Ladies and gentlemen, good day, welcome to the earnings conference call of Divi's Laboratories Limited for Q1 FY 2027. As a reminder, all participant lines will be in the listen-only mode, there will be 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, 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 Divi's Laboratories Limited for the first quarter of FY 2027. From Divi's Lab, we have with us today Dr. Kiran S. Divi, Whole-Time Director and CEO; Ms. Nilima Prasad Divi, Whole-Time Director, Commercial. Mr. Venkatesa Perumallu Pasumarthy, Chief Financial Officer. During the day, our board has approved unaudited financial results for the quarter-ended June 30, 2026, we have released the same to the stock exchanges, as well as updated in our website. Please note that this conference call is being recorded, a transcript of the same will be made available on the website of the company.
Please also note that the audio of the con call is the copyright material of Divi's Laboratories Limited cannot be copied, rebroadcasted, or attributed in press or media without the specific and written consent. Let me draw your attention to the fact that on this call, our discussions will include certain forward-looking statements, which are predictions, projections, or other estimates about future events. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Divi's Lab or its officials does not undertake any obligation to publicly update any forward-looking statement, whether as a result of future events or otherwise. I hand over the conference to Dr. Kiran Divi for opening remarks. Over to you, sir.
Good afternoon, everyone, welcome to Divi's Laboratories earnings call for the first quarter of the financial year 2026-2027. Thank you for joining us today. I will begin with an update on the business the key operational developments during the quarter. Our focus continues to be on execution, manufacturing reliability, disciplined capital deployment, strengthening the capabilities required to support long-term customer programs. Beginning with our generic business, volumes remained stable during the quarter while pricing continued to reflect competitive market conditions across products and geographies. Overall, the business remained resilient based on our ability to manufacture certain key starting materials and intermediates in-house, which continues to strengthen our supply assurance and operational efficiency. This year also marks 20 years of Divi's in the nutraceutical segment.
A journey that began with just two products has grown into a portfolio of over 100 offerings across human health, animal health, and dietary supplements in multiple forms today. As we look ahead, we are actively expanding in both capabilities and capacities to meet the demands of a rapidly evolving global market. Within custom synthesis, projects actively continued across all diverse portfolio of customer programs covering multiple therapeutic areas and stages of development. We are supporting customers across clinical development, validations, and commercial supply preparations with manufacturing activities aligned to individual regulatory and filing requirements. Likewise, the three major CapEx programs are nearing completion and validations are going on. As our projects progress, we remain focused on timely execution while continuing to build the infrastructure and technical capabilities required to support future commercial requirements. Peptides remain a strategic area of investment for the company.
Customer programs continued to progress across multiple stages of development during the quarter. While qualification and validation activities for several peptide fragments are expected to advance over the coming quarters, alongside capacity expansion in both solid-phase and liquid-phase peptide synthesis, we continue to strengthen the process development, analytical, and manufacturing capabilities required for increasingly complex peptide chemistries. Our objective is to establish a scalable and reliable manufacturing platform capable of supporting a broad range of customer requirements while maintaining the highest standard of quality, compliance, and operational excellence. On the manufacturing front, Unit 3 continues to assume a large role within our production network. The facility is supporting our backward integration strategy through selected free chemistry operations while enabling the phase transfer of manufacturing activities from our existing facilities.
This enhances supply assurance for critical intermediaries, improving network flexibility, and supports more efficient capacity utilization across our manufacturing operations. The transfer program continues to be executed in line with qualification timelines, customer commitments, product demand, and overall manufacturing planning. Technology development also remained an important area of execution during the quarter. Progress continued across initiatives involving continuous-flow chemistry, biocatalysis, and advanced automation within the manufacturing operations. These technologies are contributing to improved process safety, enhanced product producibility, reduced process variability, and more sustainable manufacturing routes for complex chemistries. We also continue to implement process intensification initiatives across selected products to improve productivity and support efficient commercial-scale manufacturing. Across our manufacturing network, ongoing investments in green chemistry, energy efficiency, and continued process improvement remain an integral part of our long-term operational strategy.
