Ladies and gentlemen, good day and welcome to The Earnings Conference Call of Divi's Laboratories Limited, Q4 FY 2023. I'm sorry. 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, 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 all of you. I am M. Satish Choudhury, Company Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to The Earnings Call of The Company for The Quarter and Year-Ended March 31, 2023. From Divi's Labs, we have with us today Dr. Murali K. Divi, Managing Director, Ms. Nilima Prasad Divi, Whole-Time Director Commercial, Mr. L. Kishore Babu, Chief Financial Officer, and Mr. Venkatesa Perumallu, General Manager Finance and Accounts. During the day, our board has approved financial results for the quarter and year-ended March 31, 2023. We have released the same to the stock exchanges as well as updated the same in our website. Please note that this conference call is being recorded and a transcript of the same will be made available on the website of the company.
Please note that 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. 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 future performance of the Company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Divi's Lab or its officials does not undertake any obligation to publicly update any forward-looking statement, whether as a result of future events or otherwise. I hand over the conference to Dr. Murali K. Divi for opening remarks. Over to you, sir.
Good afternoon, ladies and gentlemen, and welcome to our fourth quarter financial year 2022, 2023 conference call. It's great pleasure to have you all here. I hope you, your families, and your loved ones are all in good health. Before we dive into the details of our financial performance, let me update you on our operations. The global pharmaceutical industry has entered a new phase following two years of adapting to the pandemic. I would like to report that despite the market volatility, Divi's has maintained efficient and sustainable operations. We have capitalized on new opportunities to fuel growth after experiencing a gradual return to normalcy in the core API product portfolio, and are actively pursuing our 6-point strategic approach to unlock further growth potential.
With increased opportunities and demand for Generic APIs in segments such as Contrast Media, Sartans, and products about to go off patent, we foresee multiple growth opportunities over the next three years. Additionally, our Custom Synthesis project in collaboration with Big Pharma for Contrast Media production is progressing well and commercial manufacturing has started. FY 2022, 2023 has been a year of significant progress for Divi's, with all clearances obtained for our Unit-3 facility near Kakinada. Construction activity on the 500 acres of land is progressing well and a CapEx of INR 1,200-INR 1,500 for phase I development is in the final stages of strategy refinement.
Looking ahead, we remain steadfast on maximizing sustainable growth potential through investments in new technologies, production capacity expansion, and diversification of the product portfolio to meet the requirements of emerging pipelines and continue to maintain a leadership position in our core products through the implementation of green chemistry principles. We continue to operate responsibly and make a positive impact in the communities where our business operates. During the last quarter, we have actively engaged in various CSR activities in the areas surrounding our manufacturing facilities. As a part of our project, Sujalam and Jalaprasadam, we have installed RO plants at various temples and schools in Telangana and Andhra Pradesh. We have developed village infrastructure through the construction of roads and developing sewage systems across AP and Telangana, which benefited thousands of people. Ms. Nilima Divi will highlight the operational and financial highlights of the quarter. Thank you.
Ladies and gentlemen, a very good afternoon to each one of you. Thank you very much for joining us today as we gather here to discuss the outcomes of the fourth quarter of FY 2022, 2023. Firstly, I'm pleased to inform you that we maintained an uninterrupted customer shipments throughout the quarter. Our commitment to meeting customer requirements on time remains resolute. Additionally, there were positive developments in global logistics sector concerning sea and air freight costs during the quarter. Furthermore, we have achieved stability in raw material procurement and availability, leading to slight softening in material prices compared to the previous quarter. As a conscious, continuous effort made by the organization to develop and support domestic supplier base while geographically diversifying the sourcing risk, the dependency on China has been lower as compared to the previous year. Moving forward to FY 2024, our focus remains unwavering.
