Divi's Laboratories Limited (DIVISLAB) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Earning Conference Call of Davies Laboratories Ltd. for Q1-FI-27. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by the 6 star, then 0 on your test run phone. Please note that this conference is being recorded. I now hand the conference over to Mr. M. Satish Chaudhary. Thank you. I am over to you, sir.

Good afternoon to all of you. I am M. Satish Chaudhary, Company Secretary and Chief Investor Relations Officer of Divis Laboratories Limited. I welcome you all to the earnings call of Divis Laboratories Limited for the first quarter of FY27. From D.V. Slash, we have with us today, Dr. Kiran S. D.V., Whole-Time Director and CEO, Ms. Neenma Prasad D.V., Whole-Time Director Commercial, and Mr. Venkkesha Perumallu Pasumarti, Chief Financial Officer. During the day, our board has approved unaudited financial results for the quarter ended June 30, 2026, and we have released the same to the stock exchanges as well as updated 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 also note that the audio of the conference call is a copyright material of Divis Laboratories Ltd., and cannot be copied, rebroadcasted, or attributed in press or media without the specific and written consent. Let me draw your attention to the fact that on this call, our discussions will include certain forward-looking statements which have 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. DB-PLAS 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 demand. Over to you, sir.

Good afternoon, everyone, and welcome to Divi's Laboratory's earning call for the first quarter of the financial year 2026-27. Thank you for joining us today. I will begin with an update on the business and the key operational development during the quarter. Our focus continues to be on execution, manufacturing reliability, discipline capital deployment, and strengthening the capabilities required to support long-term customer programs. Beginning with our generic business, volumes remain stable during the quarter, while pricing continues to reflect competitive market conditions across products and geographies. Overall, the business remains resilient based on our ability to manufacture certain key starting materials and intermediates in house, which continues to strengthen our supply assurance and operational efficiency. This year also marks 20 years of disease in the nutraceutical segment. A journey that began with just two products has grown into a portfolio of over 100 offerings across human health, animal health, and dietary supplements. A multiple forms today. As we look ahead, we are actively expanding in both capabilities and capacities to meet the demands of a rapidly evolving global market. Within customer synthesis, projects actively continue across all diverse portfolio of customer programs, covering multiple therapeutic areas and stages of development. We are supporting customers across clinical development, validation, and commercial supply preparations, with manufacturing activities aligned to individual regulatory and filing requirements. Likewise, the three major CAPEX programs are nearing completion and validations are going on. As our projects progress, we remain focused on timely execution while continuing to build the infrastructure and technical capabilities required to support future commercial requirements. Backpipes remain a strategic area of investment for the company. Customer programs continue to progress across multiple stages of development during the quarter. While qualification and validation activities for several peptide fragments are expected to advance over the coming quarters, alongside capacity expansion in both solid-phase and liquid-phase peptide synthesis, we continue to strengthen the process, development, analytical, and manufacturing capabilities required for increasingly complex peptide chemistries. Our objective is to establish a scalable and reliable manufacturing platform capable of supporting a broad range of customer requirements while maintaining the highest standard of quality, compliance, and operational excellence. On the manufacturing fund, Unit 3 continues to assume a large role within our production network. The facility is supporting our backward integration strategy through selected three chemistry operations while enabling the phase transfer of manufacturing activities from our existing facilities. This enhances supply students for critical engineers, improving network accessibility, and support more efficient capacity utilization across our manufacturing operations. The transfer program continues to be executed in line with qualification timelines, customer commitments, product demands, and overall manufacturing planning. Technology development also remained an important area of execution during the quarter. Progress continued across initiatives involving continuous flow chemistry, biophatalysis, and advanced automation within the manufacturing operations. These technologies are contributing to improve process safety, enhance product producibility, reduce process variability, and more sustainable manufacturing routes for complex industries. We also continue to implement process intensification initiatives across selected products to improve productivity. And support efficient commercial scale manufacturing across our manufacturing network. Ongoing investments in clean chemistry, energy efficiency, and continued process improvement remain an integral part of our long-term operational strategy. Collectively, these initiatives strengthen our technical capabilities and enhance our ability to develop and deliver increasingly complex projects with consistency and reliability. Beyond our business operations, we remain committed to create long-term social value through focused community development activities. During the year 2026, our CSR programs reached more than 1.8 million beneficiaries across the states of Andhra Pradesh and Kalangana through initiatives in healthcare, education, livelihood development, and community welfare. These programs remain an integral part of our long-term approach to be a responsible and sustainable road. Thank you. I will now hand over the call to Ms. Neen Madhiri, who will present the operational and financial highlights of the quarter.

