Ladies and gentlemen, good day and welcome to the earnings conference call of Divi's Laboratories Limited for the Q1 of financial year 2021. 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 pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. M. Satish Choudhury. Thank you, and over to you, sir.
Good afternoon to you all. I am Satish Choudhury, Company Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to the earnings call of the company for the quarter ended June 30th, 2020. From Divi's Lab, we have with us today Dr. Murali K. Divi, Managing Director, Ms. Nilima Motaparti , Whole-Time Director of Commercial, and Venkatesa Perumallu, General Manager, Finance and Accounts. During the day, our board has approved the financial for the quarter, and we have released the same to stock exchanges as well as updated the same on 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.
Please also note that the audio of the conference call is the copyright material of Divi's Laboratories Limited and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company. Let me draw your attention that on this call, our discussions may include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectation of future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Divi's Lab or its officials do 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 Dr. Murali K. Divi, Managing Director for the opening remarks. Over to you. Thank you.
Good afternoon to all of you. I welcome you all for the earnings call of Divi's Laboratories. Hope you're all doing well. First, let me update you on global scenario on pharma and COVID-19 pandemic. COVID-19 has heavily impacted several industries, small, medium, and large. Pharma industry as such is less impacted because of need for life-saving medicines. This also created responsibility to manufacturing new APIs for COVID as well as to developing new vaccines for COVID. World over, the pharmaceutical companies are busy in developing new chemical entities and vaccines for COVID-19. Divi's as a responsible large API manufacturer, quickly developed a process from indigenous raw material for hydroxychloroquine and favipiravir. These are the drugs used in COVID. Are geared up to supply large volume to prevent any shortages of these APIs used to treat COVID-19.
Divi's also developed a process for four different intermediates of remdesivir, which is also used as an injection in COVID-19 patients, and to supply quantity to prevent shortages. As a corporate under CSR, Divi's contributing provisions for about 60,000 families benefiting 160,000 people around 98 villages near our factory. Divi's has taken sanitization programs for 98 villages benefiting 220,000 people. Divi's also supported 15,000 frontline warriors benefiting police and health workers. Divi's employees supported migrant workers benefiting 21,000 people. Divi's supported quarantine centers and Guntur district by supplying equipment required for the quarantine centers. Divi's also contributed INR 10 crore to local governments to support initiatives of the government. I would like to say few words on CapEx. Before we begin, Divi's has invested about INR 1,800 crores CapEx.
A part of this is for debottlenecking, backward integration for a few to minimize dependency for supply of raw materials from China, upgrading utilities and quality control infrastructure, setting up the most modern wastewater treatment facilities, building future-ready blocks with automation, with maximum mechanization. A part of the brownfield projects already have gone into operation. Qualification batches are completed, waiting for regulatory approval. For the rest of the CapEx, our contractors are experiencing delays due to shortages of technicians and also equipment vendors. Our engineering department is closely coordinating with contractors and vendors for the expeditious completion of the CapEx program. I now ask Nilima to brief on operations. Thank you.
Hello, everyone. This is Nilima, Director, Commercial. I welcome you to Divi’s Laboratories Limited earnings call to discuss the unaudited results for the first quarter ended June 30th, 2020. Before we begin, I hope that everyone, along with your friends, families, and colleagues, are safe during this COVID-19 pandemic. The COVID-19 pandemic has greatly complicated the outlook for global pharmaceutical industry. Fluctuations in costs and availability of raw materials, supply chain costs, and management have been a few threats posed by the pandemic to API industry precisely. We are closely monitoring the constantly changing situation relating to this pandemic and are optimistic in ensuring uninterrupted supply of our APIs. Q1 resumed to witness a few challenges posed by COVID-19, especially after late March, due to the national lockdown restrictions.
However, Divi's has been able to sustain the impact posed on our operations and continue to operate at normal pace at both our manufacturing facilities by mid-April 2020. At Divi's, we remain committed to focus on health and well-being of our employees by closely monitoring the information provided by WHO, CDC, and local governments and adapting to the safety plans that reflect the constantly changing guidelines. We are also engaging with the help of the state and local governments to support various activities taken up to ensure community safety. I would also like to briefly touch upon how we handled business during this unprecedented COVID-19 pandemic. The company has put in place several measures in order to fortify our business continuity by ensuring timely procurement of raw materials, strategic implementation of production schedules, and swiftly organizing the shipment of finished products to our customers.