We aim to operate our facilities at maximum capacity to oversee the evolving demands of an uncertain economic environment. We are successfully progressing with our diversification map and actively pursuing opportunities that lie ahead, all while focusing on long-term priorities. The company has implemented strategies such as diversifying the supply base to maintain its leadership position in core products while remaining mindful on global developments. Our dedication to diligent risk mitigation efforts, ensuring supply chain stability, efficient transit time, and uninterrupted provision of APIs to our customers has positioned us as a reliable supplier to the global pharmaceutical industry. With a robust supply base and inventory control, we are confident in facing challenges that may come our way. I'll now provide you with an overview of the financial performance during the fourth quarter of the fiscal year 2022, 2023.
We have achieved a consolidated total revenue of INR 2,017 crores for the quarter as against a revenue of INR 2,571 crores for the corresponding previous quarter of the last year. Material consumption for this quarter came to be about 42% of the sales revenue due to change in the product mix. Profit before tax for the quarter amounted to INR 466 crores. We have a profit after tax of INR 321 crores for the quarter. For the financial year 2022-2023, we have a consolidated revenue of INR 8,112 crores, PBT of INR 2,369 crores, and profit after tax of INR 1,823 crores.
Exports for the quarter continues to be around 90%. The exports to U.S. and Europe is about 68% of our revenue for the quarter and 70% for the year. Product mix for generics to Custom Synthesis is 56%, 44% for the year. It is for 59%, 41% for the quarter. We have a Forex loss of INR 4 crores for the quarter, while we had a gain of INR 130 crores for the year. As we have lower sales revenue during the quarter, our constant currency growth for the quarter has been negative at 32%, while it has been negative at 21% for the year. Our nutraceutical business amounted to INR 150 crores for the quarter and INR 650 crores for the year.
We have capitalized assets of INR 480 crores during the quarter and INR 745 crores for the year. We have capital work in progress of about INR 212 crores as of the end of the quarter. As of 31st March, we have cash on book INR 4,136 crores, receivables INR 1,793 crores and inventories INR 3,000 crores. Thank you.
Thank you, ma'am. With this, we would request the moderator to open the lines for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Sir, would like to understand in terms of raw material pricing trajectory, where we stand based, having backward integration in place as well. Is 57%-58% is the new normal in terms of gross margin, or we see, upward chain based on backward integration and raw material prices softening. Thank you.
The raw metal prices, I think, our raw metal prices are coming down. Not only they're stabilizing, they are in fact coming down, and we should be able to see benefit in the coming quarters and going towards where we used to be in the past.
Sir, any timeline you would like to provide in terms of going back to our normal gross margin of 67%, 68%?
Can you please repeat your question again?
Can you provide the timeline in terms of, going back to the earlier range of gross margin?
It's difficult to say exactly when, quarter-on-quarter, but we should be able to see that towards the end of the year.
Understood, sir. That helps. Thank you. That's it from me, sir.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, good afternoon, and thanks for the opportunity. My first question is on, you know, you talked about Contrast Media in the innovator business segment. If you could talk about, you know, the, how many products are these, what is the target market, and how do you see this ramp up happening?
Contrast Media, the big opportunity we are talking about is one thing. We also have the iopamidol, iohexol as our regular generic products, where we increased capacity, qualifications are under completion and growing. We already are in the market. We have existing customers, but with the increased demand, we have already expanded, and the expanded capacities are under qualifications with various customers. That should see growth. That's number one. Two, with one of the Big pharmas where we have the Contrast Media, the validations are complete, commercial production has started. You will see in the coming quarters.
What is the size of the opportunity?
Like in every generic product, I think everybody knows what is Contrast Media and what is the total business. We are building world-class plants to be as a supplier of Contrast Media, active ingredients. We should become the leader in the next two to three years, just like we became leaders in naproxen, gabapentin, just about every generic product we are in. Also, I think the gadolinium compounds, which are the main MRI compounds where the revolution is happening now with changing from gadolinium to other metals, there also we are heavily involved with the customers as well as our own research to manufacture development of process with our own labs.
Okay, thank you. Second one is on, I think Nilima Ma'am said about change in the product mix. Have we talked about what is the Custom Synthesis generic share? I'm sorry if I missed that.