Collectively, these initiatives strengthen our technical capabilities and enhance our ability to develop and deliver increasingly complex projects with consistency and reliability. Beyond our business operations, we remain committed to create long-term social value through focused community development activities. During the year 2026, our CSR programs reached more than 1.8 million beneficiaries across the states of Andhra Pradesh and Telangana through initiatives in healthcare, education, livelihood development, and community welfare. These programs remain an integral part of our long-term approach to be a responsible and sustainable growth. Thank you. I will now hand over the call to Ms. Nilima Divi, who will present the operational and financial highlights of the quarter.
Good afternoon, everyone. Welcome to Divi’s Laboratories earnings call for the first quarter, FY 2026-2027. Thank you for joining us today and for your continued confidence in the company. Before reviewing the financial performance of the quarter, I would like to provide an update on the operating environment and measures we have taken to maintain supply continuity, execution discipline, and operational reliability across our business. As discussed during our previous earnings call, the external operating environment remained challenging during the quarter, particularly across global trade routes and sourcing channels linked to West Asia. Raw material availability remained largely stable, although input cost trends continue to vary across categories. While prices of certain raw materials moderated during the quarter, solvent costs remained elevated for a significant part of the period. We continue to engage closely with the customers to evaluate commercially appropriate mechanisms to mitigate these costs wherever feasible.
At the same time, the evolving geopolitical situation in West Asia has introduced additional uncertainty into global supply chains. Accordingly, we continue to monitor developments closely and calibrate our procurement strategies, sourcing plans, and inventory positioning in line with changing market conditions. Maintaining supply continuity remains one of our key operational priorities. During the quarter, we continued to maintain strategic inventory buffers where appropriate to improve material availability and mitigate the risk of supply disruption. Our procurement, manufacturing, and logistics teams remained closely integrated, particularly for time-sensitive materials such as solvents, where storage flexibility is inherently limited. Material availability continues to be reviewed at frequent intervals, with procurement decisions aligned to production schedules, customer commitments, and lead time assessments. We also maintained regular engagement with customers to ensure production planning and delivery schedules remain well coordinated as market conditions evolved.
The efforts made over the past several years to strengthen procurement resilience, diversify our global supplier base, and expand domestic sourcing capabilities have continued to support manufacturing continuity across our network. These initiatives, together with our backward integration programs, have enhanced supply assurance for several critical raw materials and intermediates while reducing dependence on individual sourcing channels. This integrated approach continues to strengthen the resilience of our manufacturing operations and supports our ability to consistently meet customer commitments. Global logistics conditions also remained challenging throughout the quarter. Freight rates across both ocean and air transportation remained elevated, while the availability of containers and ISO tanks continued to require careful planning and coordination. International supply chains experienced congestion at several ports, tighter vessel allocations, cargo rollover, blank sailing, and extended transit times, all of which increased operational complexities across export logistics.
I will now take you through the company's financial performance for the quarter ended June 30, 2026. For the first quarter of FY 2026-2027, the company reported a consolidated total income of INR 3,144 crores compared to INR 2,529 crores in the corresponding quarter of previous financial year. Profit before tax increased to INR 1,180 crores compared to INR 733 crores in the corresponding quarter of last year.
While profit after tax stood at INR 902 crores, compared with INR 545 crores in the same period of the previous year. On a standalone basis, the total income of the quarter was INR 3,037 crores, compared with INR 2,476 crores in the corresponding quarter of previous financial year. Profit before tax increased to INR 1,165 crores from INR 747 crores, while profit after tax increased to INR 895 crores from INR 557 crores. On a constant currency basis, the standalone revenue recorded a growth of 10% during the quarter. Exports continued to account for approximately 90% of the standalone revenue. Europe and North America accounted for 75% of our exports. The business mix for the quarter reflected custom synthesis contributing 60% of the revenue and generics accounting for 40%, respectively.
Net material consumption for the quarter was 31.2% of the revenue from operations on a standalone basis, reflecting the continued benefits of our integrated manufacturing model and product mix. During the quarter, the Forex movements resulted in a net Forex loss of INR 7 crores compared with a net gain of INR 39 crores in the corresponding quarter of the previous financial year. Our global nutraceutical business reported a revenue of INR 298 crores, compared with INR 250 crores in the corresponding quarter of last year.