Good afternoon, everyone, and welcome to the business laboratory's earning call for the first quarter, FY2026-27. Thank you for joining us today and for your continued confidence in the company. Before reviewing the financial performance of the quarter, I would like to provide an update on the operating environment and measures we have taken to maintain supply continuity, execution discipline, and operational reliability across our business. As discussed during our previous earnings call, the external operating environment remained challenging during the quarter, particularly across global trade routes and sourcing channels linked to West Asia. Raw material availability remained largely stable, although input cost trends continue to vary across categories. While prices of certain raw materials moderated during the quarter, solvent costs remain elevated for a significant part of the period. We continue to engage closely with the customer to evaluate commercially appropriate mechanisms to mitigate these costs wherever feasible. At the same time, the evolving geopolitical situation in West Asia has introduced additional uncertainty into global supply chains. Accordingly, we continue to monitor developments closely and calibrate our procurement strategies, sourcing plans, and inventory positioning in line with changing market conditions. Maintaining supply continuity remains one of our key operational priorities. During the quarter, we continue to maintain strategic inventory buffers where appropriate to improve material availability and mitigate the risk of supply disruption. Our procurement, manufacturing, and logistics team remains closely integrated, particularly for time-sensitive materials such as solvent, where storage flexibility is inherently limited. Material availability continues to be reviewed at frequent intervals with procurement decisions aligned to production schedules, customer commitments, and lead time assessments. We also maintain regular engagement with customers to ensure production planning and delivery schedules remain well coordinated as market conditions evolve. The efforts made over the past several years to strengthen procurement resilience, diversify our global supplier base, and expand domestic sourcing capabilities have continued to support manufacturing continuity across our network. These initiatives, together with our backward integration program, have enhanced supply assurance for several critical raw materials and intermediates, while reducing dependence on individual sourcing channels. This integrated approach continues to strengthen the resilience of our manufacturing operations and supports our ability to consistently meet customer commitments. Global logistic conditions also remain challenging throughout the quarter. Freight rates across both ocean and air transportation remained elevated, while the availability of containers and isotanks continues to require careful planning and coordination. International supply chains, experience congestion at several ports, tighter vessel allocation, cargo rollover, blank sailing, and extended transit times. All of which increased operational complexities across export logistics. Despite these conditions, we continue to work closely with our logistics partners to ensure reliable execution of shipment schedules. While near-term external conditions remain uncertain, we remain committed to investing in manufacturing capabilities, supply chain resilience, and enabling infrastructure to strengthen our long-term competitiveness. We believe these investments, together with our integrated manufacturing model and disciplined approach to execution, position the company well to support future customer requirements and create sustainable long-term value. With that, I will now take you through the company's financial performance for the quarter ended June 30, 2026. For the first quarter of FY2026-27, the company reported a consolidated total income of 3,144 crores, compared to rupees 2,529 crores in the corresponding quarter of previous financial year. Profit before tax increased to rupees 1,180 crores, compared to 733 crores in the corresponding quarter of last year. While profit after tax stood at 902 crores compared with 745 crores in the same period of the previous year. On a standalone basis, the total income of the quarter was 3037 crores compared with 2476 crores in the corresponding quarter of previous financial year. Profit before tax increased to Rs. 1,165 crores from 747 crores, while profit after tax increased to 895 crores from 557 crores. On a constant currency basis, the standalone revenue recorded a growth of 10% during the quarter. Exports continue to account for approximately 90% of the standalone revenue. Europe and North America accounted for 75% of our exports. The business mix for the quarter reflected custom synthesis contributing 60% of the revenue and generics accounting for 40% respectively. Net material consumption for the quarter was 31.2% of the revenue from operations on a standalone basis, reflecting the continued benefits of our integrated manufacturing model and product mix. During the quarter, the forex movement resulted in a net forex loss of Rs. 7 crores compared with a net gain of Rs. 39 crores in the corresponding quarter of the previous financial year. Our global nutraceutical business reported a revenue of Rs. 298 crores compared with Rs. 250 crores in the corresponding quarter of last year. During the quarter, the company capitalized assets amounting to Rs. 451 crores. While capital worked in progress to debt 2,034 crores as of June 38, 2026. Reflecting the continuous progress of our ongoing expansion projects. As of the end of the quarter, cash and cash equivalents to debt rupees 3,611 crores, trade receivables worth rupees 3,056 crores, and inventories to debt rupees 4,413 crores. Thank you.

