Ladies and gentlemen, good day, and welcome to the Earnings Conference Call of Dewey Laboratories for the Quarter two of Financial Year twenty twenty one. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. M.
Satish Chaudhary. Thank you, and over to you, sir.
Good afternoon to you all. I am M. Satish Chowdari, company secretary and chief investor relations officer of Deedit Laboratories Limited. I welcome you all to the earnings call for the quarter ended thirtieth September twenty twenty. From Divis Lab, we have with us today Doctor.
Murli J. Duri, Managing Director Mr. L. Kishorwabhu, Chief Financial Officer and Mr. Venkatesh Parman, General Manager, Finance and Account.
During the day, our Board has approved the results for the quarter, 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 available on the website of the company, dbflap dot com. Please also note that the audio of the conference call is the copyright material of Deedis Laboratories Limited and cannot be copied, rebroadcasted or attributed interest or media without specific and written consent of the company. Let me draw your attention to the fact that 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. DBplus or its official does not undertake any obligation to publicly update any forward looking statements, whether as a result of future events or otherwise. Now I hand over the conference to Doctor. Murli K. Giri, Managing Director of the Company for opening remarks.
Over to you, sir.
Good afternoon to all of you. I welcome you all for the earnings call of Pivot Laboratories. Hope you are all doing well. First, let me update you on global scenario on pharma and COVID nineteen pandemic. COVID nineteen has heavily impacted several industries, small, medium, and large.
Pharma industry aspect is less impacted because of need for life saving medicines. This also creates a responsibility for discovering and manufacturing new API, antiviral, and vaccine. The developed APIs, Hydroxychloroquine, FadiseraVir, and Remdesivir have added only marginal medical benefit and not become life saving drugs or none of them can be used as prophylactic drugs. A new drug is required which can prevent the infection whereby it can be used for the virus. The new drug is also expected to reduce the viral load quickly so that patients will not have severity of infection.
There are few brands in promising, which may give hope to the whole world. How soon vaccine will be launched is still a big question mark. I'll cover the CSR activities. As a corporate under CSR, Business Labs is continuing helping 98 villages around our factories. Several programs have been taken up by the company of sanitization in view of COVID, COVID support activities, safe drinking water, promoting education, village development, livelihood enhancement, empowering women, environmental sustainability, sweat water, and sleep.
On CapEx programs, our project seems though delayed due to migrant workers in q one. Now they are functioning fully and have completed some of the important projects. INR614 crore has been capitalized during the quarter. Several debottlenecking projects were completed. The remaining projects will be completed before end of the financial year.
All the backward integration projects were completed, and this not only gives us the assurance of supply, but also brings us savings by reducing cost of materials. Few new blocks are planned for new major custom competitive opportunities are under construction and arithmetic could this investment of capacities to the tune of four-one will grow. This new CapEx is in addition to the 1,800 crores The majority of the utility expansion Rupees 500 crores of PWIC projects are expected to be completed before the end of the financial year. Now I ask Nilma to brief on operations. Thank you.
Hello, and welcome, everyone, to Deli's Lab's earning call to discuss the unaudited results for the second quarter ended thirtieth September twenty twenty. I hope that each one of you, along with your friends, family, and friends, are safe considering the continued existence of COVID-nineteen pandemic and the sudden incessant rains witnessed recently in several parts of the country. Although COVID-nineteen crisis continues, we have improved in terms of adapting to it in our everyday life and businesses during this quarter when compared to Q1. At DB, we are closely monitoring the constantly changing and evolving situations relating to this pandemic as we continue to strive and sustain our operations at a normal pace. Challenges like fluctuation in cost and availability of raw materials and supply chain issues have reduced compared to the last quarter, and we are optimistic in ensuring the uninterrupted supply of our APIs.
Our response to the straining COVID nineteen at workplace stays constant and consistent with our main agenda being the safety and well-being of our employees. All protocols like thermal scanning and sanitization, social distancing, and safe transport facilities continue to be implemented and shall remain so until further guidelines from WHO, CDC, and local governments are given. The company has put in place several measures to keep up the business continuity and also sustaining steady supply chain network and servicing to our customers. Moving on to our Q2 FY twenty twenty one financial performance. As you all are aware, we are implementing a large CapEx program during the current half year.