During the quarter, the company capitalized assets amounting to INR 451 crores, while capital work in progress stood at INR 2,034 crores as of June 30th, 2026, reflecting the continuous progress of our ongoing expansion projects. As of the end of the quarter, cash and cash equivalents stood at INR 3,611 crores. Trade receivables were INR 3,056 crores, and inventories stood at INR 4,413 crores. Thank you.
Thank you, madam. With this, we would request the moderator to open the line for Q&A.
Thank you, sir. Ladies and gentlemen, we will now begin with 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 question queue assembles. Our first question comes from the line of Kunal Dhamesha with Macquarie. Please go ahead.
Hi. Thank you for the opportunity and congratulations on a very good set of numbers. With the first one on the significant uptick in the custom synthesis business, I believe that the initial commentary alluded that it still doesn't have a component coming from the dedicated CapEx project. Is that the correct understanding?
It is hard to define that because like I said, we are undergoing validation of some of the CapEx projects, so a certain amount of product has also been shipped to the customer.
Okay.
There are multiple projects in line at this point. Yes.
Okay. Just from an understanding perspective, sir, between the, let's say, validation quantity to the CapEx that we have done, what is the usual ramp-up in terms of the quantities we can see?
Once the validations are done, we will have to send the material to our customers where they have to do their own further qualification, get it into their formulations. The different agencies have to approve. Only after that, we would then start commercial quantities. It's difficult for us to mention the quantities or the amounts because we are bound by CDMOs at this point.
Sir, anything from history, let's say, can you share that from whatever validation quantity is X, commercial quantities are generally in this range?
Could you repeat the question again, please?
Yes. From the history, can you share some broader range as to, let's say, if you sent X quantity for validation, then the commercial quantity when the project ramps up are in the range of, let's say, 5X to 10X or 5X to 15X? Just your historical experience.
Okay. To answer that, it depends on the product that we're manufacturing. Some products, the annual demand is not more than 1,000 kgs. Some products we manufacture are 5,000 to 6,000 tons.
It's very difficult for me to answer this question. It totally depends on the product. Some products go at microgram dosing for the end patient population. It's a very broad statement you have asked, and I cannot.
Generalize
generalize this statement.
Sir, we have dedicated CapEx, right? We would know what's the total quantity we can produce to that extent.
Can you repeat that again, please?
For the dedicated CapEx projects, we know what capacities we have put up, right? Can you not provide some range as to what's the maximum capacity you can reach within those dedicated projects from what you have supplied to, let's say, validation stages?
Like I said in my first statement, we are bound by CDMOs on the quantities, on how much we'll be supplying, the product name, and everything. I wish to share more, but I'm bound by CDMOs not to share. All I can say is the validations have been completed, and we would be going commercial as and when the qualifications with the agencies are completed. The quantities, how much we have order book value, other topics, I'm not at the liberty to discuss.
Sure, sir. Second question is on the peptide modality, and you also talked in your initial remarks. When you consider your backward integration into peptide building blocks, amino acids, your years of experience, and the capacities that you have put up till now. If you consider all these factors and then look at the overall global peptide landscape, and then the number of players that are there, which most of us are aware, how many global CDMOs do you think can actually compete with all the advantages you have with you in terms of cost and supply reliability over the next three to four years?
I cannot talk about other manufacturers. It's not right. What I can talk about is Divi's is in a unique situation because I think we are the only ones who start from basic raw materials, build our own peptide building blocks. Okay. We have protected amino acids. We do dipeptide, tripeptides. We have gone into fragments. Okay. We have a complete chain of backward integration, which gives us a much more better opportunity compared to others. I can only talk about why Divi's is different. It's not fair of me to talk about how I will be more competitive than others. We are seeing amazing opportunities in the fragment segment and several opportunities. A lot of them are in pipeline. Some of them are in clinical phases. Some are going through validations right now.
As we speak, there are good opportunities in this line. That's why in my speech I mentioned we're again expanding our capacity by acquiring a few more 3,000-liter SPPSs.
Sure. Sir, lastly, if I may-
Thank you, Kunal. I'm sorry to interrupt you may please rejoin the queue for more questions. We have a lot of participants. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants, we request you to kindly limit your question to two questions only per participant. If you have a follow-up question, please rejoin the queue. Our first question comes from the line of Surya Narayan Patra with PhillipCapital. Please go ahead, sir.