The Custom Synthesis and generic share, we like to have 50/50, but we always are saying, see either 60/40 or 40/60. Right now, on the yearly basis, it is on 56, 44. 56 generic and 44 Custom Synthesis, whereas in the Q4 it was 59 generic and 41 Custom Synthesis.
Okay. Do you expect this trend to little bit change, I mean, 50/50 over what period of time, sir?
From day one when I entered Custom Synthesis, I have been saying 40/60 or 60/40 is not in our control because it's the customer's wish. Sometimes many products join in the Custom Synthesis. You'll see for a few quarters it goes towards 55, 56, 57. In some quarters as the new generic or generic products take off and the % shifts to that side. We are in the more or less 40/60/40, and I don't think we'll be 20/80 or 80/20 even in future.
Okay, fair enough. I have no question. I'll join back with you. Thank you so much.
Thank you. The next question is from the line of Surya Narayan Patra from PhillipCapital India Private Limited. Please go ahead.
Thank you, sir. Thanks for this opportunity. Sir, my first question is on the margin front. Sir, are we seeing any kind of an unprecedented business environment currently for our business? I'm asking this question because let's say in the second half of FY 2023, the third quarter and fourth quarter, the margins, if reported margin, if you see it is less than 25% or around 25%, which is kind of the lowest in last 10 years. Same is even in the gross margin front also, if we see, that is also around in the range of 57%, which is never been the case over the last 10-year period. Any specific unprecedented condition that we are witnessing for our business?
Product mix-wise, we have been more or less stable at that level of 40/ 60 kind of equation. The cost-wise and the margin-wise, we have seen a kind of meaningful correction in last quarter, third quarter onwards. If you can clarify a bit here, that would be helpful.
There is nothing that happened like the sky is falling down, you know.
Sure.
There's nothing unprecedented thing that happened. I think it's a general course that took place where always I used to say for the last several years, you should not judge the company by quarter-on-quarter, and I think it varies. Some quarters maybe it looks similar, but some quarters up and down is quite common. I don't think there is any particular attributable something happened in the last two quarters. One, I can say that whatever the anti-COVID drug, a one-time opportunity we had where it gave us a good push in the sales and that fortunately for the public and the health, there's no COVID drug requirement now. There are several other opportunities where we are entering, I think we should be back into the profitability. I think it's not just that. It is the product mix.
It is the raw materials which were procured at higher prices, which we had to consume them.
Yes.
We have to charge the pricing based on the inventory we have been carrying, which were purchased. Like, we don't keep normally more than three m onths stock, but we had kept six months, nine months stock of raw materials, anticipating problems from China, COVID, and various things.
Mm-hmm.
Until we consume them totally, this price fluctuation happens. That is over now. Going forward, we should be able to, as I was mentioning to the earlier, that we should be able to see normalcy towards the end of the year.
Sure, sir. My second question is on the opening commentary. During your opening commentary, you have mentioned for your progressive growth in the business. In the operations side, you have touched, you have indicated that the technology upgradation, green chemistry principles, adapting those. Those kind of aspects that you have indicated for the first time, I think the green chemistry aspect also you mentioned. Can you just add some more color to that, sir?
It is not, it's not a choice to add green chemistry. It's not a choice to come in with new chemistry. They're a must.
Mm-hmm.
To do business in current days with U.S., Europe and the Big Pharma, we have to do all that. It has two advantages at least. One, the new technologies will bring more productivity, bringing down the raw material costs, efficiently using or conserving our resources. These are the rights from water, energy to various other solvents which are rare or rare metals like beryllium and nickel. There are various advantages, yes. These are, again, we have to look at the long-term goal, where in the next one to three years, if we didn't do this in the last one to two years, probably either we'll be in a very bad shape or we wouldn't be in business. Having done all this now, we are very comfortable in looking at for the next three years, five years and 10 years.