We have capitalized assets of INR $8.30 crores. Of this, the new SCZ account to INR $5.24 crores and INR 132 crores is for wastewater treatment facility and utility expansion at EoE. We have also capitalized assets at other units for augmenting capacities as well as utility infrastructure. We have capital work in progress of INR499 crores as of thirtieth September. On operations, I'm happy to state that we have achieved a consolidated sales revenue of INR1749 crores during the quarter, reflecting a growth of 21% over the corresponding quarter of the previous year.
Profit before tax for the quarter amounted to INR693 crores, a growth of 42%. We earned a profit after tax of INR520 crores during the quarter, reflecting a growth of 46% year on year. Exports accounted to 87%. We continue to have normal business distribution across regions, and Europe and U. S.
Accounted for 71% of our revenue. Product mix for generics to Custom Synthesis is 6040% of the revenue, respectively. Constant currency growth for the quarter has been 18%. Our nutraceutical business amounted to INR 167 crores for the quarter and INR294 crores for the half year. Thank you.
Thank you, ma'am. With this, we'd like to request the moderator to open the line for Q and A.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Vishal Biraria from Aviva Insurance. Go ahead.
Hello. Thank you for the opportunity. So what led to the urgent need for expansion of the CCS capacity, the customer's capacity? That is the first question.
I'm sorry. Can you please repeat?
The expansion of customer's intensive capacity. So what led to this decision, and how soon do you plan to complete it? Is it because of a movement from China to India or some other factors? Could you elaborate a bit more on this, please? Thank you.
Historically, I think you all have good experience at this is that we do not invest just because we have funds. We do not expand because we just have funds. When we foresee opportunities, we start investing. But this time, in the last two quarters, more in the last one quarter, we have seen from the very big pharma of international, Europe and The US. We have received some very fast track projects with a lot of incentivization, and this project will have very high return.
And we need to finish them on a work for basis, and this project have been have been doing this is the one we are planning for corner corner growth. And the work that we have to complete in the next six to nine months.
And the next question is on the contribution of COVID portfolio to revenue and EBITDA.
Can you please repeat your question again?
Sorry. The contribution of the COVID portfolio, COVID related, Raj, to revenue and to EBITDA, please?
Well, the in the second quarter, what we are reviewing right now, there's almost zero I think I don't know whether a few lakhs that are involved. Otherwise, we had no income from the COVID. The
next question is from the line of Prakash from Axis Capital.
Yes. Thanks for the opportunity, and congratulations on good numbers. Sir, if you could help us understand the gross margin expansion, so both so Y o Y and Q on Q. So sales mix, if I see custom synthesis to generics more or less similar, so not much change there. So in terms of product mix, what has changed?
And given the supply disruption, pricing is healthier, if there is some commentary there? Thank you.
I think we have been saying come always back, it's very difficult to go by quarter on quarter between custom synthesis and generic. Definitely, investment of the 18 plus the 700 crores, as we are completing them no. We have already completed the debottlenecking product project as I mentioned a few minutes ago, and we have also completed the some of the expansion plans. And what we are looking at now is the after validation, there's a gestation period of anywhere from six months to one and a half year for the regulatory clear the product and also the customers validating the fresh product at their facility. As this cap and you will see the increment increment in the quarter.
Okay. But I just wanted to understand what will
be the
sustainable levels, actually. I mean, I understand quarterly fluctuations would be there. But with this debottlenecking and all, the 64 to 65% is sustainable, or we should model in sixty two, sixty three?
Sixty to 63% of?
The gross margins.
60 to 60. And So what people concentrate on how to save tax money and the people concentrate on other things. But I think the majority of the expenditure is on the raw material. The major is on lower hit client expenses. I think if you look at the several balance sheets, we have been able to hold on to around 55% to 60% quarter on quarter, while that's why we are able to retain good profit.
And I think going forward, yes, we should be able to do 60 That that makes it's not better. Now you commented that that was integration and other projects being complete. Definitely, yes. Mentioned that it is the the the it not only gave us a clearance of supply, but also definitely with the new technologies we introduced with this maximum and high productivity, our costs have come down. Our material costs have come down.
I think it's a combination of all these what you are seeing better numbers. Don't go back quarter on quarter, but I think we can definitely continue what we are doing.
Okay. Understood. And my second question is on the CapEx. So 4,000,000,000 exclusively for customs and this is but for the 18,000,000,000 that we announced some eighteen months back, so of that 18,000,000, I I understand 3,000,000,000 is for debottlenecking and the 6,000,000,000 for each of these unit one and unit two. So I wanted to understand on that 12,000,000,000, what portion or what percentage is attributed towards custom synthesis capacity?