Thanks for the opportunity, sir, and congrats for the great set of numbers. My first question is about the dedicated project again. Before we start commercial supply of this anytime in the later part of the current financial year, what are the key milestones that we should be seeing, sir? Whether any regulatory approval would be a kind of key monitorable here, or being these are intermediate FDA inspection and clearance, that would not be a required aspect here.
All I can say is I'm a part of the innovator CMC filing. I do not know. It will definitely require regulatory clearances. It's not a raw material or a basic material. Will FDA come for an inspection? Will FDA not come for an inspection? Will the agency agree and take the file in and say, "You can start buying from Divi’s"? I cannot answer for the agency. What I can say is we are completely ready for all regulatory submissions. We are ready for inspection anytime if there is an inspection. As the validations go through, all the data goes through, once the customer files, we'll have more clarity on an assumption of timeline.
Sure, sir. My second question is about the kind of a margin trajectory that we might see going ahead. In the opening remark, as ma'am indicated, that the market environment remaining difficult only in terms of sourcing raw material and energy procuring, trade challenges and all that. Thanks to the kind of INR depreciation, what we have seen significant this quarter, we have surprised significantly in terms of the margin front. Given this tailwind that we have already witnessed, so can you talk something about your margin trajectory? If not on the number front, at least qualitatively going ahead in the current financial year.
Currently, I would say that we did have quite a bit of increase in our raw material costs on various fronts. Mainly we saw it on the solvent side, which we never saw before.
Got it.
Few of the materials which are sourced, which are dependent on those kind of solvents as well. Compared to Q4, Q1 did have a Forex loss as well. If I have to say margin-wise, as we always historically said, let's not look at it on an individual quarter basis, rather we look at it on a year basis. Where sometimes there's a lumpiness in one quarter and there is not so much of a custom synthesis business, but more of a generic business in another quarter. Considering this quarter, we did have more of custom synthesis, which is 60%. We do see the margins slightly higher than the previous quarter. Again, as we always said, there is lumpiness. We always look at year on year basis rather than just a quarter.
Sure, ma'am. Just one aspect from my last point here I wanted to check. About the generic portfolio, we have been talking about entering into the new product, post-patent expiry opportunities. Anything that you would have added recently into our portfolio, if you can talk something about either number of product or the name of any specific that you would have recently entered into. Anything on that front would be helpful, sir.
In the last few years, as we have been validating, then we have filed about 4 DMFs so far with various customers. These are right now, we have supplied validation quantities to them, and they're undergoing qualifications as we speak. One of them actually is trying to look at having exclusivity with us long-term. Right now, that negotiation is going on. Other than that, products like, I could mention one or two like Viverac, racetam we have. We have ticagrelor, which we have filed. Multiple customers are qualifying us as we speak. Once the qualification is done, we are expecting the next three to six months, really commercial volumes will move out.
Oh, sure. Great, sir. Thank you. Wish you all the best.
Thank you. Our next question come from the line of Damayanti Kerai with HSBC Bank. Please go ahead.
Hi. Thank you for the opportunity. My question is actually on your costs, specifically on the change in inventory. Where for the June quarter, the number which we are seeing is substantially larger than what we saw in the previous quarter, as well as for the full year of March. When we look at number change in inventory is around INR 500 crore, compared to, say, INR 50 crore-INR 200 crore kind of number, which we saw for the previous period. Can you help us understand what has basically led to this large swing and whether we see any reversal or normalization in coming quarters? Because I understand this is the major factor which led to substantial difference at the gross profit levels.
Hello? Yes. The increase in the stock is mainly, I would say, from two points. One, as you are aware, we in the last meeting as well have mentioned that we are stocking the material to make sure that we wouldn't have any production stoppage or a production loss. We are currently stocking it on a three-monthly basis, like any given point of day for the next three months, are we secure for our production. These we are securing at a higher cost to make sure there is no production stoppage and there is no shipments that are delayed to our customers. Secondly, as Kiran has mentioned, some of our projects, new CapEx projects, have gone into validation batches, and even those materials are being reflected in this. It's a combination of both that you have seen the increase in the stocks.