I wouldn't invest INR 1,200-1,500 crores in Unit-3, where we started on fast track construction activity in the month of beginning of April, where we received all go. The person buildings under construction are on fast track, utility buildings and all the whole site of 500 acres in full swing now. That shows the content of the company on the products and technology and opportunities.
Sure, sir. Just one last clarification from my side. See here, is one of your six-month strategy for growth is that the generic opportunity that is coming up. Here, whether our focus is intermediate or it is a final API because the DMF filings, if I see, obviously there is limited number of filing with USA. Whether our focus is largely about intermediate and integrated intermediate, that is how we should think or how should we think that?
If I am not mistaken, you are talking about our sixth growth engine, which is a $20 billion-
Exactly, sir.
Expiry between 2023-2025.
Yes.
As we mentioned the last quarter, we updated you that we have submitted Drug Master. Our first focus is for the APIs. Let me be clear.
Sure, sir. Okay.
The intermediates or advanced intermediates we submit are probably for the innovators or for the supplier of something else. Otherwise, our objective is to make APIs and be ready for the patent expiry and have quantities for supplying for qualifications and submitting for the regulations.
Sure, sir. Yeah. Thank you, sir. Thank you. Wish you all the best.
Thank you. The next question is from the line of Cyndrella Carvalho from JM Financial. Please go ahead.
Thanks for the opportunity. Sir, just wanted to understand, last call we had said that two Custom Synthesis products will go somewhere either end of Q4 or Q1. What's the update on that?
Pardon?
What's the update for that? The two Custom Synthesis project that we were supposed to commission either end of Q4 or Q1 is what you had said in your in our last call. What's the update on that? Am I audible, sir?
Yes, you are audible. Thank you. The out of the two, one product which is a Sartan, it has already gone into commercial production and commercial supply. You'll see, it will add up in our coming quarters. It has gone into commercial activity. The second one, Custom Synthesis bid project, the qualifications are complete. We supplied. Now the ramp-up of production is happening for supplying in the quarter. I think these will reflect. Both of them will reflect from the coming quarters.
Okay. Sir, if I look at earlier our conversation, we had also said that the pricing scenario in API, Generic APIs was weaker. How do you see it right now? Compared to that, how are our realizations given that there is some softening of raw material costs as Nilima highlighted? How should we see the realizations and the pricing scenario on the API side, key API side of ours?
I think it's a mixed feeling. Some of the generic products we do not see any pressure on the pricing, sales price or on our demand. I think still they are good. Yes, in some of the Generic APIs where because of after the COVID impact, there are huge stocks of dosage forms and first they are fighting, the dosage form companies, generics, they are fighting for getting rid of the stocks before the expiry of the expiry date. Hence there is a crash in the prices of generic dosage forms and less demand for the Generic APIs because they don't need, first they want to get rid of. Once that happens, they need APIs again. I expect the prices to stabilize, and we should see improvement in the coming quarters.
Sir, just a clarification on this. Would you like to give us some guidance on the growth for FY 2024? On the Sartan that you mentioned, are we the exclusive supplier there?
First of all, I think the confidentiality agreement we supply does not allow us to talk about the very existence of the contract.
No worries. Thank you.
It is in the open that Divi's supplies some Sartan. I mentioned that, yes, that project it's come, it has been validated, commercial supply, already ramped up, one of them.
Right. On the growth, sir, would you like to help us understand, given that we see, things stabilizing here onwards from the coming quarter, would you like to indicate some kind of, growth trajectory on FY24 for us, given that we are carrying a INR 3,000 odd crore inventory? Should we expect at least minimum of INR 7,500 odd crore top line on it? Is that a fair assumption, at least? Or you think, we should look at it some other way?
I think, we have been growing at double-digit growth. I'm talking about even without the one-time opportunity of the COVID drug. I think we'll continue growing at that rate, a double-digit growth.
That is very, very helpful, sir. All the best and thank you. I'll join back with you for more questions.