I think it is again, the blocks are not meant just for custom synthesis or for a generic. The buildings are all multipurpose. They can produce either a generic product or a custom synthesis product depending upon the need in the campaign. Some buildings are yet dedicated to a generic product or dedicated to a subscription fixed product depending upon demand. But overall, whatever we have completed, we are able to utilize between the DCV SEZ and DC SEZ.
In the backward integration, we are able to use them fully. In the generic, we are able to qualify and start producing. And some products we have been able to export. It was waiting for the total regulatory authorities clearing. Some of them, they are waiting.
And in couples in place, debottlenecking projects, they are yielding some of the customers already.
The next question is from the line of Bharat Cha from ASK Investment Managers. Yes.
I wanted to know, there was this case in which was going on. So it has now been closed. So what is the status of the company's stance on this?
Can you please repeat?
There was a case against the company officials in in city recently that has been closed now. I want to know what is the status in terms of the strength of the company about those individuals?
The people who are involved have settled the issue with the company has always been complying to the court of conduct and business ethics and shall ensure compliance as well. Hello? Hello?
Yes. I do not understood what exactly is
I
think you mentioned that CSIRO and the other two have taken the issue with the company has always been business ethics and shall ensure
Well, mister Billy, can you speak without speakerphone? Because your voice is not clear at all.
I think everybody is hearing my voice clearly. I don't know why you are unable to hear.
No. I'm not talking about the company being compliant or not. I'm asking there was this case. Now I believe it is there has been a compromise that I did, and there has been a compensation paid by the individual's consent. What is company planning to do about it is what I'm asking you.
If you can formally clarify, that would be helpful.
I think company has nothing to say. So this is my Thank
you. The next question is from the line of Shamsrinivasan from Goldman Sachs. Please go ahead.
Hi, good afternoon. Thank you for taking my question. My first one is on the generic API segment. It has grown faster than the 21% that was called out based on the numbers that you shared on the call. So just want to know what are some of the building blocks?
How much is price? Is it largely volume led? Or have there been new products that have been introduced? If you can help us give some quality.
We have ultimate debottlenecking and capacity expansion projects we have done in Naproxen, for example, 5,000 tonnes, Gabapentin, 2,400 tonnes, Valticlovid, Liprexon, Liberdocast, Regablin, Methylamine. All these products, we have deep water capacity substantially, and we are able to start selling the product without compromising on price. And I think this is what you are seeing, the increased sales. And going forward, we have yes. We did and some of the expansions which we have done are in totally new blocks that needed to get some regulatory clearance.
Because when we upgrade as new blocks, we always technologies, new ways of working so that the productivity go fast and also the material costs come down, minimizing the waste. So all these will sometimes be viewed as a change. Two, three smaller changes become a medium change made, which we are waiting for customers clearance. So as and when they come, you will also see some more increase in sales in the generic products.
Got it. Thank you, sir. My second question is on the custom synthesis. Could you actually talk us a little bit about the qualitatively in terms of the number of projects that we have actually started doing? Are they linked in some form or shape to COVID?
Or this is, in general, the non COVID portfolio as well? I thought you said Phase three. I think I couldn't pick up that comment clearly as well. So if you could share some comments around the custom synthesis business. And also linking to the point about the INR400 crore additional, you talked about war footing.
So just trying to piece together the entire custom synthesis segment, sir.
We are always been we never we have never been giving detailed form, how many in phase two, how many in phase three, and the with this project because the existence of this confidentiality company is highly confidential, number one. That's why to explain how many projects with which companies and what we do. But there are big segments I am willing to talk. Yes. It is done.
Some of these are for some of the discovery of COVID drugs. Some of these are for some other therapy segment. It's a combination of see, the chemistry does not know whether it is for a COVID drug or a cancer drug or a blood pressure drug or something else. What is what we know is 24 name organic synthesis reaction. So a combination of few of the a COVID drug, anti COVID drug, a 10% cancer or anti alpha or anti drug resistant.
So yes, we are involved in a combination of these therapeutic segments in the customer centric case. That's why we have received some very fast track projects and there's a lot of incentivization, and we had to hardly do them. This is where the original new crores is going.
Sir, and last, just follow-up, yes?
Mr. Srinivasan, sir for any follow-up request you to rejoin the queue, please. Thank you. The next question is from the line of Girish Bhagra from Bank of America. Please go ahead.