We have been constantly communicating and updating our customers about the supply schedules and ensuring commitments with minimal impact. We have been able to move goods to our manufacturing sites from both the domestic and import sources by constantly communicating with our associated vendors to ensure prompt supplies, factoring minimal impact due to COVID-19 situation. I would like to thank our employees across all aspects of our business who are safeguarding the continuity of all the business activities while maintaining social distancing and hygiene guidelines throughout their time in the workplace. Moving on to our Q1 FY 2021 revenue. On operations, I'm happy to state that we have achieved a sales revenue of INR 1,730 crore during the quarter, reflecting a growth of 49% over the corresponding quarter of the previous year. This has been a volume-led growth across our product portfolio.
While the profit before tax for the quarter is INR 661 crores, a growth of 37%, the profit after tax has accounted to INR 492 crores, reflecting a growth of 81% year-on-year. We have a cash on book of INR 1,343 crores, receivables of INR 1,550 crores, and inventories of INR 1,742 crores as of June 30th, 2020. Business administration across the region is similar to last year. Europe and America accounted for 74% of the revenue. Product mix for generics to custom synthesis is 59% and 41% of the revenue, respectively. Constant currency growth for the quarter has been 39%. Thank you.
With this, I request the moderator to open the lines for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two . Participants are requested to use handsets when asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund. Please go ahead.
Yeah, hello. Thank you for taking my question. My question is to understand a bit more about capacity expansion and we also talked about backward integration program. Just taking an example of one of the molecules, for example, gabapentin, where there is a lot of competition. When we are talking about expansion, are we looking at expanding the capacity of gabapentin? Or, for example, expanding the backward capacity for, say, the raw materials like CDA. On that side, curtailing the dependence on China. If you can talk a bit more about CapEx, where this CapEx is going and specific molecules. We have talked about it in the annual report that we have an endeavor to be a leader in these molecules. Whether it's going to be a volume leadership or are we going to be backward integrated? Some color on this.
Somehow you seem to be loving gabapentin. Definitely we will be a leader in gabapentin. We want to maintain our leadership. We are expanding both in terms of volume and also the intermediate for gabapentin. We will be producing the intermediate as well as expanding the gabapentin, both. That will reduce our dependency on import of the intermediate as well as margins will be better. We have taken a in gabapentin and it's growing well, and we are ready to take the benefit of the growth. Regarding CapEx. Excuse me?
Yes, sir. On the CapEx. Yes, sir.
Regarding the CapEx, we have already implemented last year about INR 1,000 crores out of the INR 1,800 crores. INR 800 crores is still capital work in progress. These are implementations. What we would like to say is that the debottlenecking where a marginal [tens of] crores would increase 20%, 25%, 30% of the production in the same process, same building. Those we were able to complete. That's what you are seeing some of the jump in production, which resulted in sales and the profitability. Some of the intermediates which we were importing, where we started manufacturing, also have contributed to the bottom line. I think these are the main two. The upgradation of our quality control, both at unit one, unit two, upgradation of our wastewater treatment plant, which are going to be the state of the art for the year, what is being followed in the world.
These upgradations also are part of the CapEx and some of them are complete. Our introduction of few new products. The production validation of the batch is happening and submitted for the regulatory. We are waiting for the regulatory clearances. As and when we get, you will see the jumps in those products. We are in expansion in our generic products where we're already number one, number two in the world, mostly number one. We further increase our capacities because what we started even as naproxen and tiotropium in 1996, they still are growing maybe anywhere between 5%-10%. Such growth on 6,000-7,000 times is somebody who is 700-800 times each year addition.
I think Divi's are able to invest that money to make sure and maintain the leadership in addition to the backward integration, which they have done long Strengthening the backward integration and applying the tools of green chemistry to conserve and resources and recovery. I think the atom economy principles, what we are following in addition to the green chemistry, is making us more stronger for sustainability.
I think the CapEx between, I would like to summarize number one, debottlenecking, which has already resulted from both in terms of top line and bottom line, and expansion products existing, introduction of new generic products, and also some custom synthesis products and expanding our manufacturing the key building blocks for some of our key generic APIs, which we were dependent on China. I'm not saying just Divi's, everybody. I think we are going to be free from that as we already installed the plants.