Thank you. We have the next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Good afternoon, and thank you for taking my question. Just using the numbers for the quarter for generic, custom and Nutraceuticals. Just want to get your comments on some of the segments. We've finally seen Custom Synthesis improve QOQ. I'm talking about Q4 vs Q3. INR 680 crores has gone to INR 800 crores, just the CS part. Is that the two CS projects, or at least the Sartan projects, would that be the reason for the growth or there are other levers there? That's question one. When I look at Generic API excluding Nutraceuticals, the jump has been even better. We have gone from INR 875 crores to about INR 1,000 odd crores.
If you can help us understand, I know you don't like looking at QOQ, but, what are some of those that is driving the sequential about I think 17% QOQ growth on custom, 14% QOQ growth on Generic API excluding Nutraceutical?
Again, we cannot really say what will be the exact growth, how many 100 tons they will buy and all that, because we cannot talk about even the existence of relationship. What we can say is that we have built capacity as per our more than the requirement of the Big Pharma or the generic industry. Always, we are one step ahead of whatever is the requirement. Now coming back to your. I cannot disclose the quantities and what kind of ramp-up we can see in the next quarters as rupee term or volume. Definitely, these are very long-term projects, Custom Synthesis projects, and we are seeing several other opportunities in Custom Synthesis projects from Big Pharma. Never seen so many opportunities. Coming back to your Nutraceutical. Nutraceuticals also is growing.
In fact, we needed expansion of both nutraceutical and, as I said, several Custom Synthesis projects. I think I need to update also the shareholders that the Unit-3 project, what we are indicating now, INR 1,200-1,500 crores. To begin with, we will be manufacturing some of the nutraceutical APIs, some of our advanced intermediates with starting materials so that our existing production buildings at unit 1 and unit 2 will be freed to that extent whereby GMP, USFDA, FDA-inspected, European FDA-inspected buildings will be able to take advantage to produce the required quantities of new opportunities of Custom Synthesis and other generic products. The Unit-3, where we are investing INR 1,200-1,500 crores, first to begin with it will start manufacturing the research starting materials with intermediates, nutraceutical APIs.
The second phase, it will enter into the APIs, which usually take three to four years for the qualifications and USFDA inspection clearance and then be able to sell. We are trying to bring a win-win situation of creating capacity and utilizing the capacity in the right way.
Okay, sir. Helpful. Second question, just taking a question from the previous participant on margins, right? I'm just comparing your fourth quarter, all the different cost items to, say, something like fiscal 2019, fiscal 2018. I'm just comparing 4Q to fiscal 2019 or 2018 pre-COVID numbers. Material cost then was between about 38%-39%. Today it's 42% for the quarter. That is one number that I can see which we are 300 basis points higher than historical levels. If I look at the other number, which is other expenses, right? Non-wages. That's 19% for the quarter vs historical number of 15%-16%. If you can kind of explain, you know, just these two numbers. Is this investments that are going through?
On the material cost, is it the mix that has changed? If you could help us understand and how we should think about it for fiscal 2025. I think that's the other question.
See, some of it here must have gone into that the buildings which we were building in 1995, 1996, several of them have been upgraded and going through upgradation to meet the new standards of, or current standards of the, or future standards of both GMP, safety, environment. This is related not only of the building, but also of the equipment and other accessories. That is one. Two, I think on the material, I think I have already explained to you that the process efficiency, there's no difference. In fact, we have improved our process efficiencies. What happened is that where we procured raw materials when there were shortages nine months ago, one year ago, the stocks of six months to nine months, now because first come, first out, they are being consumed. They are being consumed.
That's how the raw material prices are higher. There's nothing like either yields are down or pro-production issues exist. There's nothing like that. In fact, since it has gone, up, we see the trend of prices even going down for the raw material. We always wish to go back to where we were. It's, definitely on the raw material costs are better because of the new technology we have, implemented and because of some of the starting materials we started manufacturing.