Sure, ma'am, that's helpful. To secure your supplies, as you mentioned, you are going on a three-month rolling forward basis. Till the time uncertainty continues in the broader macro market, similar strategy will continue, right? You will stock up this three-month rolling basis to secure your supplies. That should be the ongoing trend.
That's something that we have consciously taken a decision that we would be, I think around March is the time when we decided we would be doing the rolling three months. We would secure the material, and that's why we never had a production loss or a shipment stoppage in the last few months.
Okay, that's helpful. My last question is on your statement on importance of unit three in your entire supply chain. As we discussed previously also, should we assume the key role which unit three will play is to free up capacity for unit one and unit two by helping you more on the KSM and intermediate part, and we will unlikely see any commercial supply till the time it's approved by key regulators. Will that be the case?
Kakinada right now is playing a key role by doing our backward integrated work because we have several projects online, either with innovators or in-house generic molecules, where we need additional capacity. Quickly to enhance and utilize existing regulatory approved plants, we are moving it, a certain amount of pre-chemistry works, to Kakinada. The eventual long-term plan is to qualify Kakinada with all regulatory clearances and start qualifying that plant too. Every regulatory clearance also takes time. Even after you validate a certain new project, FDA will take its own time, one or two years, since it's a new place, and then they will qualify it. In the meantime, we are filling the plant with pre-chemistry products.
Sir, what is the utilization level at your unit one and unit two plants?
Okay.
Around 85%, I would say, across all the three units.
Across three units. Okay. Thank you. I'll get back in touch. All the best.
Thank you. Reminder to all the participants, kindly restrict the question to two questions only per participant. Next question come from the line of Shyam Srinivasan with Goldman Sachs. Please go ahead.
Yeah, good afternoon. Thank you for taking my question. I don't think in the call out you had given the Nutraceutical absolute number. We typically give that. Can you call that out, please?
Okay.
It is INR 298 crores this quarter.
About INR 300 crores. It was INR 250 crores last year same time, and maybe INR 240 crores Q4.
Yes, that is right.
When I then back out the generic business, we still have probably single-digit kind of a growth or maybe flattish growth. When I look at the industry data, ma'am, I'm now starting to see, at least in the month of June, pricing for generics, API exports overall, I'm talking about, is starting to see positive inflection, right? It's now maybe seven or eight kind of a growth. I'm doing a very rudimentary way, as you can imagine, what is available. Are you seeing any signs that generic pricing is Maybe one month is not the right extrapolation means to do, but are you seeing any signs that we are at the end of a long generic pricing pressure cycle? Even from a China perspective, are you seeing some of your
Coming to the generic pricing, right? You have to understand two things. One, there is a substantial increase in raw material cost itself. I mean, their solvents have become almost double or triple the price. Certain solvent-based raw materials have increased substantially because of the issue in the Middle East. Because of this, the direct pass on is also being shared to the end customers by most of the generic houses. This is the increase you're seeing in the pricing factor that's going on. Even we have increased our price slightly where and ever possible with our customers, because otherwise the products become unviable to even produce. Whatever you're seeing right now is a market correction based on the raw material prices that have taken a substantial hit. It's not based on the markets have corrected and the pricing pressure has gone down.
Got it. Kiran, any quantification of what is the solvent-led pricing change or adjustments that we have taken?
That would be very difficult, right? We manufacture close to 60 products now. I cannot generalize that statement. Usually, our calculations are product to product basis because every product uses a different solvent. Some are water-based, some are heavily solvent-based. If you take a peptide, it's almost like you use about 2,000 liters for one kilo. It's hard for me to answer that question.
No problem. Thank you. Just on the second question on custom synthesis. Strong growth this quarter, 60% of total revenue. How should we look at the remainder of the year? Is there an element of lumpiness in Q1 that you would kind of ask us to be less optimistic about and talk about full year where, if I remember in end of Quarter four, we had given like a double digit, maybe I'm extrapolating, 10% $ revenue growth for us. Do you think there are upside to that following how Q1 has panned out?
