Fmoc or a Boc, which are a nd that's how you can only protect the amino acids. One final question, if I may. There are already multiple developers of Semaglutide API globally. Do you think there is an opportunity for us, even in the GLP-1 API space, or we would like to remain restricted to the building blocks for now? I cannot comment on the drugs again, but what I can say is we are active with the building blocks right now, and we are working with innovators very closely. We are also supplying dipeptide and tripeptide at this point, and we are under qualifications. Understood, sir. Thank you. Thank you. The next question is from the line of Surya Narayan Patra from PhillipCapital India Private Limited. Please go ahead. Yeah. Thank you for the opportunity, sir. First question is on the margin front. While we have seen a kind of good ramp up on the custom synthesis front, and there is a visible ramp up in the contrast media and all that, and hence, the gross margin improvement is quite significant sequentially. But on the other expenses front, there is a kind of impact that we are witnessing. Is it entirely because of this Red Sea situation or what is this impact that we are seeing? And what incremental impact that we can see going ahead in the subsequent quarter because of the Red Sea? So I would say, like, it's partially Red Sea and partially, also like, you know, because of the Red Sea, not just the logistics, but also, like, the insurance and all other factors kicking into it. But we have. Like, the Red Sea started during the end of November, if I'm right, and we have seen it partially in the last month of the quarter. But going forward, we see this is going to highly impact the logistics cost, the supply chain cost, wherein we are seeing reports where they are saying it's going to be a 30% spike in the freight cost. So, we have to be conscious. We have to be, like, you know, looking forward to see how this is going to, not just regarding the cost, but also, you know, the rerouting is what we are more looking into currently, because we need to make sure the material reaches our sites on time, and they have to reach our customer on time. So we are being very conscious of the fact that, you know, we have to make sure that the timelines are met. Okay. But whether because of this longer route, shipments, whether any portion of your export got impacted this quarter, ma'am? Not this quarter. I mean, we haven't seen any delays in shipments or any material not reaching our customer in this quarter. This quarter we have been very comfortable, I would say, but we have to look into the future quarters. Okay. My second question is on the contrast media. So, we have obviously seen ramp up there, but, could you share that there are multiple contrast media product opportunities, and we have been working on a basket of products there. So how many products that we would have so far launched and contracted and just started supplying to with pharma? And how many product opportunities that we are targeting to capture further going ahead? And also, an extended question here is that whether it is China, which is a bigger competition so far as contrast media is concerned for Divi's. So, to answer this question, contrast media, there are two types. One is CT scans, where we use iodine-based contrast media, and then we have the gadolinium compounds, where we use it for MRI. Yes. So in terns of iodine-based compounds, okay, we are very strong in Iohexol and Iohexol. Dr. Divi has also mentioned this in the previous call, and we are going forward with a good growth rate. Apart from this, on the gadolinium compounds, we are working with the innovators at this point, and we are under qualifications. Now, coming back to the iodine-based products, we are also looking at few other generic molecules where the qualifications are going on. You are also well aware that in the world, there are about 3-4 innovative companies which control about 80% of the market share, where we are working with them very closely, and in some stages we are undergoing qualifications to be their additional supplier and then take over the quantity. Okay. So here, particularly on the contrast media for the China-related thing, what I asked, that we have seen in many of the products that the key suppliers so far are Chinese, the input material suppliers. So hence, the China plus one could be a kind of big clear trigger, and China plus one really play out a big, opportunity for us in the contrast media. Is it, is it fair to believe that way, or how do you see Chinese competition, particularly in the contrast media? So coming, so you're talking mostly about the generic molecules. When you look at China, China is a competition in the generic world, but that is mostly in the ROW markets, not in the regulatory markets. So we are focused mostly at the regulatory markets right now, selling to U.S. and Europe and other regulatory countries. Apart from this, we are also entering into the ROW markets. We don't look at it as a threat because we start from basic raw materials. We start our chemistry right from iodine. We know the art of recovering iodine, thereby it brings our cost down. And that's why we are efficient on atom-to-atom efficiency. So price-wise, cost-wise, and quality, we are much more superior in the generic market, and that's why a lot of people are qualifying and moving to us. Okay. Slightly