Thank you, madam. With this, we would request the moderator to open the line for Q&A.

Thank you, sir. Ladies and gentlemen, we will now begin with a question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question.

Ladies and gentlemen, we will wait for a moment while question queue assembles.

The first question comes from the line of Kunal Damesha with my credit. Please go ahead.

Hi, thank you for the opportunity and congratulations on very good side of numbers. With the first one on the significant uptake in the custom synthesis business, I believe that the initial commentary alluded that it still does not have a component coming from the dedicated JPEG project. Is that the correct understanding?

It is hard to define that because, like I said, we are undergoing validation of some of the CFX projects, so a certain amount of product has also been shipped to the customer. So then, there are multiple projects in line at this point, yes.

Okay, so then just from an understanding perspective, sir, between the let's say validation quantity to the KPEX that we have done, what is the usual ramp up in terms of the quantities we can, you know, see.

So, you know, once the validations are done, we will have to send the material to our customers where they have to do their own further qualifications, get it into their formulations, and then the agencies, different agencies have to approve. Only after that, we would then start commercial quantities. It's difficult for us to mention the quantities or the amounts because we are bound by CDS at this point.

But anything from history, let's say can you share that you know from whatever validation quantity rates and commercial quantities are generally in this range?

Can you repeat the question again please?

Yes, from the history, can you share some, you know, broader range as to, let's say, if you sent X quantity for validation, then the commercial quantity when the project runs up, you know, are in the range of, let's say, 5X to 10X or 5X to 15X, just for, you know, historical experience.

Okay, so to answer that, right, it depends on the product that you are manufacturing. Some products, the annual demand is not more than 1,000 kg. Some products you manufacture are 5,000 to 6,000 tons. So, it's very difficult for me to answer this question. It totally depends on the product. You know, some products go at microgram dosing for the end patient population. So, it's a very broad statement you have asked. I cannot, you know, generalize this statement.

But sir, we have dedicated case packs right? So, we would know like you know what is the total quantity we can produce to that extent.

Can you repeat that again please?

For the dedicated CAPEX projects, we know what capacity we have put up, right. So, then is it not fairly, you know, can you not provide some range as to, you know, what is the maximum capacity you can reach within those dedicated projects from what you have supplied to let's say validation stages?

You know, like I said in my first statement, right, we are bound by CDAs on the quantities, on how much we'll be supplying, the product name, and everything. I wish to share more, but I'm bound by CDAs not to share. All I can say is the validations have been completed, and we will be going commercial as and when the qualifications with the agencies are completed. The quantities, how much we have order book value, other topics, I'm not at the liberty to discuss.

So, second question is on the peptide modality, and you know, you also talked in your initial remark. So, when you, you know, consider your backward integration into peptide bending blocks, amino acids, your years of experience, and the capacities that you have put up till now, if you consider all these factors, and then look at the overall global peptide landscape, And then the number of players that are there, which most of us are aware, how many global CDMOs do you think can actually, you know, compete with all the advantages you have, you know, like with you in terms of cost and supply reliability over the next two to four years?

See, I cannot talk about other manufacturers, right? It's not right. But what I can talk about is, at least it's in a unique situation, because I think we are the only ones who start from basic raw materials, build our own peptide building blocks, okay? Then we have protected amino acids, we do dye peptides, dye peptides, we have gone into fragments, okay? So we have a complete chain of backward integration which gives us a much more better opportunity compared to others. So I can only talk about why business is different. It's not fair of me to talk about, you know, how I will be more competitive than others. I mean, we are seeing amazing opportunities in the fragment segment and several opportunities. So, I mean, a lot of them are in pipeline. Some of them are, you know, in clinical phases. Some are going through validations right now. So as we speak, there are good opportunities in this line. That's why even in my speech I mentioned, we're again expanding our capacity by acquiring a few more 3000 liter SPPSs.

Thank you, Gunal. I am sorry to interrupt you, but you may please rejoin the key for more questions. We have a lot of questions. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participant, we request you to kindly limit your question to two questions only for participant. If you have a follow-up question, please rejoin the queue. Our first question comes from the line of Surin, Narayan, Patra, with Silith Capital. Please go ahead.

Yeah, thanks for the opportunity, sir, and congrats for the great set of numbers. My first question is about... Now, about the dedicated project again. So, before we start commercial supply of this and in the later part of the current financial year, so what are the key milestone that we should be seeing, whether any regulatory approval would be a kind of a key monitorable here or being these are like intermediate FDA inspection and clearance that would not be a required aspect here.