I would like to stick to my statement saying that we will show double-digit growth no matter what. Lumpiness, I cannot. See, everything depends on after these validations are done, how the regulatory approvals will take place. Will it go really fast? Whether the agencies will fast-track these drugs and the approval process. There are a lot of ifs in this situation, right? It's hard for me to say will it be 60/40 in the coming months too? Will it be 50/50? I would like a healthy mix always.
for now, I would say that we would assure a double-digit growth for sure.
Got it. Yeah. Thank you. All the best.
Thank you. Our next question comes from the line of Tushar Manudhane with Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. Congrats on the good numbers. Just on these new projects which have gone to validation, are there any further validation batches which are going to come in the subsequent, like in FY 2027 quarters? We are largely going to supplying these things.
We have, like I explained, apart from these three projects, we have several other projects which are in different stages of our pipeline. Either they're in clinical studies at our customers, they're producing small volumes. Some of them are on pre-validation. Some of them are undergoing validations. They may not require large investments. We may also use our existing facilities we have. We do have several projects which are coming up in the next quarters, which will require validations as we go forward.
If I have to quantify, without going into project-specific detail, the revenues of those validation batches, are they sort of in size similar to what you would have done in Q1 FY 2027? Would that be able to-
Could you repeat your question? It's not clear, please.
I'm asking the size of the revenue which these validation batches have generated in non-Q FY 2027, the subsequent projects, at least in the near term, would that be of similar size?
See, it's difficult to say that because price is different for each product, and it's not like one size fits all. It differs for every product, different prices, different costing, different, what do you say, chemistry capabilities that would require. I would say overall, as an organization, we always look at a double-digit growth. That's how our revenue model is being built. Healthily, we would want a good product mix wherein we don't have heaviness of one product or one customer or one supply chain. That's where we are at. We would say, if you want to look at a revenue projection, we are looking at double-digit growth.
Got it, ma'am. Secondly, these three major CapEx, could you just sort of refresh in terms of the total amount that you have spent on the CapEx?
Sir, your voice is not very clear.
I'm asking three major projects, three major CapEx, which are towards completion. How much overall you would have spent on this? Hello? Am I audible?
Yes. Just a second, please. You can say we are almost there, around 70%, here and there, depending on which project it is.
I f you could, please. The 70% resembles to what number in absolute?
Thank you.
That's about, I would say, the one that we declared to the stock market earlier was the three projects together about, if I remember correctly, INR 2,000 crores. I would say 70% of that has been capitalized so far.
Thank you. Our next question comes from the line of Vivek Agrawal from Citigroup. Please go ahead.
Yeah, thank you. Thanks for taking this question. In this quarter, have you made any commercial quantities, supply of commercial quantities of any GLP-1 program? Is this just a pickup in the existing small molecule or any new small molecule products where commercial supplies have begun? Just want to understand what has driven the growth in the custom synthesis business.
See, I cannot answer that question. If you ask me about GLP-1s or small molecules, I can just tell you that we have gone through validations of the three large projects we have done, and several other projects are on the pipeline. Right now, peptide is one of our key portfolio that we are growing strongly. We have several fragments which have been validated, supplied, and also several fragments are in the line of being validated. We are also expanding our capacity by installing multiple 3,000-liter SPPs because we see a lot of future opportunity.
Understood, sir. In peptides, again, as you have highlighted that you are installing multiple 3,000-liter SPP plans and in one of the previous calls you stated that an ambition to be one of the largest players globally. What exactly does that signify? Are you aspiring to reach a scale comparable to the current largest player, or are you looking to establish yourself on, let's say, the other leading player, given that the largest incumbent is significantly bigger?
Based on our statement, what we said in the past, we stick by the statement saying that we want to be the largest integrated player. When we say integrated, we are backward integrated from basic raw materials, from making protected amino acids. We do our own resins. We manufacture our own Fmoc-Boc protected amino acids. Okay, thanks. With all these being manufactured in-house, we have an advantage on supply. Which gives us a stronger and faster approach to deliver product. This gives us a competitive edge along with others in the global market. I do not want to comment about why I'm different than others. That is not right. What we can say is we do not compete with our customers. We are actually playing a complementary role. That's why our customers like us.
Understood. Is it possible for you to quantify the overall capacity as it is that you about?
You weren't audible towards the end. Can you please repeat that question again?
No problem. Thank you. That's from my side.