differently, sir, on the Contrast Media. See, globally, what is the current size of the global market in Contrast Media? And, by what, the number of products that we are currently already marketing, so what portion of the target market that we, we are addressing or capturing so far? And what is the potential opportunity further that is there with the potential pipeline that we might be entering in those? Like I said, you know, right now we are actively working on Iopamidol and Iohexol. We have launched it in several markets, and we are increasing our volumes and our market share in several products. Globally, the iodine-based contrast media is about $5 billion, and the gadolinium compound is about $4-$4.5 billion market share. So we are looking at. And most of it is controlled by the innovators. Okay. So on the innovator side of the business, as we get qualified, as the volumes come to us in the coming years, we will see a good, much better opportunity in this. But as of now, the compounds we have launched as generic, we are towards the process of having a good market share in them. Okay. So my next question on the peptides and proteins. So what is the practical progress of us on that front in terms of the development of the molecules or the products, as well as in terms of the manufacturing capability? And when that we can see the commercial opportunities really justifying for us? Coming to, you know, GLP-1 products, we, as I explained before, you know, we produce protected amino acids, like amino acids with three chains or the four-chain amino acids. We are in the process of getting qualified with several customers, who basically customers are innovators, where they're using it for their molecule at their contract sites. We will see opportunities more towards 2025, since the qualification takes time, their integrity profiles take time. We are digressing to their filings. So the whole process is almost a one-year process, since once the qualifications are completed. Sure, sir. Yes. Thank you. Wish you all the best. Thank you. Ladies and gentlemen, we request you to please restrict your questions to two questions per person. You may rejoin the queue for follow-up questions. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead. Yeah, good afternoon, and thank you for taking my question. If I, if I, see the, I think, Ms. Nilima comments, it's 46% is custom synthesis for the quarter, right? Did I get that right? Custom synthesis. Yes, please. Yes, it is 46% from the CS and 54% from generics. Understood. So just if I were to put that in numbers, like around, we've seen a very good, QOQ improvement in CS, right? It was 40% last quarter, now it's 46. So what's driven some of the growth in this, CS, segment? If you could give us some qualitative sense. And also for the path forward, you know, I know these numbers vary between quarters, but how should we look at custom synthesis contribution when we look forward? Are we in the phase now where custom is starting to pull its weight a lot more vs what were the historical quarters, at least last four, five quarters? To answer this question, like, you know, I, Dr. Divi has mentioned in his previous call, the two big custom synthesis projects have commercialized, and, you know, the results have, you know, we have started production, started supplies, and we will see much more benefits in the coming quarters as the volumes scale up and the shipments start. So that's why you have seen a change in the CS business. Now, coming to CS in general, you know, I've explained we have several molecules which were in discussion, which are in the phase I, phase II, phase III. Some are much more advanced, some are in the final stages in FDA approval for our innovators. So once the approval comes in, we are ready with capacities to go forward. The opportunities are very positive at this time, and we will see growth in the coming years. And also, we would like to say at this point that, you know, the generics to custom synthesis differs from quarter-to-quarter based on, you know, whether the material is going towards it should be in one particular quarter or another quarter. We should look on an overall perspective of the entire year, rather than looking at quarter-to-quarter. And sometimes we need to also look at it from the perspective that this is not the quarter where that defines the business. The Q3 is the quarter where our business actually slows down a bit compared to the other quarters. Understood. Very, very clear. My second question is just on the rest of the business, right? I think generics and nutraceuticals, as Karan had said, both of them have seen, like, a softer quarter. I think Mr. Kiran, at the start, talked about generic pricing pressure, but we're getting a little mixed signal here, right? All the formulation companies are talking about low pricing erosion. So if you could kind of give us an outlook for the generic piece specifically, and also the elaboration on the comments you said that once the patents expire, we'll start seeing opportunities beyond 2025. If you could just clarify those two. Thank you. Okay, so coming to your first part of your question, you know, in the generic is like a cycle. You know, it happens every four years or five years, where we see a lot of our competitors starting to destock, and, you know, their products, whereby there will be a drop in price, and that's why