Sure, sir. Sir, one question, if I may. The recent thing about the government proposal of the API parks and identifying the APIs in which India was dependent on China. If you can talk a bit more about when do we see, what kind of benefit that we see, whether we are going to see the benefits in the next three to four years across the industry. A lot of people are talking about this whole China to India story. India geopolitically being better in contrast to China. A lot of companies willing to bet more in India. Do you think that this is more of a structural story from a longer-term perspective as well?
The strength of India in the API manufacturing, for sure, I think it's very difficult for somebody to take it away and to build chemistry capabilities, technology capabilities, training of these people both in chemistry manufacturing and medical, and EHS, environmental safety. This cannot be by any European or U.S. company. This will take several years. On top of all this, there is what is called cost structure. Everywhere there is Europe or governments are planning to bring the prices of these formulations down, whereby the patient is benefiting. It's very difficult to compete, starting new plants now, API plants, and compete with the existing generic API manufacturers.
Thank you. Actually, we would request you to please come back in the question queue for any follow-up questions as we have several participants waiting for their turn. We would request the participants to please limit your questions to give the participants. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Thanks for the opportunity and congratulations on good numbers and thank you for keeping the call. My first question is on the CapEx. You clearly outlined the INR 17 billion of CapEx, out of which INR 6 billion each was for Unit 2 and Unit 1. Just wanted clarification that both these units would be completed by end of this year and when would it be revenue generating and do you expect U.S. FDA to come and first give the clearance and then we start booking revenues? Just give us some pathway to that, please. Thank you.
The CapEx is at both Unit 1 and Unit 2. Again, the CapEx is for debottlenecking at both sites because we make generic products, various generic products at both sites. The CapEx is also for backward integration intermediates at both sites. The CapEx is also for new products at both sites because we also have a DC-SEZ, which we started in Unit 1, and also a new DCV-SEZ in Unit 2. These are the two main, I think, growth engines with all SEZ benefits. We will be able to complete before end of the financial year at both sites, all these CapEx. When I say we will be able to complete, it also includes that we will be running validation batches and put them on stability, doing the regulatory submissions, and waiting for the clearances. Your second question contribute to the sales growth.
I think that is the most difficult question to answer. I wish I don't run U.S. FDA, I don't run the European Regulatory Agency. I think with the track record of what we have, the way we see these are like to like and similar technologies, similar products. We hope to see them clear very soon. As and get cleared, you will see the sales jump or sales impact.
Okay. Would it be fair to think that debottlenecking intermediates could start immediately, whereas the new products would require a new set of regulatory approvals, like regulatory post inspection?
I think you are right. Debottlenecking one, you'll see immediate impact on. Already you started seeing it, you will see more. Backward integration, not only it will help us for sustainability, but it will also help us the bottom line. Because when we do it, we design the best process, that will also improve our bottom line. That we will see the impact in the coming quarters. The expansion of the generic products, probably we don't have to wait that long for the regulatory agencies to clear because these are not new products. They're the same technology, same generic expansion. It's a like to like. Some of the new products, yes, that may take little time for the regulatory clearance bit.
Perfect. Thank you. My second question is on the 39% dollar terms growth, CC terms growth. Ma'am clearly said it's volume led. Is this a one-time phenomenon or the things that you said about that de-bottlenecking has started playing out, this kind of growth is expected going forward also? Why there is an expenses QoQ decline? I mean, that piece we could not understand. Thank you.
I think it is always API industry. In API industry, nobody should look at it on a quarter on quarter basis. I think it is very difficult because we have a product mix. We don't make one product or two products. We have a basket of products, both generics as well as the big pharma custom synthesis. Sometimes the product mix is such that lumpiness happens and there could be increase in volume. That doesn't mean our business is not improving. I'm not saying what you have seen all that is a growth rate, and you can go and draw a line straight into the sky.
I am saying that, yes, part of it is a growth, part of it is a lumpiness, and some of it is favorable product mix. In this basket of products, I think we are very strong to say it will be all our generic products where we have long-term contracts with our customers, and the customers are always increasing their business.
Okay. The expenses QoQ decline, sir?
Pardon?
The other expenses are down QoQ. I mean, if production and full is full-blown, why other expenses has come down on a quarter-on-quarter basis, sir?
I wouldn't say they have come down. Probably it is increasing.