Yes. Hi. Thanks for taking my question. Sir, great set of numbers. Last quarter, you mentioned that there is a possibility of new units starting production and same products and same technologies you could have launched from those facilities without inspection.
Can you update on that if that has happened? And similarly, color on when inspection can happen of these two units?
Yes. When I when I mentioned in the last con call, the Unit 1 and Unit 2 are situated in 500 acre feet site. These are two sites with 500 acres each, where at Unit 2, we call it new BTV, as we said, as a unit in about 60 acres of land. So this unit is acres of site is already cleared by USFDA. So the new block, new units we have built, usually, they do not require if I am using the same technology and if it's for the same product.
I can start exporting immediately by keeping some batches in stability. If I am making a new product or utilizing possibly a new technology in this block, then, of course, I need to wait for the clearance of the whether it is US or others. So what I would say is is Munich one also where is the DCSCZ where we are investing 600 crores plus, again, the same, the total specialty is used at the end, but the new block we constructing with DCSCZ where some of it is backward integration, some of it is for the new product, which would be able to utilize fast production and where we need clearance from U. S, we have to wait.
Thank you. And the second question was on the mix. I realize this new investment in custom synthesis is meaningful from near term opportunity. But can you give some possibly some color on how generic versus custom synthesis mix will change over two years? If that's possible, that will be very helpful.
I'll be the ratio of this, we would like to maintain 50 to 50. We would like to maintain 50 to 50% meet. However, the customers in January and the customer in this project decide whether we should be whether it should be 60 or 40. Maybe for two years, Customs and Seats will take a lead and, again, generate.
Thank you.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yes. Congratulations on the great share of numbers. Since regards to CapEx, that is the the the cumulative CapEx of 1,800 crores that we have done, so given the kind of enhanced productivity or the improved profitability, what we are seeing since last couple of quarter, so is there a kind of or is it fair to believe the asset turn of this newly added CapEx would be higher than the asset on what our old assets are currently generating? See, the older assets in fact are generating a revenue, it's a turn off to something like 1.5. For new fully added CapEx.
Is it fair to believe slightly better than the historical trend?
The CapEx we discussed earlier 100 crores between two sites. The some of it was debottlenecking, which come we completed. Some of it was backward integration, upgrading utilities, QC infrastructure, and this modern wastewater treatment plants at both sites. Again, all these are looking at five years, ten years, fifteen years down the road preparing for new regulations just to come. In addition to increasing capacity, the 400, what we are talking about is purely on custom sensitive, which contracts being, in other words, the assurance and agreement being in place.
It's not that we are looking at projects anticipating business building, which used to be the case, whereas now the business is in place, and we'll have to complete these 400 growth projects quickly to get for the business to happen.
Okay. Sir, just wanted to have a sense on the CapEx, sir, on the same question. So, like, having seen a kind of a strong phase of CapEx over last the current year and last year, which is again continuing. So after this, is it fair to believe that the CapEx momentum will will see a kind of some kind of a stagnation there before we identify a new site because the safinade is also not seeing any progress from the administrative issue side. So is it fair to believe that we might not see any major CapEx going ahead in the near future?
And possibly, a couple of years down the line, once we see optimal utilization level for the existing ones. Through that time, it could be a kind of a moderated CapEx phase for the company.
Based on the opportunities we have, the existing site probably will not require major projects. But we have been planning our near Kakinada and Unit 4 near Mill Road. These two units, we have been planning to con long time. The Unit 3 near Kakinada, the government has almost cleared labor team, and we hope to start somewhere in December, January the construction activity. This the CapEx could be there to the tune of INR 100 crores on that.
About payloads? So
sorry to interrupt, but for any follow-up request to rejoin the queue, please. The next question is from the line of Damyanti Kerai from HSBC. Sir,
a clarification on the CapEx for Customs Synthesis business. So did you mention you expect to complete that project in another six to nine months? And after that, you can start executing orders which you have received?
Hello?
Sure, sir. Sir, I was looking to clarify. Did you mention the new CapEx for custom synthesis business that you are aiming to complete in next six to nine months? And then completion of after completion of project, you can immediately execute the projects which you have received from customers. Right?
That's what you mentioned earlier?
Yes. That's what I meant that these projects can get incentivizing got to complete on fast track. Yes. And on completion, they would immediately go into production. Yes.
Okay. Thank you for that. And, sir, on the Kakinara plant, I missed your comment. So you mentioned you got the, from government. Right?