we see pricing pressure across the world. And though we have been maintaining our market share, despite of all the price pressures, we have gained about 3%-5% of market share in most of our large volume products. So the corrections and everything would happen in the near future once our competitors stop destocking, and, you know, when things start stabilizing again. We think maybe in the next 2-3 quarters, we will start seeing stability in the generic business. Your elaboration of the point about the patent expiries, that lever of growth, Chair. So there, we have several molecules. It's one of our growth engine on future generic, which we have been working on. We believe, we, we believe in, we have completed all the qualifications. We have also submitted quantities to our customers. We have done, where they have done their validations and stability studies. Now we are just waiting for the patent to expire and FDA to approve it, and then we will launch it into the market. We are also well aware that we are very selective on what they select as a molecule. If you look at our traditional big volume products like Naproxen, Naproxen Sodium, Gabapentin, Levetiracetam, or, you know, Carbidopa, Levodopa, we even though we started in late, we are one of the world market leaders, controlling about 70%-75% market share. So when we come in, we look at backward integration, we look at, cost to cost efficiency, atom efficiency, and then think about how to bring the products in with green chemistry and green, concepts. With that being thought and process, we have selected certain molecules where we feel we can become market leaders, and we have brought it in. So we believe by 2025, you know, one or two of the patents will start, you know, getting off and the products will start commercializing, and we will see it from there. Understood. Thank you, and all the best. Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead. Yeah, thanks for taking my question. My first question is just an extension on the generic, you know, commentaries that you gave. Is it fair to assume, based on your commentary, that given pricing is weak and a lot of these new molecules are going to come in, you know, 25, we should expect the generic business, the generic API business, to remain at this level? Or are there drivers to see an improvement in the generic piece of sales, demand as we go forward? I'm sorry, your voice is not very clear. Can you repeat the question again? There's some disturbance, I guess. Hello? Hello? Hello. Hello. Could you repeat the question again? The voice was not that audible. Sure. So I was saying that, you know, given your commentary that pricing, you know, generic API pricing probably would take a couple of quarters to, new molecules are, you know, will be coming into 2025. How do we see, you know, recovery in the generic API business? Would that then be more, you know, next year onwards, or is there levers that we have to improve the generic API business? So the generic business, in general, we have not lost any market share. In fact, we have gained market share in several of our large volume APIs. We have also increased capacity in several of our APIs. For example, if I take Levetiracetam, we increased from 400 to 1,000 tons. Mm. From Valsartan, we increased from 400 tons to 700 tons. Levodopa almost doubled the capacity. So we have several molecules where we increased capacity. We know the market share. We know what's happening in the market. We're very close to the molecules. So with this in mind, we believe that we will grow in generic. Apart from this, we have our future generic molecules, which I just explained, that you know, some products are coming off patent in 2025, some in 2026, and some in 2027 and 2028. So we have the molecules in line. We are backward integrated. We started from the basic raw materials. We have total control on the process. So we believe the generic business will grow once. Okay, if you say the pricing pressure is there once every four years. We have seen it in 2017, we have seen it before in 2011. So it is a cycle, where the prices go down and then they rise up. Okay, so it's, it's always, it's not something new, that it's the first time in the market, but it, it is something that's very standard. Understood. And, you know, Kakinada should start contribute to the generic business as well, right? In the second half, or it could be, you know, it will be more for the custom synthesis business in the beginning. Kakinada would be like, it would start. You can say we can start the production in Kakinada around the end of Q2 next year. It will be also like we need to consider the time to be given for regulatory approvals and, Mm. Because we are mostly export-oriented and not done very little domestic market we supply. So, by the time we start actually commercializing, it should be end of Q3 of next year. Next financial year is what we are looking at. Subject to regulatory approval. Yes, subject to regulatory. Fair enough. And my second question is on the margins. You know, if you look at our pre-COVID margins vs where we are today, you know, I mean, my custom synthesis business, which was INR 2,000 crore, you know, in 2020, 2019, is, you know, north of INR 3,000 crore now. Even though the share is the same, I understand that. Plus, we've gained more share in a lot of generics, but margins have come down. Can this margin