Sir, the other expenses actually haven't come down. If you compare it with Q4 of last year and Q1 of this year, we are almost on a usual run. Last year, it may be because of some more expenses on CSR front. This quarter, this is more or less same. Pretty much the expenses were continuing.
I think one of the reason is that during last year or the prior, we had legal issues. When we were trying to address that, and now that is being done. We have come back to our normal expenditure. I think that is one of the main reasons.
Thank you. Prakash, we would request you to please come back in the question queue for any follow-up question, as we have several participants waiting for their turn. Next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity and congrats for the good set of numbers. I just would like to understand, at least for this quarter gone by, most of the API companies have delivered strong numbers, and the general feedback is more or less led by volumes rather than pricing. Are you seeing any structural changes happening at the API industry level and in specific on the set of products? Which are the major product for us? Thank you.
Can you please speak little loud? I couldn't get exactly.
Basically, at least for this quarter gone by, the numbers have been phenomenal for most of the API companies. Just would like to understand here and more so driven by the volume than the prices. Just would like to understand whether this is more of a structural change happening at the API industry level, and it's driving more of the shift for the business towards the Indian companies, or it is more due to the supply disruption on account of COVID, and which might tie it down as the COVID scenario eases out.
I think there are two or three things that may be happening there. One, the Chinese supplies have come down, API supplies. That has probably helped every company to sell more API. That's number one. Two, based on the COVID and the disease pattern right now, what is happening in the last four, five months, I think there is less usage of antibiotics, there is less usage of some other therapeutic segments, more usage of antivirals and anti-inflammatory and other therapeutic segments. In the therapeutic segments where we are, the demand is quite high. Maybe in some other therapeutic segment, the demand could be less.
Okay.
Overall, I think with what we are seeing in U.S. and Europe, less encouragement to China and more encouragement to India, and more collaboration with Indian companies, more collaboration European and Indian companies. I think that's what we are seeing. Whether Indian companies would go in U.S. there or have discussing where- Make up to N minus one, and maybe finishing can be done by one of our associate companies in U.S. I think things like that will evolve over a period of time. Definitely, it is encouraging for the API industry.
You see this Chinese supply coming down even now, or it's now coming back to a little bit of normalcy?
I think it is being definitely the Chinese supplies have come down. I do not know whether this is due to they're unable to manufacture or there is a resistance to buy. I cannot comment on that. What I would say is we are geared up to make sure there are no shortages in the API we are in.
Got it. Just secondly, if you could just help us with the carotenoid sales for the quarter. Hello?
Hello, I could not hear.
Just on the carotenoid sales for the quarter.
Carotenoid sales is improving. We had INR 127 crores for this quarter and the business is growing. Both the COVID-19 issues are not only in India, but in Europe and everywhere else. Maybe there is going to be less growth in the next three to six months, but eventually everybody would like to have the carotenoids or the natural phenomena to create immunity. I think everybody is saying immunity has to be built.
Thank you.
I request the moderator to connect to the next call. I repeat, I request the moderator to connect the next call, please. Hello? are you able to listen to us? Hello, can you listen to us? Please connect to the next call.
Ladies and gentlemen, thank you for patiently holding. We now have the lines of the management reconnected. Over to you, sir. We can't hear your question.
I request the moderator to connect to the next caller, please.
Yes.
On the line of Tushar Manudhane from Motilal Oswal Financial Services, please go ahead.
I just asked, but now that he's given me a chance, let me just ask one more if that is okay. Just would like to know the capacity utilization for DC-SEZ unit and DCV-SEZ, which we commenced in February and March.
Pardon?
Just would like to know the capacity utilization for the two units of the DC-SEZ, which we commercialized in Feb 2020, and DCV-SEZ, which we commercialized in March 2020.
In terms of DC-SEZ, these SEZs are still under construction, a part of have gone into only validation, you can pretty much take that the SEZs are still, these two new SEZs haven't added any commercial value.
Okay. Thank you.
Next call, please.
Thank you. The next question is on the line of Ashish Thavkar from Motilal Oswal Asset Management. Please go ahead.
Yeah, thanks for the opportunity. Sir, you spoke about volume growth being very good this quarter. Can you also help us understand what was the impact from dextromethorphan and something like naproxen, maybe levetiracetam, on our portfolio? Have the prices for these products gone up as well?