Thank you. Our next question comes from the line of Neha from Bank of America. Please go ahead.
Yeah. Thanks for taking my question. On the solvent pricing that you mentioned, how are the trends right now that they softened after what we've seen in the first quarter levels? Are you seeing some normalization in cost as yet?
Well, as of now, I would say we see a few weeks of flat trend, and then again, suddenly we see a rise in it. It all depends on the situation that's happening in the Middle East. You are seeing the news every day, it's a different news, and the news does affect the supply, and it does affect the pricing. It is not something in our hands either because it comes in bulk and affects the entire country the same way.
Would it be fair to assume that we haven't seen any issues in being able to meet our supply commitments because of solvent not being available? Pricing is the only issue at the moment, right? That would be a fair assumption.
See, I wouldn't say that the supply is easily available every day. I would say.
Okay
that we were proactive in securing the material three months in advance, rather than procuring it just in time. The organization always went towards procuring material just in time and making sure there is no overstocking of material. In the last few months, we decided we would go for the three-month rolling inventory stocking just to make sure that suppose there is no shipment coming in, my production doesn't stop in the factory.
Understood. For unit 3, what is the utilization level it is at currently, in case we provide that detail?
I cannot comment unit by unit because each unit is quite different. I would say across all the 3 units, it is about 80%-85% utilization.
Last question, there is no inventory gains that we have in this quarter, right? There's no inventory gain that is recorded in the gross margin line.
Can you repeat that question again?
Is there any inventory gain that we have recorded in this quarter? Would there be any inventory gains at all in this quarter?
No, that's not the case.
All right. Thank you so much.
Thank you. Our next question comes from the line of Bino Pathiparampil with Elara Capital. Please go ahead.
Hi. Good afternoon. First of all, a question on margins. To an earlier question, you said that you look at margins on a year-over-year basis, not quarterly because of the lumpiness. Would you give some idea about how the full year margins can be compared to last year? Is it significantly better or so at the gross level and EBITDA level?
At gross level, I would say it was approximately 60% all over the year. Frankly speaking, if I'm looking at EBITDA margin, it would be similar as last year. As we normally say, the growth that we see will always be a double-digit growth, we would say, don't look at it at this quarter and say, "Oh, gross margin is so much." This is what it's going to be for the rest of the year. It's going to be close to 68% this quarter approximately, I would not look at that as something consistent throughout the year. I would say there would be lumpiness. Next quarter could be lower or higher. It's something that we need to wait and see.
Understood. If I got your answer correctly, this year's gross margin would be comparable or slightly better than last year?
To answer this question, everything depends on once we finish the validations, or the validations ongoing right now. If the approvals come faster, then things will change. The ratio will be higher in terms of CS because commercial volumes will start moving. All this is subjected to all regulatory approval. We would just like to stick to the double digits. As and when things change quarter on quarter, and the moment we know something is happening, we will definitely inform.
Okay. Thank you.
Thank you. Our next question comes from the line of Saurabhan with Devas Consultant. Please go ahead.
Good afternoon, sir. Thank you so much for taking my question. Sir, I'd like to know a few things about the contrast media. What is the status as on today, the iodine and gadolinium, and how we actually think this one for FY 2027. If you just put a few colors on it, so that would be too much helpful.
On the iodine-based contrast media, we are in the process of signing long-term contracts with two of the customers, and this will be for multiple years. Commercialization, for one of them, has already started. The second one, we will start in the next few months. This will be substantial quantities going forward. Coming to gadolinium, like I told you, we are still working on a clinical phase project. As and when the customer sees light with it, we will also start moving on that segment.
Okay. Sir, in our last con call, you have discussed that the gadolinium is in pre-commercial and qualification stage. As on today, in this quarter, can we say that pre-commercial is done and the qualification stage is completed? If you give us any guidelines so when this will be totally completed.
Just one second, please.
Sure.
See, what I've told you is the gadolinium compounds, we are still at the qualification stage-
Yeah
which is in phase II and phase III. That's what I said last time. I didn't say that we did validations. We are tagging along with the customer, and as and when they get approval for the next phase, we will again start seeing further. Right now, the project is on slow phase with them, on the gadolinium side. That's why they're waiting for regulatory approvals, and we are waiting. Once they get their approval, then it'll be clinical phase III.