See, all I can say is I'm a part of the Innovator CMC filing, so I do not know, it is, of course, It will definitely require regulatory clearances. It's not a raw material or a basic material. So, will FPA come for an inspection? Will FPA not come for an inspection? Will the agency agree and take the file in and say you can start buying something? I cannot answer for the agency. But what you can say is we are completely ready for all regulatory submissions. We are ready for inspection, any kind if there is an inspection. And as the validations go through, all the data goes through, once the customer fails, we will have more clarity on an assumption of timeline.

Sure, sir. My second question is about the kind of a margin trajectory that we might see going ahead. Because in the opening remark, as ma'am indicated, that the The market environment remaining difficult only in terms of sourcing, raw material availability, procuring, trade challenges and all that. But thanks to the kind of INR depreciation what we have seen significant this quarter, we have surprised significantly in terms of the margin front. So, given this tail ring that we have already witnessed, so can you talk something about your margin trajectory with what, if not on the number front, at least qualitatively going ahead in the current financial view?

Currently, I would say that we did have quite a bit of an increase in our raw material costs on various fronts. Mainly, we saw it on the solvent side, which we never saw before, and a few of the materials which were exposed, which are dependent on those kinds of solvents as well. And compared to Q4, Q1 did have a forex loss as well. But if I have to say, like, you know, margin-wise, I would, as we always historically said, let's not look at it on an individual quarter basis, rather we look at it on a year basis, where sometimes there's a lumpiness in one quarter, and there is not so much of a custom-sense business, but more of a general business in another quarter. Considering this quarter, we did have more of custom synthesis, which is 60%. We do see the margins slightly higher than the previous quarter, but again, as we always said, there is lumpiness. We always look at year-on-year basis rather than just a quarter.

Sure, ma'am. Just one aspect from my last point here that I wanted to check. About the generic portfolio, we have been talking about entering into the new product post-patent expiry opportunities. So, anything that you would have added recently into our portfolio, you can talk something about either number of product or the name of any specific that you would have recently entered into, anything on that front would be helpful.

So, in the last few years, as we have been validating, and then we have filed about four DMFs so far with various customers, and these are right now, we have supplied validation quantities to them, and they are undergoing qualifications as we see. One of them actually is trying to look at having exclusivity with us long term. So right now that negotiation is going on. And other than that, you know, products like, I could mention one or two like Weber Act, Raticum, we have the Pickle-Girror, which we have filed, multiple customers are qualifying us, as we speak. And once the qualification is done, we are expecting the next three to six months, really commercial volumes will move out.

Oh, sure. Great, sir. Thank you. We'll see you all day.

Thank you. Our next question comes from the line of Damayanthik Terai with HSBC Bank. Please go ahead.

Hi. Thank you for the opportunity. My question is actually on your... So, can you help us understand what has basically led to this last stream? And whether we see any... Reversal or normalization in coming quarters, because I understand this is the major factor which led to substantial difference in the gross profit levels.

Hello? Yes.

So, what you're, like, the increase in this talk is mainly, I would say, from two points. One, as you are aware, we, in the last meeting, as well, I've mentioned that we are stocking the material to make sure that we wouldn't have any production stoppage or a production loss. So we are currently stocking it on a three-monthly basis, like any given point of day for the next three months. Are we secured for our production? And these we are securing at a higher cost to make sure there is no production stoppage and there is no shipments that are delayed to our customers. And secondly, as Kiran has mentioned, some of our projects, new graphics projects, have gone into validation batches, and even those materials are being reflected in this. It's a combination of both that you have seen the increase in the talks.

Sure, ma'am. That's helpful. So, to secure your supplies, as you mentioned, you are doing on a three-month rolling forward basis. So, till the time uncertainty continues in the broader macro market, similar strategy will continue, right? You will stock up the three-month rolling basis to secure your supplies.

That should be the ongoing trend. That's something that we have consciously taken a decision, that we would be, like, I think around March is the time when we decided we would be doing the rolling three months, and we would secure the material, and that's why we never had a production loss or a shipment stoppage in the last few months.

Okay, that's helpful. My last question is on your statement on importance of Unit 3 in your entire supply chain. So, as we discussed previously also, should we assume the key role which Unit 3 will play is to free up capacity for Unit 1 and Unit 2 by helping you more on the KSM and intermediate part? We will unlikely see any commercial supplies till the time it's approved by key regulators. Will that be the case?