improve and go back to what we were at, you know, pre-COVID levels? And would that need a lot of this pipeline and, you know, GLP-1, et cetera, to kick in for that to happen? Just trying to understand the trajectory of margin. If we are looking at. Like, we do have a lot of opportunities, we do have pricing pressures. But we are also thinking about, like, we need to look at pre-COVID and during COVID and post-COVID is three different scenarios. Mm. Pre-COVID, we were driven more by generic business and partial custom synthesis. During COVID, we were driven mostly by custom synthesis business. Post-COVID, we are now trying to establish and create new products and new markets and new new what do you say molecules, in a place where we are also looking at logistical costs being increased and the margins are being affected. But this is not a long-term thing that we are foreseeing. So comparing it to pre-COVID to now is not a similar scenario. What we can say, however, ex-COVID, the last nine months, if you compare to the last financial year's nine months, we did see a double-digit growth. Okay. But is it fair to assume that margins can improve from here, or, you know, this is the steady-state margin that we should build in, given the expansion and all of the investments that we're making on new molecules and new products? With all the backward integration and the green chemistry and, everything that we are foreseeing, we are hoping that there would be a better margin in the near future. Got it. Thank you so much. Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead. Yeah. So thanks for the opportunity. Just on this, GLP-1 protected amino acids, where you are under qualification with various customers, would this require subsequent, CapEx and when the commercial benefit, or we already have the capacity to gain the traction post-approval? As of now, we have enough capacity to take care of their initial requirements, what they have requested. If the volumes go beyond expected, what we are seeing right now, because they are also in-house manufacturing, and then if they require additional volumes beyond what we expect and beyond what we are discussing, then yes, we will have to invest and then build additional capacity. Typically, this would be what, as a percentage of, API cost of this GLP-1 product, the protected amino acids? It is. I would say that at this point, we would not like to disclose it for various reasons, because it also is, like, sensitive information. Okay. Secondly, on this gross margin, at least for the quarter-to-quarter improvement, you attributed two reason. One was the generics and custom synthesis mix, and another one was the raw material. So let's say out of 200 BPS improvement, broadly, could you share, like, what would be the benefit on account of raw material, lower raw material cost, and how much to be with because of the Custom Synthesis share? As you have seen, the CS is more in this quarter. I mean, there are multiple things that affected it. Like, one, the CS is more in this quarter. There is softening, which we have been mentioning in the last few conference calls that have been there, that we are seeing the softening. And we are hoping that it will continue, the trend will continue to be the same going forward. And yes, there are multiple factors that are affecting the change, but these are the two key reasons, is what I would share. Got it. I think, so just extending to that, as the proportion of Custom Synthesis increases because these two major projects scale up, so to what level of gross margin can we expect? You know. We cannot explain product by product, like, but as I mentioned earlier. Mm. Like, you know, it's just a product mix. How it happens in that particular quarter, like this quarter, the Custom Synthesis did increase, but the next quarter it may or may not be the same. So it's hard to define, like, you know, quarter by quarter Custom Synthesis to generics, like is the business growing, and create a future outlook based on that. I would say rather we look at it as a whole year rather than just a quarter-on-quarter basis. Fair enough. And just last, if I may, this Kakinada project involves the primarily the generic APIs, or is it to do with the innovator projects? If you could just, you know, give some comment on that. It is a mix. We are not focusing only on one particular segment there. As you are aware, that we are an organization where we have multipurpose plants. We don't build a block just dedicated unless we see a long-term benefit in doing just a dedicated block. But most of our block manufacturing blocks are multipurpose, so we use it between generics and custom synthesis. So I would say Kakinada would have a mix of both. Got you. And the GLP-1 would not require dedicated, right? That would also. That, that capacity can also be quite fungible. GLP-1, we all, like I already explained, we have already, we already have the capacity, and we have already built the capacity required for it, for the existing demands or projected demands the customers have given us, and where we are undergoing qualification. So as of now, we don't need additional capacity, but yes, for GLP-1, it will be dedicated capacity. Got you. Thanks, thanks a lot for answering my queries. Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead. Hi, good afternoon, and thank you for the opportunity. My question is to Nilima. So you mentioned about supply chain challenges due to adverse geopolitical developments, et cetera. So, just want to ask, do you have any headroom to pass on additional costs to customers, or it's not possible for you to do so? I would answer this because it's more related with the customers. So we have long-term contracts with the customers at various, with various, price blocks. So there are certain price links, which are linked to it, and when the upper threshold hits in the contract, that's when we have the opportunities to sit and discuss with them. You know, some contracts are once in six months, once in one year, some are based on a six month average. So it depends on the contract that we have leveraged with customers to discuss. But in case that doesn't happen, you will incur all the elevated costs, like you will absorb it, right? There is no, not much room to pass it on. At every stage, everyone will be absorbing. For example, let's take an example that the dollar has gone to, let's say, INR 90 a dollar, okay? At that point, I'm getting benefited, right? So when it goes down, okay, and I'm still selling at that price, I lose it. So it is at the end of the day, you average the gain and see what happens, right? Some quarters you may take it in, some you may lose, and sometimes you have the benefit. So it is. We have been doing this, based on averaging out over the years. Okay. So, for near-term margins, we should be focused more on cost efficiency, et cetera, like what was discussed earlier, that should be driving the margins, and then obviously if top line increases better, then operating the benefit, benefit will be coming in. I would say that, yeah. Okay. My second question is on nutraceutical business. So this remains a tiny part of your business. So just want to understand what is the constraining factor here, whether it's the capacity or something else, because it seems like a good business, but it remains broadly range-bound, in some time, in last few years or so. Nutraceutical business, we are largely into, you know, products like astaxanthin, canthaxanthin or beta-carotene. So we have picked certain of the vitamins and the food supplements or vitamin D3, where we are looking strongly at the regulated market. If you look at products like astaxanthin, we have almost about 80% market share. So these are very specific products we are going in. As of now, we are running at full capacity. We are looking for. And as you know, in the world right now, the consumption of natural products and everything has slightly gone down. Though we have not lost any market share, we are right now being cautious on the nutraceutical side, and we are seeing about a 10% steady growth year- on year. Okay. Do you plan to add on capacity or not, not as of now? Pardon me? Pardon me, can you repeat that again, please? No, I, I was just saying for nutraceutical, do you have plan to add capacity in near term, or it's not required, like you have enough? Although, like you said, it's running at full capacity. If the need be, we might. Like I said, right now, the demand worldwide has been very stale, so and, because the prices, prices are at, at, at a challenge at this point. So, we will add when the opportunities increase. As of now, we have a double-digit growth on, in the nutraceutical business. Okay, that helps us. All the best. Thank you. The next question is from the line of Amey Chalke, from JM Financial. Please go ahead. Thank you so much. I have two questions. First one is on the innovative projects for the Custom Synthesis projects, you were talking about the two projects. Is it possible to explain whether these projects are life cycle management projects for the clients, or where the patent expiry has already happened or about to happen? Or these are newly commercialized or novel projects where the patent protection would be there? That is the first one. And the second question I have on the capacity front: If you can explain the final gross block number for the Kakinada and also the GLP-1 capacity. Thank you so much. Coming to the two branded molecules, okay? The products are under patent and, they are being produced by us, for them, and that's why, you know, the commercialization just took place and, we have a long time as the patent will expire, and we have good opportunity with them. I cannot, you know, give the breakdowns or anything on those products at this point because of confidentiality, but what we can say is they, they have very good opportunities, and we have several molecules in the pipeline, which are, which hopefully with FDA approval and, EU, approval, we should see, they should see the light very soon. Coming to GLP-1 compounds, we have dedicated capacities for. I would put a ballpark of several hundred tons at this point, which we have kept ready for commercialization at once we have all approvals in place from our innovators. Sir, in the Kakinada block, how much would be the CapEx we have spent or the asset which we are booking on the balance sheet, if you can? We have built about seven production blocks there as of now, with a total capacity, with a total investment of INR 458 crore. Sure, sir. Thank you so much. Thank you. The next question is from the line of Nikhil from SIMPL. Please go ahead. Yeah, good afternoon. Thank you for the opportunity. I hope I'm audible? Sir, you are audible, so you have a lot of background