Got it, sir. That's helpful. Last question, what's our current net block, like in rupees crores? Just want to understand you historically used to guide us on, you know, fixed asset turns. Can we go back to like a two times turns, you know? What's the kind of investments you're looking other than the Kakinada, what is the non-Kakinada kind of CapEx you're looking at? Thank you.
I think Kakinada, I mentioned that when we planned five years ago the unit, we have invested about 1,000 acres, INR 1,000 crores of investment. Whereas after five years, where we got all the clearances and with the product plant that are currently in place, we are estimating it should be INR 1,200-1,500 crores for phase I. We are also in discussions to see in the phase II what kind of investments we should be doing. Our first target is phase I implementation. Of course, all these come from the INR 4,000+ crores of reserves that exists. No loan, it's only better utilization of reserves which are in the form of fixed deposit.
Got it, sir. Thank you and all the best. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you so much. Sir, just on Kakinada, by when can we expect the phase one to start manufacturing Nutraceuticals and advanced intermediaries that you mentioned?
It is a greenfield project, and we just started the last month with the ground cleanup. We expect to commercialize by end of 2024.
Okay. This will be fiscal year 2024, calendar year?
Calendar year.
Understood. We should start seeing, let's say, higher growth because it will free up capacity in unit one and two from fiscal year 2025. Is that fair to assume?
Yes, because once we complete in 2024, we should be able to see that in 2025. As the capacities become free in the existing buildings of Unit-1 and 2, we should be introducing additional products, additional capacities, new products of Custom Synthesis are then looking to those buildings. You are right.
Understood. Nilima, on the raw material cost, you mentioned, quarter-on-quarter for the gross margin trend. Hello?
I'm sorry to interrupt, but the line for you seems to be breaking up in between. I request you to please repeat your question.
Sorry. That is better?
No, ma'am, it's still breaking up.
Is this better?
This is better, ma'am.
Okay. Sorry about that. Nilima, you mentioned raw material prices, softening quarter-on-quarter. If I were to look at gross margins, you know, despite the contribution from Custom Synthesis and lower freight cost, raw material cost, we haven't seen as much improvement. Is it fair to assume that we are still consuming the high cost inventory and there is pricing pressure in Generic API, that's why we're not seeing the requisite margins?
Well, we are doing a mix of both the materials that are there, which are procured from a higher cost, and also some of the materials where, you know, the material price has softened. It's a mix that's happening right now because, you know, the price is transitioning from a higher price to a lower price. It wouldn't completely reflect in this quarter. Probably in the forward quarters you might see that particular difference.
Okay. Should we assume a few more quarters where we continue to consume high cost inventory?
No. I think it would be slightly improving situation as we go on to the Q1 and forward. We did mention earlier that there have been pricing pressures in the generic market, and that's also one of the effects that has been reflecting in this particular area.
What would be the generic pricing, sorry, the API pricing pressure that you've seen, let's say quarter-on-quarter, reflecting in the margins?
Can you repeat that question again, please?
What would be the pricing pressure that you would have seen, in the quarter? You know, just trying to understand what is the impact in the quarter because of that.
It is very difficult to say that because it's a combination of several products, and it's very difficult to say.
Understood. Thank you so much, sir.
Thank you. We have the next question from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Good afternoon to all. Most of my questions have been answered. Just one remaining. What would be your corporate tax rates at the consolidated level going forward for the next two, three years, given that your facilities are coming up in various sorts of SEZs, et cetera? On a blended basis, what sort of margin can we take? Sorry, what sort of tax rate can we take?
I think it's expected to be as we are coming to the closing of SEZ and SEZ benefits slowly phasing out. We expect the tax to be around 25%-27%. I think that's what I can say in the next 15 years.
Understood. Thank you very much.
Thank you. The next question is from the line of Nikhil from SiMPL. Please go ahead.
Yeah. Hi. Good afternoon. Thanks for the opportunity. Two, three questions, sir. One is, if I go back to our strategic levers, which we had mentioned in our annual report. Two of them were to gain further market share in products where we already have 60%, 70% market share and gain market share in products where we are at 20%, 30%. Now, considering the scenario which is playing out in APIs of inventory destocking and excessive price competition, would you say our ability to gain further market share gets restricted in any way in those existing products? Or would you say, our capabilities and our costs remain the same, and probably there is still room for this lever to play significantly?