So, you know, Kakinada right now is playing a key role by doing our backward integrated work because we have several projects online either with innovators or in-house generic molecules where we need additional capacity and quickly to enhance and utilize existing regulatory accrued plants, we are moving a certain amount of free chemistry works to Kakinada. But the eventual long-term plan is to qualify Carcinada with all regulatory clearances and start qualifying that plan too. But every regulatory clearance also takes time. Even after you validate a certain new project, FDA will take its own time, one or two years since it's a new place, and then they will qualify. In the meantime, we are filling the plant with pre-chemistry products.

And what is the utilization level at your Unit 1 and Unit 2 plant?

Around 85%, I would say, across all the three units. Across three units. Okay. Thank you. All the best.

Thank you. Reminded to all the participants, kindly restrict the question to two questions only for participants. The next question comes from the line of Shyam Srinivasan with Goldman Sachs. Please go ahead.

Yeah, good afternoon. Thank you for taking my question. I don't think in the call-out you had given the neutrophysical absolute number.

We typically give that. Can you call that out please?

So, this is 298 crores this quarter.

About 300 crores. So, it was 250 crores last year same time and maybe 240 crores Q4.

Yes, that is right.

Yeah, so when I then back out the generic business, we still have probably single digit kind of a growth or maybe flattish growth. When I look at the industry data, I am now starting to see at least in the month of June, pricing for generic API exports overall that I am talking about is starting to see positive inflection, right? I am doing a very rudimentary way, as you can imagine, what is available. Are you seeing any kinds that generic pricing is... Maybe one month is not the right explanation we need to do, but are you seeing any signs that we are at the end of a long, you know, generic pricing pressure cycle? And even from a China perspective, are you seeing some of your complete call?

So, coming to the generic pricing, right? So, you have to understand two things. One, there is a substantial increase in raw material cost itself. I mean, their solvents have become almost double or triple the price. So, then solvent-based raw materials have increased substantially because of the issue in the Middle East. Because of this, the direct pass-on is also being shared to the end customers by most of the generic customers. This is the increase you're seeing in the pricing factor that's going on. Even we have increased our price slightly where and ever possible with our customers because otherwise the products become unviable to even produce. So whatever you're seeing right now is a market correction based on the raw material prices that have taken a substantial hit. It's not based on, you know, the markets have corrected and the pricing pressure has gone down.

Correct. Any quantification of what is the solvent lead pricing change or adjustments that we have taken?

I mean, that would be very difficult, right, because we manufacture close to 60 products now. I cannot generalize that statement. Usually, our calculations are product-to-product basis, because every product uses a different solvent. Some are water-based, some are heavily solvent-based. If you take a peptide, it's almost like use about 2,000 liters per one kilo. So, it's hard for me to answer that question.

No problem. Thank you. Just on the second question on custom synthesis, strong growth this quarter, 60% of total revenue. How should we look at the reminder of the year? Is this going to be, is there an element of lumpiness? In Q1, that you would kind of ask us to be less optimistic about and talk about full year, where if I remember in end of quarter four, we had given like a double digit medium, extrapolating 10% dollar revenue growth for us. Do you think there are upside to that following how Q1 has panned out?

I would like to stick to my statement saying that we will show double-digit growth, no matter what. Lumpiness, I cannot, see, everything depends on, you know, after these valuations are done, how the regulatory approvals will take place, will it go really fast, you know, whether the agencies will fast-track these drugs and the approval process. I mean, there are a lot of ifs in this situation, right? So it's hard for me to say, will it be 60-40 in the coming months too? Will it be 50-50? I would like a healthy mix all day. But for now, I would say that we would assure a double-digit growth for sure.

Thank you and all the best.

Thank you. Our next question comes from the line of Tushar Manu Dhani with Motila Losborough Financial Services. Please go ahead.

Thanks for the opportunity and congrats to this universe. Just on these new projects which have gone into valuation, are there any further valuation prices which are going to come in the subsequent, like in F527 process? Or we are largely like supply chain?

So, we have, like I explained, right, apart from these three projects, we have several other projects which are in different stages, in different stages of our pipeline, either they're in clinical studies that our customers are producing small volumes, some of them are on free validation, some of them are undergoing validations, they may not require large investments, we may also use our existing facilities we have. We do have several projects which are coming up in the next quarter, which will require validations as we go forward.