noise, though. One moment. Hello, is it better now? Please go ahead. Yes, please go ahead. Yeah, just two questions. One was on capacity. See, we in last two years, we added lot of capacity and, now the gross margins have improved because of the mixed range. But sequentially, can you help us with how the utilizations have improved, or are they same as it was last quarter? Like I explained, you know, in, in the large volume generic markets, we have picked up about anywhere from 3%-5% market share. You know, if you take an example of a large volume product, we produce about 5,000 tons, and 5% of it is almost 100 tons. So capacity, wherever we have built, it is being utilized and, and it is, it is operational, and in some cases, qualifications are going on and, and you will see, you will see commercial realizations in the near quarters. And also, you know, the two big projects we have done for the Big Pharma, we have done investments over there, where the commercialization has now taken place. Okay. Also, you know, as you said, like you've seen the gross block improve, we can say that, you know, the capacity utilization for this quarter is around 80%. Okay. So if we look in last 4-6 quarters, the utilization has improved, but, the operating leverage, because our cost on the cost inflation, which has happened on the employee and the other expenses, is not covered because of the foreign realization. And that is why it's not reflecting in our EBITDA margin. Would that be a right assumption to make, or, would you. Yeah. I mean, we need to look at it as a product mix over a period of time. We can't just say that, you know, looking at one particular quarter, that this is the future outlook. Okay. Secondly, on post Kakinada coming up, how do we see, would we look at going slow on capacity addition for next one or two years? Or would the investment and opportunities, which we have talked through our strategic six levers, do you see this investment phase to continue at INR 500-INR 600 crore over the next 3-4 years? How should we think about this? If you look at Kakinada in general, we have about 500 acres right now. Out of that, we are utilizing 200 acres. I also have explained, we still have 300 acres available in Kakinada as a greenfield for future development. As the opportunities at Big Pharma increase, and as we see potential volumes keep increasing and the new generic volumes that we are launching in the next coming years, we see more opportunities and the Kakinada gets all regulatory approvals, we will see investments coming in again. So just to flip it, what I'm trying to understand that, see, when you decide to put a CapEx of even, say, something like INR 100, a new block. What is the time period in which you believe the optimum utilization of this CapEx will be achieved? Is it like, when, when you are thinking about it based on the orders from the customers and all, is it like two years, three years? Just getting a sense of how you think about, when to put a new block, because if the block remains unutilized, it will start hitting our operating leverage. So how do you think about this? Typically, it's about two years since we built the block. You know, there are several factors we have to take in place. One is the length of the chemistry, how long it takes. Then we also have to look at the qualification, how critical it is. You know, in some cases, you know, there are nitrosamine impurities. You need additional qualifications. FDA can come back and ask you several more questions before they approve the drug. So with all these in place, we typically, our history tells us it's about two years, but we have also seen two and a half years in some cases. Okay. Just last question. On the GLP side, I think someone had asked this question, but you excused. But putting it differently, if the GLP products come in for us, would they be accretive to the overall gross margin? Than what we are doing as of now? I would say so. I would, I would agree with that. Okay, thanks. I'll come back in the queue. Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead. Thanks for taking my question. [Srivi], on, you know, on your custom synthesis projects, in your experience, when the project that you're working with, with the innovator goes off patent, typically, how does this, how does the cycle really play out, subsequently? Do your volumes stay, as they are, or do you have a meaningful loss in volume as well as pricing, subsequent to the patent expiry for the innovator? Usually, when the product is under patent and it expires from the patent, what we normally notice is the competitors do search for a much more cost-effective way of manufacturing the same compound. And also, the product cost and the pricing of the product does go down because of the competition in there for that particular molecule. So yes, we do see that whenever the product goes off patent, the price falls, and there are multiple competitors in the market, and the cost also is substantially lower than what the innovator initially had innovated the cost with. So, you know, typically what happens is, when the molecule is coming off patent, that is, with the innovators, we work on a late life cycle management for the molecule. So during that process, we bring the most effective route, where we discuss with the innovator in hand, and then we work with them in re-qualifying this new process, which is more