And then you can start, work, there?
Yes. We we were waiting for the final clearances earlier. We are and we hope to start in December or January the Karakinara plant construction activities.
Didn't hear that number.
No. No. I said we we would start in January to the of Karnataka plant.
Sir, any CapEx plan for that?
Because it is about INR 600 crores.
Sir, thank you for your answers.
Thank you. The next question is from the line of Alankar Gaurud from Macquarie. Please go ahead.
Yes, hi. Thank you for the opportunity and congrats on the strong performance. Sir, my first question is, in the last few years, we have seen The US contribution to overall sales coming down for us, while that from Europe has been increasing. Now this is even applicable in the last two, two and a half years, then the direct impact of the import alert shouldn't have been much. So any particular reason, sir, you would which you would like to highlight for this, and how should we look at The US contribution going ahead?
It's very difficult to say that what we ship to US or what we ship to Europe or what we sell in India or what we sell into the Far East because the big pharmas have relocated several of their manufacturing facilities or outsourcing the dosage forms to either European companies or at their tax havens in, Ireland or Singapore or elsewhere. So that is the the our reporting is exactly on to where we are shipping the product, then whether the company is the headed it is in US or Europe or where it is. So the focus, I think change, I think, is the geographically different because several of the big farmers have closer their plan and move them either Europe or elsewhere. That's why you are seeing the reporting that way. I think what we need here in India, for example, some of the contract manufacturing formulation is happening by the big pharma from US and Europe.
We have to ship on behalf of for the big pharma to some company in India whereby they export the dosage form. So I think our US business did not go down. In fact, I think it's in good shape.
That's helpful, sir. And my second question is, if you look at the top five customers for us, those account for about 35, 36%. Yes. That number has been coming down over the past few years. But, generally, in terms of client concentration, it's it's a bit higher than most of our global peers.
So I just wanted to understand whether there are any conscious efforts to add more new clients and improve mining among some of these relatively newer clients?
There is no plan like that as such. Probably, it is happening because we have been growing at a faster rate and adding more customers and more products. Because when you add more products, you will have more more customers. That's what is happening. Or when you increase the capacity, you always will have more customers.
There's no plan that we want to add more customers, but, definitely, we want to add more products and more capacity.
Thank you, sir, and all the best.
Thank you.
Thank you. The next question is from the line of Cinderella Carvalho from Centrum Broking. Please go ahead.
Yes. Thanks for the opportunity, and congratulations on great staff numbers. Doctor. Divis, if you could help us understand, out of the INR 1,800 crores CapEx that has been announced so far, how much have been able to utilize so far? Because we have capitalized most of it, and some of it is still remaining.
And if you could help us understand out of the customs and this is a program that you have announced, and the Kakinada that you specified would be around 600 crores. So custom synthesis, I understand that will be available from next year onwards itself. And by when can we expect Kakinada as it's a greenfield that you would be starting?
The I'm sorry. I I lost your first question. Can you please please repeat?
I said, sir, out of the 1,800 crores you paid earlier on, how much has been is available presently? Much of it is available for this year? I understand that we will complete some of it is left, which we will complete by end of the fiscal is what we have said already.
I think I mentioned that the demodel making making program whereby some of the capacity would go up have been completed, and we are seeing some of that benefit, number one. Two, some of the capacity expansions for some of the generic products that also has started resulting, the fruits. The the remain some projects where for the as well as API, we validated, and we are waiting for the customer as well as the agency clearances. As we get the clearances, they will go into the production. Coming to the Kartinela investment, what it would take about a year or year and a half to complete the project, then it goes through the validation and qualification.
So that investment would take time to give us returns, maybe more than, I would say, investment project construction about a year, year and a half, and sales start up by another year and a half. Two to three years.
Oh, and, sir, I mean, on the brownfield CapEx on the 1,200, I I understand that we have completed the backward integration as well as the EOU related CapEx. But on the brownfield, how much we are able to utilize as of now?
On the brownfield, the brownfield, also, were backward integration projects on the brownfield as well as the new block. The backward integration, already, we are able to use about 30% of the capacity. Mainly of the prob the buildings, we are waiting for the big from the regulatory and others to clear the the utilization.
Okay. That's helpful. And sir,
Ma'am, on the sorry to interrupt, but for any follow-up, request you to rejoin the queue, please. The next question is from the line of Nitin Agarwal from IDFC Securities. Please go ahead.