In the generic products, I think we have two growth engines which we mentioned it to you. Number one, traditional generic established products like naproxen, Dexamethasone, Darunavir, where we have the 60%-70% market. That's where in some of the products the material price is the issue, market is not the issue. Some of our customers, where they have large volumes, stocks of dosage forms due to COVID, I think now they are destocking. Once that is over, the price pressure should be better here. Coming back to the other generic products where we were in 20%, 30% and we increased the capacity substantially to become number two or number one in the market. We have done the increase in capacity, qualifications are completed and commercial sales have started.
To see the full benefit, I think it will take at least four to eight quarters to take the full benefit of the capacity we created, because it will happen based on the qualification by the end customer.
Okay. Fine, sir. Second, sir, If I look at the amount of CapEx which we did and, over the last three years, I would presume that a lot of this capacity would still be at around 65%-70% kind of utilization vs last year's similar quarter when we said we were at 80%-85%. Would that be a right assumption? Is that a fixed cost of these capacity hitting our profitability, to some extent? If I look at year-on-year, our other expenses are significantly higher, even the sales is lower, in the same quarter last year. Is it the fixed cost which is there, which is not completely utilized because of lower capacity utilization?
I think it's not the lower utilization. I think we have mentioned that the capacity utilization is around 70-80% capacity utilization. You know, it's a combination of product mix and probably a mix where some of the products probably requiring more capacity to arrive at the stages, no more number of stages, some not requiring. You know, where we have allocated existing and created capacity to the COVID drug, we have to reallocate to the other products. That's where some of the probably bottleneck we faced during coming out of the COVID drug, selling enjoyment or with the reward or whatever we received. Also, when there's no demand, there's no big demand, there's no use of keeping the equipment idle. We started using them. That would take some time. It's a combination.
I think it's very difficult to pinpoint, but the capacity utilization is about 70-80%.
Okay. Last question on Contrast Media, sir. One of the questions and the whole hypothesis, which we mentioned are, right to win in this segment was that because the iodine prices have gone significantly up and our process was such that our recoveries in iodine were much better. As I understand on the non-gadolinium products, iodine cost is a significant part. Just if the iodine prices were to go down or come back to what it was in pre-COVID, would you say the willingness of the end customer to shift to a new supplier can go down or is it like? Are there any structural factors for one is the iodine prices remaining high and secondly, even the customer looking at more outsourcing rather than putting new capacities?
Your last point is a very valid point. That is what we would like to say, that the customer is looking at it. The growth is minimum of 10% and 10% of, let's say, 2,500-5,000 tons of each Contrast Media requiring 200-300 tons a year extra quantity. Now, either they have to install new capacity or they have to outsource. This is where we have an advantage of creating capacity at low cost. Already technologies are in place, that much plants are in place, and also there's an advantage of the iodine recovery bringing costs into compliance. I think it's an external advantage for us to be selected as a supplier than they do need the extra capacity.
one question-
The world is growing in Contrast Media.
Sure. One question, if you permit. On the gadolinium side, you had mentioned in last call that, we were, still, developing the product and all, because on our website it does not show in the listed products. Are we done with the validation batches? If you can just help us understand where are we in the development on the gadolinium side so as to participate in the total Contrast Media market space?
This is MRI Contrast Media. These are not related to the regular contrast. We developed, we have said we have developed process for some of them and we are developing process. Usually there are only two or three buyers. We don't need to make a whole list of compounds and publish in the whole world. If you, the two or three customers where, who are in the gadolinium compound, we are in touch with them. We are in discussions with them.
Okay, fine. Fine. Thanks. I'll come back to the queue.