But if you have to quantify, are there, not going into project specific detail, the revenue of those validation batches are, are they sort of in size similar to what you have done in Q1, F1, F1, F1? Would that be able to?

I am asking

the size of the revenue which these validation batches are generated in 1, 2, F1, F1, F1. The subsequent project, At least in the near term, would that be of similar size?

See, it's difficult to say that because price is different for each product, and it's not like one size fits all. It differs for every product, different prices, different costing, different, what do you say, chemistry capabilities that would require, but I would say overall as an organization, we always look at a double-digit growth. That's how our revenue model is being built. And healthily, we would want a good product mix, wherein we don't have heaviness of one product or one customer or one supply chain. So that's where we are at. We would say if you want to look at a revenue projection, we are looking at double-digit growth.

Okay. Secondly, these three major projects, if you were just, sort of, in terms of the total amount that you would have spent on this, the capital, combined three. Your voice is not very clear. I am asking three major projects, three major projects, which are towards completion. How much overall you would have spent on this?

Yes, just a second, please.

You can say we are almost there around 70% here and there, depending on which project it is.

And so, amount, ma'am, if you could, at least 70% doesn't lose to one number in absolute.

Thank you.

So that's about, I would say, the one that we declared to the stock market earlier was the three projects together about, if I remember correctly, 2,000 crores. So I would say 70% of that has been capitalized so far.

Thank you. Our next question comes from the line of Vivek Agrawal from Citigroup. Please, Fred.

Yeah, thank you. Thanks for having this question. In this quarter, have you made the commercial quantity, supply of commercial quantities of any GLP-1? Or is this just pick up in the existing small molecule or any new small molecule products that the commercial supplies have begun? I just want to understand what has given the growth in the custom process.

See, I cannot answer that question, Raj. If you ask me about GLB-1s or small molecules, I can just tell you that, you know, we have done, we have gone through validations of the three large projects we have done and several other projects are on the pipeline. Right now, Tukkai is one of our key portfolios as we are growing strongly. We have several fragments which have been validated, supplied, and also several fragments are in the line of being validated. We are also expanding our capacity by installing multiple 3000 data STCIS because we will see a lot of feature opportunity.

So, in Testize, again, as you have highlighted, that you are installing multiple 2,000 data at CPS1, and in one of the previous calls, you studied that an ambition to be one of the largest players globally. So, what exactly does that signify? Are you aspiring to reach a scale comparable to the current largest player, or are you looking to Testize yourself as a leading player, given that the largest incumbent is being given to the result?

See you then. You know, based on our statement, what we said in the past, and we stick by the statement saying that we want to be the largest integrated player. When you see integrated, we are backward integrators from basic raw materials, from making, you know, protected immune acids. We do our own regimes. We manufacture our own FMOC box, protected immune acids, okay, TAG. So, with all these being manufactured in-house, we have an advantage on supply, which gives us a stronger and faster approach to deliver product. And this gives us a competitive edge along with others in the global market. I do not want to comment about why I am different than others. That is not right. But what we can say is we always... We do not compete with our customers. We are actually playing a complementary role. That's why our customers like us.

Understood. And is it possible for you to quantify the overall capacity in ITVs that you could provide?

You aren't all the way towards the end, and you should be the question again.

No, thank you. That's all my best.

Thank you. My next question comes from the line of Neha and from Bank of America. Please go ahead.

Yeah, thanks for taking my question. On the solvent pricing that you mentioned, how are the trends right now? Are they, you know, softened after what we've seen in the first quarter levels?

Are you seeing some, you know, normalization in North LGA?

Well, as of now, I would say we see a few weeks of flat trend, and then again suddenly we see a rise, and it all depends on the situation that's happening in the Middle East. I mean, you are seeing the news every day. It's a different news, and the news does affect the supply, and it does affect the price. And it is not something in our hands either, because it comes in bulk and affects the entire country the same way.

And, you know, would it be fair to assume that we haven't seen any issues in being able to meet our supply commitments because of solvent not being available?

So, firing is the only issue at the moment, right? That would be a fair assumption. See, I wouldn't say that the supply is easily available every day.

I would say that we were proactive in securing the material three months in advance, rather than procuring it just in time. The organization always went towards securing material just in time and making sure there is no overstocking of material, but in the last few months, we decided we would go for a three-month rolling inventory stocking just to make sure that there is, like, you know, suppose there is no shipment coming in, my production doesn't stop in the factory.

I'm sorry, Unit 3, what is the utilization level it is at currently in case you provide that detail?