Thanks for taking my question, sir. Sir, on the nutraceutical business, how should we, I mean, what what opportunities do you see in the nutraceutical business, going forward? I mean, this year has
been a pretty good year from a growth perspective for this business.
The the nutraceutical business is growing about 10% plus. That is the growth rate right now. Maybe 10 to 15%. About 600 growth is the expected this year. And going forward, we are looking at 15 to 18% as we are reaching more and more market.
I think the trend in the is to go for more nutraceuticals, and I think there may be a slightly disavent with this pandemic. But, definitely, the goal is that it will be more nutraceutical usage, in the coming years. And we have given us to take all advantage by having backward integration of API as well as formulation.
Thanks. And then secondly, on the custom synthesis project that you talked about, just just wanna clarify, is this a single project or it's a combination of projects for which you're putting the CapEx for?
It's a combination of projects from several big pharmas. It's not one project, but two projects. Okay, Thank you, Indestruct.
Thank you. The next question is from the line of Ankush Agarwal from Stallion Asset. Please go ahead.
Hello, sir. Thank you for taking my question. My question is on the CSM business. Can you help me understand a little bit on the business mix that we typically have in terms of projects that we undertake during the development phase of a molecule versus project we take during the commercial phase of the molecule wherein we are the second supplier? If you can highlight something on this.
I think it little more clarity because we are not in the clinical trial. We are not in the gram scale. We are not in the few kilogram scale. When it passes through phase one, that's when we enter into in phase two. That is when the chemistry will get locked up.
So we enter not in the chemist when the chemistry is in the nascent stage, we enter when the chemistry to be robust to produce in terms of quantities. That's when we enter at phase two, three. So the intuitive profile can be controlled, and the productivity can be can happen, and the best of technology can be used. So our enrollment is on phase two, three, and then being the launch, then travel through the second period. That is our we are not joining a second supplier for any innovative product.
No. That seems to be the case I'm talking about ten, fifteen years ago. But now majority of our new entering in phase two, three. And just in some cases, if the big pharma wants to go close several 100 times of feet or they need all of the sudden several 100 stuff, you know, there are not many companies that can handle with the resource and technology, with insurance that's supplied to cater to the needs of these big pharma with stringent EHS requirement, stringent quality requirements, regulatory requirements. This is where we are strong at.
Okay. So just to be
clear, for the most part, in
the CSM business, we enter during the phase two. Right?
We we enter in the phase two, phase three. Yes.
Yes. Okay. And secondly, sir, typically, in the CSM business, we do batch manufacturing and not the continuous manufacturing, which is what my understanding. Is it right?
That's right. The the most of the not most. 90% plus or 93% plus APIs are produced on a batch process basis. We are developing some technologies for a continuous processing, but I think there are some limitations. But we can we are able to implement continuous processing of at least certain stages or certain operation.
Not where we need to really control either a impurity or a safety, we are able to implement. But as a product, totally, it's not that you put raw materials in one end and the product would come out at the other end continuously. No. There's no such possibility in an API.
Okay. Got it. Got it. That was very helpful. Thank you.
Thank you. The next question is from the line of Lakshmi Narayanan from ICICI Mutual Fund. Please go ahead.
Yes. Thank you. Sir, on the Custom Synthesis business, approximately how many clients we have, what kind of repeat business we get on the CS business. And it's also mentioned that top five products contribute 47% of revenues. Does it have any custom synthesis product when you talk about these top five?
The next question is that in terms of reactors, you know, we have commissioned DCB and we have put up some reactors. From the efficiency of reactors, what you commissioned earlier to now, how you improve the versatility and the size of reactors? So these are my two questions.
I think your first question is the five products in the custom synthesis are how many numb how many companies we have when the custom synthesis you know, the relationship the existence of the relationship is the closing number one. But, definitely, we have many big pharmas as our clients. And we do get repeat businesses because of the good business we do with them and good good service we give them both supply on time, all the time, and quality product with no rejections. These are the minimum expectations and not only at the best cost, best quality, and with all the EHS requirements and quality requirements and regulatory excellence. The product
So
my question is among the top five products which you call out at 47% of your revenues, does anything within the CS business or everything is in the non CS business?
More top right side? The long end of CS business because we do we do enter at the phase two, three, but after the phase two, three, they go to launch quickly. So we don't do the the 50 molecules in in our clinical trials and the 80 molecules in, clinical. We don't do that because the the killing rate or death rate or whatever you call it, the falling rate is very, very high there. It's high risk.