cost-effective and helping them to keep the market share. In the process, we also keep a decent amount of shares. But per se, is it fair to sort of say that from a gross profit contribution perspective, the contribution for the product comes off, you know, after the patent expires? And is that meaningful? Is the drop meaningful, which happens with whatever initiatives you undertake? I would say that, yes, both for the customers and whoever are involved in that patented product, for them, if they move on once off patent, it does affect. Okay, thanks. If I can take a second one. You know, you talked about two large opportunities which are there for us on a going-forward basis. One is the contrast media products, and the other one is a GLP-1, you know, so, sort of building blocks, which are there. Now, is there a way to, I mean, just ask, taking a sense on it, from a quality perspective, in your assessment, which is a bigger opportunity for Divi's over the next 5-10 years? Could you repeat the question again, please? I'm saying, you know, you talked about two major growth opportunities for the business, which is one in either it's the contrast media products, and two is GLP-1 intermediates, building blocks that you're working on. If I take a five-year view of the business, which is going to be, in your assessment, probably a bigger contributor to Divi's business between the two? You know, we cannot say that. We cannot go by a growth engine, you know, because we have about seven growth engines right now, and we cannot say which one is bigger and which one is smaller. In both of them, we see really good opportunities. We see promising opportunities, and the opportunity, which one will kick in first, which one will kick in later, we cannot say that right now. But what we can say is from 2025, we will start seeing some good numbers on both the fronts and positive results. Thank you so much. Thank you. The next question is from the line of Prashant Nair, from Ambit Capital. Please go ahead. Yeah, good afternoon. First question is on the broader business mix. You seem to be now getting back to close to the 50% generic to custom synthesis split that you have maintained generally. Looking at, you know, whatever you have in the pipeline over the next, say, 3-5 years, do we see this split broadly remaining in this range, or could it get skewed towards one or the other segment? I would say that, you know, the ratio, we should always look at it as year-on-year. And we believe that, you know, it will, both generic and custom will grow parallelly, hand-in-hand. So it's not like, you know, we are concentrating only on one segment of the business and ignoring the other segment. We believe both the segments have good opportunities, based on the growth engines, you know, our future generics, our existing generics, where we increased capacities and qualifications are in the process. And also in the custom synthesis, the two big molecules which have just commercialized. Apart from that, we also have several molecules in the pipeline where, you know, our innovators are waiting for FDA to approve or EU to approve. So I would say they are hand-in-hand. I wouldn't say that, you know, one is dominating the other at this point. Thanks. Second question relates to the Kakinada plant. How much would that add in terms of fixed overheads or fixed costs, what? Can you repeat that question again, please? Yeah. So, the Kakinada plant, how much would it add to your fixed costs on the PNL or fixed overhead? See, we can't be very transparent, specific about every product, every unit and everything. But only thing we can see is with Kakinada adding into the portfolio, 2024, 2025, we do foresee a double-digit growth year-on-year. Okay. Thanks a lot. That's it from me. Thank you. The next question is from the line of Rahul Jeewani from IIFL Securities. Please go ahead. Yeah, thanks for taking my question. Ma'am, you indicated while talking on margins that the business. Sorry, sir, the line is not very clear for you. I request you to please use the handset mode, sir. Yeah. Oh, handset mode. No, sir, this is not better, sir. Not any better. Is it better now? Slightly, sir. Yes, please go ahead. Yeah. So my question is on margins. So ma'am, you indicated while talking about margins that the business has gone through three different phases, pre-COVID, during COVID, and obviously now. And given that we are targeting opportunities in both the custom synthesis and the generic API segment. I'm sorry, we are unable to understand the question. Uh, it's. Very broken. The words are. Rahul, we request you to please move to an area with better network. Yeah. Is it better now? Not really, sir. It still, it still has that, break in between. Sure, sure, sir. I will join that way. No worries. Okay. Thank you. The next question is from the line of Omkar Kamtekar from Bonanza Portfolio. Please go ahead. Hello. Thank you for taking my question. First, a clarification, then what is the number of, number that you quoted for the nutraceutical business, revenue number from the nutraceutical business? The nutraceutical business for this quarter has been about INR 153 crore. INR 153 crore. Okay. So the first question is with respect to the asset turns. So with the Kakinada plant, we have, as we have said, approximately INR 450 crore has been added to the gross block, and the total gross block as of the year