I cannot comment unit by unit because each unit is quite different, but I would say across all the three units, it is about 80% to 85% utilization. Okay. And last question, there is no inventory gains that we have, you know, in this quarter, right?

There's no inventory gain that is recorded in the gross margin, right?

Can you repeat that question again?

Is there any inventory gains that we have recorded in this quarter? Would there be any inventory gains at all in the quarter? No, that's not the case. All right. Thank you so much.

Thank you. Our next question comes from the line of Beenu Patibarampil, West Ilara Capital.

Hi, I'm Drasnu. Just a follow-up just on margins. To an earlier question, you said that we look at margins on a year-on-year basis and not quarterly because of the lumpiness. So, would you give some idea about how the full year margins can be compared to last year? Is it significantly better or so at the gross level and the data level?

At gross level, I would say it was approximately 60%. All over the year, and frankly speaking, if I'm looking at EBITDA margin, it would be similar as last year. My, as we normally say, the growth that we see will always be a double-digit growth, and it won't, we would say, like, you know, don't look at it as this quarter and say your gross margin is so much. So this is what it's going to be for the rest of the year. It's going to be, though, just 68% this quarter, approximately, but I would not look at that as something consistent throughout the year. I would say there would be lumpiness. Next quarter could be lower or higher. It's something that we need to wait and see.

So, if I got your answer correctly, this year's gross margin would be comparable or slightly better than last year?

So, to answer this question, right, everything depends on once we finish the validations or the validations ongoing right now, if the approvals come faster, then, you know, things will change. The ratio will be higher in terms of CS because commercial volumes will start moving. So, all this is subjected to all regulatory approvals. So, we would just like to stick to the double digits. And as and when things change, quarter-on-quarter, and the moment we know something is happening, we will definitely inform. Thank you.

Thank you. Our next question comes from the line of Saurabh Bank with Devaar Consultant. Please go ahead.

Good afternoon, sir. Thank you so much for taking my question.

So, I'd like to know a few things about the contrast media, like what is the scatters as on today, the iodine and gadolinium, and how we actually think this one for FY27. So, if you just put a few colors on it, so that would be too much helpful.

So, on the Iodian-based contract media, we are in the process of signing long-term contracts with two of the customers, and this will be for multiple years, and commercialization for one of them has already started. The second one, we will start in the next few months. And this will be substantial quantities going forward. Coming to gadolinium, like I told you, we are still working on a clinical phase project. As and when we see the customer see light with it, we will also start moving on that segment.

Okay. So, sir, in our last call, you have discussed that the gadolinium is in pre-commercial and qualification stage. So, as on today, in this quarter, can you say that pre-commercial is done and the qualification stage is completed? Or if you give us any guidelines, so when this will be totally completed?

Okay, Swami, just one second, please.

See, right, see, what I have told you is the gelidium compounds, we are still at the qualification stage, which is in phase 2 and phase 3. That's what I said last time. I didn't say that we did. Congratulations. So, you know, we are tagging along with the customer, and as and when they get approval for the next phase, we will again start seeing, you know, further in. Right now, the project is on slow phase with them on the daily event side. That's why, you know, still we are waiting for it. They're waiting for the gateway approvals, and we are waiting. Once they get their approval, then it will be clinical phase 3.

Okay. Okay. Thank you so much, sir, for the clarification, and I wish you all the best for the two-year answer.

Thank you so much, sir.

Thank you. My next question comes from the line of familiarity with any individual industry. Please go ahead.

Hi. Am I audible? Yes, you are.

Yes, sir, you are.

Yeah, yeah, yeah. Thank you for taking my question. So, will it be possible to give a split between page-wise molecules in the custom synthesis?

See, the custom synthesis, we are bound by the confidentiality agreement, so we cannot talk about the quantities or the volumes or the value in the call.

No, no, no, I'm not asking about any quantities or volumes. It is just number of projects in each phase, like phase two, phase three, and commercial. That's a break.

Right now we have several projects in the pipeline. That's all I can answer. And also close to about 18 to 20 projects are actually commercialized or being commercialized as we speak. So we have a healthy pipeline along with projects which are already in the portfolio.

Thank you. My next question is about competitive landscape. So, in India, there are a lot of companies are starting CDMO segment, and they are consolidating into CDMO. Do you see any margin pressure in CDMO segment? Going forward, is there any indication from customers who are negotiating hard on pricing?