High reward, I don't know. But, definitely, we are not in that business. We have been saying that from the beginning.
Sir, on the reactor thing, the second question that you asked.
Number of reactor yes. Without the traditional reactors, what we were using is totally different from what we use now. Now from the traditional, we have changed it from design to our own design from whatever is available in the market designed to our own designs both from the point of view of material of construction to the way it mixes, the way it can be multiple for us to use to arrive at the right particle size and right quality and right now. Because it's not producing API important today. You have to produce the right form and right particle size.
So, definitely, the quality of React is totally design of the React is very important today, and it has changed a lot from the time we started.
Thank you. Thank you. The next question is from the line of Mitesh Rathod from Nippon India Mutual Fund. Please go ahead.
Yes, sir. In the custom synthesis business, are you seeing inquiries from additional inquiries from clients, but you are not committing to them because you will wait for this, current capacity buildup to happen and and the progress on that, you will wait and watch, then eventually, you'll commit to those kind of inquiries?
I'm in a fortunate seat with all my discipline in holding on to my money instead of venturing into other activities. What I meant is that the 2,000 b 1,800 crores of cash we have or a thousand crores of cash at any given time in my hand to invest on project expansion and come up with capacity. We haven't turned down. We have not turned down any project from any big pharma based on not having cap not being able to build capacity. We must we may have turned down quick projects where the these not available with us, like monoclonal antibodies or fermentation or steroids or hormones or the price has reached too much on the therapeutic segment that we were not interested in the project.
But looking at normal traffic segments, a good product, there is no way we will leave an opportunity with all the capability and capacity to create or somehow accommodate because all of our plans are multipurpose. All our buildings are multipurpose. So we could always make a product without any issue.
And so my second question would be how supportive is the Indian government, both state and central, in terms of your CapEx execution? And how you have you seen any major change in the stance from their their support?
Fortunately, I think for all the experts we do with the big farmers, with all the funds we have in house, it's only regulatory clearances we need from the police and control board and various other governmental bodies, and we receive excellent support from either the state or the center. We have certainly no issue, and we get a lot of encouragement.
My question was more post the recent PLI scheme. Are they more incrementally more supportive in in terms of clearance of approvals?
I think we did mention even in the last phone call that the PLA scheme is not beneficial to us because the products that are involved in the PLS team are majority of them are antibiotics and other. We are not in those products.
Thank you.
And it's only INR and a crore they would give per product per applicant, and the the the investment we're doing INR 3 and a crore would not make any dent.
Thank you. The next question is from the line of Jarolata Gaitani from Dalla and Broja. Please go ahead.
Yeah. Hello, sir. Congratulations on the good set of numbers. My question is about the gross profit margin. There is a remarkable increase over the last three quarters.
Can we assume it as a new base going forward? Or if you could give a range of margins?
Well, the intent needs to have a better margin. Every company wants to be wants to have better margins. We aim for change, but the CapEx is not only for increasing the margin. As I mentioned that cap to have these factories, what we have, be ready to face all the regulatory challenges that are being going to be posed in the next five, ten, fifteen years from environmental EHS to quality regulations internationally. In addition to creating more higher capacity with new technologies, while doing this backward integration and new technologies and new products, definitely, the margins should improve.
Okay. So we we can assume around 65 63 to 65% range for gross margins going forward?
I would I you know, I have been very conservative from day one since '95 since I started the company. I used to say 50%. Now I'm I have graduated to say 60%. I think my younger generation may come into 70. I don't know in future when I retire and when they take over fully.
But right now, I am very comfortable you, but say, I think 60% definite is my, I think, same. And, obviously, the product mix is the problem. It's not I want to drive it to 70%. But what happens, the product mix one one product goes down, one product goes up. The combination of these products makes it, and some competition from all of a sudden comes from nowhere to kill a product in all of the current 20% less price available should we sell, not sell.
You know? With our marketing team faces some challenges, and sometimes they do have to agree with the customer and reduce the price sometimes. So I think it's fair to say that the 60% can be maintained.
Okay. And and pertaining to the expanded capacity, by when do you expect regulatory clearances?
You're talking about the of all plant and is that the one?
Yes. And the custom synthesis.
No. The custom synthesis 404 expansion should start yielding from the very next year. We complete the the concern of the blocks, they've been produced. The coconut appliance, it will take about three years because one and a half years will go if it is a greenfield project about one and a half year and bulk casing batches and validation, another one and a half, about three years.