Your question is that whether the prices have gone up. I think prices are about stable. I think they are pretty much as I said that in case you may get to the air lifts and some of them, those prices may, because of pending the air may have been added, but otherwise, the prices remain same. There's nothing like $ 1 went into $ 10 price.
Okay. Thanks. Just one last question on this CapEx part. The CapEx for Kakinada, are you going to announce any incremental CapEx for Kakinada, or you feel we are still some 12-15 months away?
The Kakinada plant, still we are going to the legal issues to be resolved by the government. Our drawings are ready on the board. We are waiting for the Andhra Pradesh Industrial Infrastructure Corporation to complete the legal issues within the base structure and give us the clearance. That's where we are waiting.
Okay. Sir, as I understood, a part of that Kakinada space is already being cleared, right? I mean, there's no claim on that land.
There is nothing cleared by the government. It is only probably a discussion, but we are still waiting for the legal issues to be cleared by the government.
Thank you. Ashish, if you do go to please come back in the question queue for any follow-up questions, as we have several participants waiting for their turn. The next question is from the line of Anmol Ganjoo from JM Financial. Please go ahead.
Yeah, hi. Thanks for taking my question. Congratulations on a good set of numbers, and thank you again for hosting the call. My first question is that, is this hosting of call going to be a regular feature from here on, or you made an exception because of the environment?
I was not clear. Can you please speak a little loud?
Yeah, I said that, are we now going to have this kind of an interaction every quarter? The good step that you've taken of hosting an earnings call, will this be a regular feature from here on?
It will be a regular feature for every quarter herein, with having a call. Yes.
Thank you. That is very helpful. That helps us understand the business on a quarterly basis. Thank you for that, first of all. My first question is that, given that most of the revenue growth has been volume there, and we expect some debottlenecking. From the current capacity standpoint and what lies ahead in terms of bottlenecking, how comfortable are we in terms of driving growth? Directionally, with the current capacity plus debottlenecking, what does it allow us in terms of room for growth?
Out of the INR 1,800 crore investment, debottlenecking thing is very little.
Okay.
The majority of the CapEx is for DC-SEZ at Unit 1 and DCV-SEZ at Unit 1. That is where the majority of the CapEx is. Those would give additional product, increasing capacity for our generics, and also making some of the backward integration for assurance of supply and cost savings and to improve the bottom line. There is going to be enough capacity to meet any surging demand or increased demand of our generics.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Good afternoon. First of all, thanks to Dr. Murali Divi and the team for hosting this call, congratulations on strong set of number. Sir, my question is on the custom synthesis segment. In the post-COVID era, we believe there will be more and more emphasis on cost efficiencies by customers. How do you see this part of business going for you? Are we seeing more inquiries or interest from customers who are right now not our traditional customers? If any comment you can provide on it.
In the custom synthesis, there were only X number of big pharmas, and we are connected with most of them. The business is already happening. Now, what we see is that looking at the relationship with China, looking at the Chinese going towards China, maybe India will get more opportunities in terms of the custom synthesis. Yes, I agree with you on that. We are geared up to accept such opportunities.
Sir, we are seeing already, I'll say, higher interest on India compared to China on this part of business, and we hope to grow from here.
That's correct.
Thank you. Kindly we will request you to please come back in the question queue for any follow-up questions. We will request the participants to please limit your questions to one per participant due to shortage of time. The next question is from the line of Charulata Gaidhani from Dalal & Broacha Stock Broking Pvt. Ltd.. Please go ahead.
Yeah. Can you give me the gross block value in this quarter? Second, I wanted to know how much is our dependence on China in value terms or percentage terms?
[inaudible] this gross block additions for this quarter.
Yes.
INR 250 crores.
Can you repeat?
That the gross block addition during this quarter-
Yes.
INR 250 crores.
Okay. Have we added any more APIs to our product basket in the last two quarters?
Always there will be a mix of products. As I mentioned, I think in the beginning of my presentation, I did mention that the COVID-19 products, hydroxychloroquine, favipiravir, and the intermediate for remdesivir, they're all new products in addition to few generics. Definitely we have added products, and we will continue adding products both from the generic and custom synthesis.
Thank you. The next question is from the line of Fatima Pacha from ICICI Prudential Life Insurance. Please go ahead.