See, I cannot answer about why others, how others are joining in, but what I can say is that we have a track record. I mean, we are close to, I would say, 30-year-old company who has been in CDMO. We are one of the first CDMOs in India, and we come with a lot of reputation, customers trust us over a period of several deliverables we have given, okay, and where we have been in the critical projects, where we have handheld them, we have supported them. So, you know, customers value us for who we are, and we come with a history. So, we have a lot of, it's not about fighting, it's not the only thing, you know, innovators look at. They look at sustainability, they look at safety issues, they look at, you know, your EHS capabilities, your equipment management system, your EHS, employee healthcare system. They look at all the aspects that we ever want to work with a customer, and these always meet all their requirements. That's why most of them come to us, they give us opportunities, and they work with us.

Yeah, thanks Ken, that helps a lot and we show all the best for the rest of the year.

Thank you.

Our next question comes from the line of Dhaval Koot with Jeffries. Please go ahead.

Hi, sir. I wanted to know what is the growth in our top five product, let's say, constitute currency as a result in I&R

terms for this quarter overall as a complete. We don't disclose product-wise information.

Okay. Okay. And secondly, whatever validation products that we have supplied in the first quarter, how many end-market molecules do they belong to?

Okay. That is, so right now, like I explained, right, we have done validations for a few projects, and each have gone into the customer's filing. Okay, we are a part of their CMC, so it goes into their filing. So, from there, by the time they, the regulatory bodies approves it, and, you know, do they want your inspection, they're okay with the previous inspection data, they have to review, and then they will, they will give it approval. So, it does go into the end-patient population project, but we have to wait and see when the commercialization will take place.

Yeah, so what I am trying to ask is how many different molecules do they end up supporting? You know, there might be three different fragments, but they might be supporting just the same molecule. There could be two intermediates for the same small molecule project. So how many different molecules are we supporting through these validation methods?

So, to answer your question, right, if your question is towards the three major projects where the CAPEX is involved, it's three different products completely. Okay. And we have other projects also in line which we have validated. I'm not at the liberty to disclose too much, so all I can say is we have several projects which are going to individual molecules which will attain to the big population as and when they get to a global state.

Okay, okay. Thank you.

Thank you. Our next question comes from the line of Rahul Jivani from IFL Securities Limited. Please go ahead.

Yeah, thanks, sir, for taking my question. So, coming back to this inventory change and margins again, now, this quarter, the inventory change number was 500 crore, and the usual quarterly run rate has been around, let's say, 50 to 100 crore times of a number. So, if we adjust for, let's say, this 300 to 400 crore of incremental inventory change, then our gross margins this quarter would have been between 55 to 58%, and our EBITDA margins would have been 28 to 30%, so probably indicating the pressure from the solvent increases which you have seen. So, is that the correct way to assess, let's say, the sustainability of margins, or would you want to qualify in any other way?

I would say this is also because of the increase in the production

volume that the validation projects are going through. There is also not just the raw material, right? There is also work in progress, there is intermediate, there are finished products. So it's a combination of all those that you are seeing here. Along with the increase in the prices of the materials. So when there is an increase in the price of the raw materials, the cost of your intermediates and your work in progress and your finished goods also would go up substantially. So it's a combination of all those.

Okay, and let's say this 500 floor kind of an inventory change which we saw this quarter, what kind of a number, let's say, do you anticipate for the rest of Pistol 27? Because last year this number was around 300 floor odd. So yeah, if you can just help in terms of that so that it becomes easier for us to model in terms of what the sustainable margins are for the company. Thank you.

See, it's a very difficult question to answer considering what's happening in the Middle East currently. I mean, if tomorrow... Everyone goes right, okay, they're in the seas, and they're not going to have a war at all. Things would be, again, back to normal. The cost would go down, and the inventory, cost of inventory itself will go down, and our cost of our intermediates and work in progress will go down. Would our volumes go down? Yes, they would, because we wouldn't be talking so much as well. So it all depends on, you know, the macroeconomic factors on which we don't have any control on.

Okay, sure. Thank you. Thank you so much, sir. Ladies and gentlemen, due to the time constant, that was the last question for today. I know I have the concerns over to Mr. Sarpisho, these are closing comments. Thank you and over to you, sir.

Thank you all for joining us today for the earnings call of Divi's Laboratories Ltd. In case you need any further clarification, please reach out to our investor relations. Thank you.

Thank you so much, Satish. Ladies and gentlemen, on behalf of Divi's Laboratories Ltd, that concludes today's conference call. Thank you for joining us and you may now just connect your lines.