Thank you. The next question is from the line of Naresh Suthar from SBI Life Insurance. Please go ahead.
Yeah. Thank you for taking my question. Sir, my question is regarding this quarter's two p a number. So many of your peers have talked about the clients stocking the API for ensuring the continuity of their supply, and hence, the prepointment of some of their orders. So have you also seen similar trends, that's why the second half would be similar or little lower than the first half?
I I you see, it is always that people some for some time, they want just in time. Just in time. That means they don't want any stock. They want stock as needed. And they say insurance of supply, please keep Saturday stock.
So I think this is the management philosophy which keeps changing at the customer end time to time. However, I think all quarters cannot be same, and we don't control anything, neither purchase orders nor shipment. So our aim is to continue selling whatever we produce. But being you know, you take, for example, the quarter three almost every year that everybody who closes their financial year in December, they will say, no. No.
We don't want any stock. Please postpone to the January. Don't ship us from December 10 or December 5. You know? So we don't manage any of that.
It it just happened. So please please, my request is do not judge us or do not go by quarter on quarter. Look at year on year as overall, I think that will be a better way of looking at it. Thank you, sir.
Thank you. Ladies and gentlemen, due to time constraint, we take the last question from the line of S. Mukherjee from Nomura. Please go ahead.
Yes. So thanks for taking the question. So just wanted some color on the API generic business. Now you mentioned about debottlenecking and you mentioned the kind of volume that you're seeing in some of the older products like naproxen, gabapentin, etcetera. Now I would assume that these are very mature molecules and growing slowly.
So what's your expectation of growth here? Will you be able to take more market share? And so just going forward, what would be the key driver, whether it's the older basket of products or new APIs, that would drive growth?
If you
can give some color, sir.
Yes. I think that was a good question. I think, the problem is that my grandparents did not live more than fifty or sixty years. My father lived 93. I'm dreaming about whether I can reach 100.
So when people are living longer, they need more life saving drug support as long as they live. Most of the generic products, the Naproxen, the Gaba painting, the the Sarkheim, the Levitas, and the levodopa, carbidopa, and Plagabaline, all these are like style drive. And as you live longer, you have to use them till the end. So as you return, the growth may look smaller when you say 8% growth on year on year, 10% growth or 6%. But when you look at a product up to you, tons of net of thing growing at 10%, let's say, 8%, Usually, there's another 650 tons a year in one year, and there is nobody to invest here at $203,100 crore for a thousand ton plant.
Whereas we have been we are ready to invest when what we built is already sold out. What we expanded is sold out. So my marketing man, mister Prakash, vice president comes to me. What next step? Sir, you mean to say you want me to build one more net worth and block for another 2,000 times?
That's where we are in discussion already. The same thing goes for the these few other generic products. Seed is like, I think, aspirin, paracetamol, Crosin, we still need and they are still expanding. It's a getting a better process and more profitability, should be made by designing more newer process.
Okay. And sir, just one more question, actually two actually if I can. So one, in the last call you talked about you are developing some of these COVID drugs like remdesivir, intermediates and API maybe. But you mentioned there is no sale here. So I just wanted to get that clarification.
And also, sir, on you mentioned about net load units. Any time on CapEx there and the quantum of CapEx?
I think, yes, when we developed the process for hydroxychloroquine, paper based API and also the advanced intermediate program that's with the intention was that if this would save the world if this would save the lives, again, pandemic, we wanted to make sure there's no shortage. But, fortunately, it seems that there's no shortage of these drugs. At the same time, they're not fully being I don't want to comment on the the efficacy, but I think they're is not that they are able to prevent the death totally. So we are we are not made any further batches after initial production and whatever it is there probably the sales were there. That's why I made a statement saying there is no significant sale in the in this quarter, maybe few lakhs.
Going forward on the Nellore site, yes, we have the 200 acres of land, construct the wall being construct and waiting for all the clearances. And first, I think we would construct the the Kakinoda plant, and then we would go to the slide.
Okay, sir. Thank you.
Thank you. I now hand the conference over to Mr. M. Satish Chaudhry for closing comments.
Thank you all for joining us today for the earnings call of Laboratories Limited. In case you need any further clarification, please reach out to our Investor Relations. Thank you.
Thank you. Ladies and gentlemen, on behalf of Davies Laboratories Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.