Thank you. Ladies and gentlemen, we request you to please restrict your questions to two per participant. For follow-up questions, you may please rejoin the queue. The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Thank you, Sir, to provide me an opportunity. Sir, as you mentioned in the initial remarks, can we expect a revenue for Contrast Media in first quarter? That is my first question. Second, Sir, we have taken the name of Generic API like gabapentin and naproxen. How was the volume uptake in last quarter and what kind of volume uptake we are looking in this quarter?
I think the generic products like gabapentin, it is consistent. There are no issues up and down. It's only a price variation. The market is still continuing the same. What's your other question, please?
Contrast Media agent that contracting already started. Can we expect a revenue in this quarter, Q1?
We don't want to say Q1, Q2, Q3 or next year. I think it is they have invested in us with tech transfer and everything, and then validations are completed. Commercial ramp up is already in progress. I think I would leave it to you.
Thank you, sir. Thank you.
Thank you. The next question is from the line of Nirali Gopani from Unique Asset Management . Please go ahead.
Hi, sir. Thanks for the opportunity. My question is on the EBITDA margin. Sorry to go back to that point. When we in the starting of the year, I think our Q1 call also you were very sure that FY 2023, 40% margin is sustainable. What I want to understand is that what did happen in the last six months which was not expected by you also, because we went back to a margin which we have not seen in the last 10 years. Sorry, sir. Yeah.
I don't think, I said unexpected. There is nothing unexpected that happened. There's no one-time events that happened. It is in the course of business, the moving forward COVID three years to closing down and again, people getting into the back to normal business and pharma business getting into instead of concentrating only on COVID and COVID drugs into the general. That is what happened. People who had huge stocks, destocking them, price pressures, raw materials where we produced at higher prices to be until they get stuck out and be replaced with new, the materials that come with lower prices now. That is the issue. There's nothing like unprecedented. Nothing has happened.
Right. Just because we as investors would have expected that, you know, if you could have revised your guidance or just guided us, then this would not been have a shocker like it is today. That's the only reason that I got back to this point. Thank you, sir.
Nobody thought that the COVID go away just like that. We had plans of continuing production and we had plans of the B ig Pharmas or whoever involved also had. We had even additional opportunities into new COVID drugs. All of a sudden the COVID disappeared. I think it happened within I would reasonably, I would say three to four months, all this changed.
Mm-hmm. No, that's it from my side. Thank you, sir.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Mr. Prakash Agarwal, the line for you has been unmuted. You may proceed with your question.
Yeah. Hi. Am I audible now?
Yes, you are.
Yeah. Thanks for the opportunity again. I had a clarification actually on the Kakinada plant. This is the same plant which had approval issues. Now that, INR 1,000 crore budget is moved to INR 1,500 crore and phase one construction is on fast track. Is the understanding correct?
The understanding, yes. What is correct is the investment of INR 1,200 crores-INR 1,500 crores is correct. The INR 1,000 crores was originally planned five years ago.
Mm-hmm.
The products planned were also different at that time. With the current scenario where we are in, now the planning is of product mix is different and the designs are different. That's how it's about, yeah, in the phase I, INR 1,200 crore-INR 1,500 crore is planned and it is going on fast track.
Okay. Okay. Understood. The construction you said is on fast track and you expect a commercialization in next two, three years, like fiscal 2027, 2028 or?
Not, three years. I said by end of 2024 financial year.
Okay. Okay. It will start revenue generating from 2025, 2026.
Yes.
Okay. Any other facilities, sir, where we are investing for future growth apart from this major one?
We are in discussions with several Big Pharmas for several products. I think, we'll take decisions as we'll have number of opportunities to add capacities in at least the Unit-3 and Unit- 1. Let's wait for the next quarter to come out with that investment.
Okay. Perfect. Great. Thank you and all the best.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Satish Choudhury for closing comments. Over to you, sir.
Thank you all for joining us today for the earnings call of Divi's Laboratories Limited. In case you need any further clarification, please reach out to our investor relations. Thank you.
Thank you. On behalf of Divi's Laboratories Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.