Hello, sir. Great set of numbers and congratulations. Sir, we've had discussions before and we said that because we were nearly at peak utilization levels, and you also rightly pointed out that the current mix is more because of COVID-19. What are you seeing, sir? Is this kind of a mix sustaining? Because like you said, your new capacity will come in mostly by year-end. Do you see this improved mix sustaining? Sir, the next thing that I want to ask, everybody is talking about the government PLI scheme. Do you think companies like Divi's can significantly benefit from this scheme, and we want to do a dedicated CapEx for this?
The clarity was less. Can you please repeat your question, please?
Sir, the first question is, I remember that at INR 1,400 crore quarterly revenues, you practically said that you are operating at peak utilization. I understand there's a mix change. Are you seeing that kind of mix a permanent change, or it's more like a COVID-induced change that you saw in the quarter and things are normalizing? The second thing is the government PLI scheme, which they're talking about the API-related PLI scheme. Are we planning to do something on that line or setting up a dedicated capacity? Can it be a very meaningful opportunity for us?
On the scheme what you have mentioned, that a 10% benefit, 5% benefit to the API manufacturers for selling in India, it is less applicable to us. The reason we are still evaluating because most of our products are exported. We have very little sale in India. We are still trying to understand what will be really beneficial with the PLI scheme, how we should be addressing it.
Thank you. Fatima, we would request you to please come back in the question queue for any follow-up questions. The next question is from the line of Rahul Sharma from Karvy Stock Broking . Please go ahead.
Yeah. Sir, just wanted to carry on where Fatima had left. Is this quarter having more of one-off sales due to HCQ and remdesivir API intermediate supplies which are there? Will this sustain going ahead, sir, because HCQ is already peaked out and a lot of people are coming off it?
I think I did mention in my beginning presentation that we have only validated the process of HCQ. We have developed the process for favipiravir and manufactured an intermediate for remdesivir. These did not contribute for any significant number at all for this quarter. We just started sales. Our interest is to make sure there are no shortages if these are proven to be the drugs of choice for COVID-19, because when it came in March, they said HCQ is the drug. They said remdesivir is the drug of choice. They said favipiravir is the drug of choice. Tomorrow, there may be three more drugs will come, we would like to develop technology and be available so that if there is a shortage, we can supply what is required for the world.
Yeah. Sir, was there any one-offs which you foresee that will not recur in future, which happened in this quarter because of volume growth?
I think I did mention that it is a favorable product mix and lumpiness in business. These are quite common in the API industry. I think that's what I would like to say.
Thank you. Rahul, we would request you to please come back in the question queue for any follow-up questions. The next question is from the line of Praful Bohra from Emkay Global. Please go ahead.
Could you add a bit more color on your custom synthesis business, especially in terms of the number of molecules you currently sell or any outlook there?
We have not been mentioning anything about how many number of molecules. What we can say is that the number of molecules always gets added, and of course, there are less number of molecules compared to 10 years ago or five years ago because the new NCEs, less number are coming. Whenever they are launching these new number, new NCEs in phase II, phase III, most likely they will be launched and they will grow well. I think we are here to take advantage of those, and we do have good opportunities.
Thank you. The next question is from the line of Girish Bakhru from Bank of America. Please go ahead.
Yeah. Hi, sir. Thanks for taking the question, and great quarter. Sir, just one question on custom synthesis side. What are the long-term areas you're looking in terms of skill development within Divi's? I mean, besides these regular APIs and some of these COVID drugs, are you looking at some technical technologies for future?
I think you hit the right point. It is not what product you want to make. It is what technologies you can handle, what kind of difficult-to-make chemical reactions you can handle in a large scale. That's what has put Divi's into a very strong position from the beginning. We always add new technologies into the pipeline, whereby traditional chemistries where the yields were less or the conversions are poor, the impurities are high, we are able to get over with these new technologies, new chemical reactions. It's always a challenging thing to do, and we are in the front runner of those. Yes. That gives us more opportunities with the big pharma. In addition to the EHS, which they do expect quite a bit, environmental safety, as well as quality and regulations.
Thank you.
Thank you. The next question is from the line of Nitin Agarwal from IDFC Securities. Please go ahead.
Sir, in the custom, is there any major margin difference between the custom synthesis and the generic API business?
It's very difficult to say that. I think both custom synthesis and generic are good for us. It's not that one makes more margin, one makes less margin. I think it all depends upon which are those products and what kind of technological strength we have in conversion, in efficiency, and productivity. As you can see in the margin, we vary between 40%-60%, whether custom synthesis sometimes go to 55%, generic goes to 45%. Sometimes generic goes to 60%, custom synthesis 40%. I don't think we'll drive down to those percentages. It happens.