end of FY 2023, is close to six, is INR 6,000-odd crore. So, what are the asset turns that we are looking ahead? Because historically we have been at 1.5 asset turns, gross block to sales, sales to gross block, so, which is currently down. How are we looking to ramp it up, and will it come back to these historical levels going ahead? Could you repeat the question, please? We couldn't hear you clearly. Oh, am I, am I audible now? Is, is this better? Now, now you are audible. Yes, please. Okay. So the question was with respect to the asset terns. Currently the Kakinada block is approximately INR 450-odd crore, and the asset size as on the end of FY 2023 was INR 600-odd crore. So currently we are at close to 1.21-1.3 sales to gross block. How are we looking to ramp it up? Because historically we have been 1.5x, we are currently lower. So how far materially have the terms increased? And with, as you said in the previous question's answer, that we will be looking to add a capacity as and when the opportunities come. With that being said, could we say that we could reach close to INR 10,000 crore top line by the next two years we ramp up, taking into factor both the increase in the asset terns and the capacity? Okay. So, you know, like you said, you know, we invested into Kakinada, and I've also explained to you by, you know, end of Q2 of 2024, 2025, we will start operations in the plant. And then commercialization is subjected to all the regulatory approvals, which will take anywhere from six months to one year, depending on the product and the qualification stage. So, you know, it is hard for us to explain, you know, when Kakinada will come fully on board. Like I explained before, once we build the block, we usually see two years before commercialization is fully commercialized. Coming to new opportunities, we have already invested for new opportunities, and we are waiting for the regulatory approval for several of our branded products and generic molecules and future generic molecules, which I've explained to you in my previous conversation. So this opportunity will definitely help us with you. Now, coming to, you know, your, your top-line growth, what we can comfortably say is year-on-year, we will show a double-digit growth. Okay. And finally, with respect to the composition of the revenue, so, it is 60/40 now, generics to CSM, and you had mentioned in the previous circular that it is based on opportunity. So if you see an opportunity in the custom synthesis business going ahead, so the custom synthesis contribution might increase. So we, so that is how it would go. It would ebb and flow, year-on-year, and it is not specific study that we are focusing on anything. Would that be a fair understanding? The generics to custom synthesis is 54-46, and, the growth is there on both the sides. It's not just in the custom synthesis. We do see growth, in our older products, quantity-wise, volume-wise, and also newer generic products. While we are seeing growth even in the custom synthesis, I would say growth is there both sides. So it is difficult to say, like, you know, what percentage is, how the percentage is going to change, quarter-on-quarter basis. But also year-on-year, we do see growth happening in the next few years on both fronts. Yeah, I understood that, but we look at it to be remaining in the same. So are we looking at synthesis growing faster in the near term or the generics, too? So it's just that, I was trying to understand how will the composition work over the next two, three years? If the CSM is going to grow faster than the generics, then that would account for a change in the margins also. And I think the margins, as you said, would be increasing, so that would be on account of the increased contribution from the synthesis business. That is what I wanted to understand. Yes. So, like I explained in my previous conversations, okay? We have several opportunities in the generic volumes, which are coming off patent. I've also explained that, you know, certain amount of regulatory approvals are required for existing molecules with customers, where we are increasing capacities and where we increase capacity and we're increasing volumes with them. So all these, the regulatory approvals are required, and we do not have control on the timelines. The same way in the custom synthesis project, our customers are waiting for their FDA approval so that we can start sending commercial quantities. Now, we have no control on their qualification timeline. So this is not something that I can say that, you know, one is gonna grow, the other is not. We are hoping both will grow in the. And you know, maybe one quarter, CS may be slightly higher, one quarter, generic may be slightly higher based on the approvals that come in. So I cannot comment on, which one will go up, at what time. It all depends on regulatory approvals at this point. No, thank you very much. And just as a suggestion, if we could start clearing up PPT for the results, would be helpful. Thank you very much. Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Satish Choudhury for closing comments. Over to you, sir. Thank you all for joining us today for the earnings call of Divi's Laboratories Limited. In case you need any clarification, please reach out to our investor relations. Thank you. Thank you. On behalf of Divi's Laboratories Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.