Okay. Thank you.
Thank you. The next question is from the line of Rohit Bhat from the B&K Securities. Please go ahead.
Yeah. Thank you for this opportunity. Dr. Divi, I just wanted to know, recently Sanofi announced plans to set up an API company globally. By 2022, they are hoping to generate about a billion-dollar euro from API operations. If an innovator company gets into API manufacturing, what kind of impact would it have on companies in India or from the Asian region? They are also trying to reduce their dependence on Asia. Your views on this will be helpful.
Okay. I just make sure, which is the company?
Sanofi.
Sanofi? Sanofi-Aventis.
Sanofi-Aventis.
Well, I thought you were saying Kodak from America.
Yeah, Kodak was also there. Novartis also announced plans to get into penicillin APIs.
Yeah.
A lot of [inaudible] are in USA. Yeah.
Yeah. There are two things we need to understand.
Sure.
The Big Pharma pretty much stopped the API production. Most bought or sold the API manufacturing plants because they could not sustain costs. That is the reason they started outsourcing. They don't have any more manufacturing capabilities in U.S., definitely, and the majority of the European companies. Number one.
Yeah.
Two, it's not only not having the manufacturing plant. Even somebody puts a manufacturing plant, it's very difficult to create the human resources. Number three, the training. Number four, the regulatory impact. Regulatory clearances by the FDA and European authorities. All these will take time, even if the Big Pharma concentrates on local production. Number two. three, at what cost they will make these generic products? Can they sell naproxen at $40? Can they sell carprofen at $40 a kilo? Now, when they are unable to produce at $100 a kilo and started bringing in and started outsourcing, I think it is very difficult to put new plants now in Europe and U.S., and that holds with all companies.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi. Thank you. Good evening, sir. Just a quick question. How much contribution do you get from biologics or antibodies in your overall business, and what are your thoughts about building capabilities around these?
Did I hear right? You would like to know about biologics.
Sorry.
No. Did you say biologics?
Yes, sir. Biologics, antibody, monoclonal antibodies, that's right, biotech drugs.
We are not in biologics. We are not in antibiotics. We are not in injectables. We are API manufacturing company. That is where our strengths are, and that's where we are counting on our future. At this time, I think we are not concentrating on biologics at this moment.
Okay, great. Thank you so much.
Thank you. The next question is from the line of Naresh Suthar from SBI Life Insurance. Please go ahead.
Yes, thank you, sir, for taking my question. My question is, when last year we announced CapEx of INR 17 billion-INR 18 billion, that time we had some certain outlook for API industry. After that, this COVID thing happened, and the outlook has improved over time. Whatever you assumed for the order book or the opportunity price at the time of announcing this INR 17 billion-INR 18 billion CapEx, has it gone up substantially after this post-COVID scenario?
Can you please repeat the question again?
Sir, my question is, last year when we announced the CapEx, the outlook for the size of opportunity which we might have seen at time may be certain, and after that, the COVID happened and the outlook has been improving. Whatever you were seeing in terms of opportunity size that time, has it increased substantially after this COVID?
I think the opportunity remained the same because COVID has influenced in a different way, but the requirement of the therapeutic segment, either APIs, either for generic or custom synthesis remained. The opportunities remained same. Our focus remained same. Excepting, we took the challenge of making even the COVID APIs to prevent shortage of supplies in the world.
Okay. Sir, I think I'm clear. My question is, after this increase in inquiries, based on the COVID-19-related issues and people are now thinking more about moving from China to India. In this scenario, have your inquiry increased? For that, are you announcing more CapEx or further down the line based on this increase or improved outlook?
Okay. If I understand right, with the Chinese issues from China, whether there are going to be more opportunities on CapEx?
Yeah.
More number of products. Yes, definitely there will be opportunities in custom synthesis. There will be opportunities in our own generic products, not necessarily new products with additional volume. We are ready to take in if we need to invest more as a CapEx.
Perfect.
Thank you. Due to time constraints, I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us today for the earning call of Divi's Laboratories Limited. In case you need any clarifications, please reach out to our investor relations. Thank you.
Thank you. On behalf of Divi's Laboratories, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.