Okay. Thank you so much, sir, for the clarifications. Wish you all the best for the full year as well. Thank you so much, sir.
Thank you. Our next question come from the line of Tirumala Reddy with Individual Investor. Please go ahead.
Hi. Am I audible?
Yes, you are.
Yes, sir, you are.
Yeah. Thank you for taking my question. Would it be possible to give a split between phase-wise molecules in the custom synthesis?
In the custom synthesis, we are bound by the confidentiality agreement, so we cannot talk about the quantities or the volumes or the value in the product.
No. I'm not asking about any quantities or volumes. It is just number of projects in each phase, like phase II, phase III, commercial. That's the breakup between-
We have-
different phase molecules.
Right now, we have several projects in the pipeline. That's all I can answer. Close to about 18-20 projects are actually commercialized or being commercialized as we speak. We have a healthy pipeline along with projects which are already in the portfolio.
Yeah. Thank you. My next question is about competitive landscape. In India, there are a lot of companies are starting CDMO segment, they're consolidating into CDMO. Do you see any margin pressure in CDMO segment going forward? Is there any indication from customers who are negotiating hard on pricing?
I cannot answer about how others are joining in, what I can say, Divi's has a track record. We are close to, I would say, 30-year-old company who has been in CDMO. We are one of the first CDMOs in India, we come with a lot of reputation. Customers trust us over a period of several deliverables we have given. Where we have been in the critical projects, where we have hand-held them, we have supported them. Customers value us for who we are, we come with a history. It's not about pricing; it's not the only thing innovators look at. They look at sustainability, they look at safety issues, they look at your EHS capabilities, your effluent management system, your employee healthcare system.
They look at all the aspects if they ever want to work with a particular customer, Divi's always meets all the requirements. That's why most of them come to us, they give us opportunities, they work with us.
Yeah. Thanks, again. That helps a lot and wish you all the best for the rest of the year.
Thank you. Our next question come from the line of Dhawal Khut with Jefferies. Please go ahead.
Hi, sir. I wanted to know what is the growth in our top five product, let's say in constant currency as it is in INR term for this quarter overall as a company.
We don't disclose product-wise information.
Okay. Secondly, whatever validation product that we have supplied in the first quarter, how many end market molecules do they belong to?
Lovely. Right now, like I explained, we have done validations for a few projects, and these have gone into the customer's filings. Okay. We are a part of their CMC; it goes into their filings. From there, by the time the regulatory bodies approve it, do they want an inspection, they're okay with the previous inspection data, they have to review, they will give us approval. It does go into the end patient population project. We have to wait and see when the commercialization will take place.
Yeah. What I'm trying to ask is, how many different molecules do they end up supporting? There might be three different fragments, they might be supporting just the same molecule. There could be two intermediates for the same small molecule project. How many different molecules are we supporting through these validation margins?
To answer your question. If your question is towards the three major projects where the CapEx is involved, it's three different products completely. Okay. We have other projects also in line, which we have validated. I'm not at the liberty to disclose too much, all I can say is we have several projects which are going through individual molecules, which will attend to the patient population as and when regulatory approvals take place.
Okay. Thank you.
Thank you. Our next question comes from the line of Rahul Jeewani from IIFL Securities Limited. Please go ahead.
Yeah. Thanks for taking my question. Coming back to this inventory change and margins again. Now, this quarter, the inventory change number was INR 500 crore and the usual quarterly run rate has been around, let's say, INR 50-INR 100 crore kind of a number. If we adjust for, let's say, this INR 300-INR 400 crore of incremental inventory change, then our gross margins this quarter would have been between 55%-58%, and our EBITDA margins would have been 28%-30%. Probably indicating the pressure from the solvent increases which you have seen. Is that the correct way to assess, let's say, the sustainability of margins, or would you want to qualify in any other way?
See, I would say this is also because of the increase in the production volume that the validation projects are going through. There is also not just the raw material. There is also work in progress. There is intermediates. There are finished products. It's a combination of all those that you are seeing here, along with the increase in the prices of the materials. When there is an increase in the price of the raw materials, the cost of your intermediates and your work in progress and your finished goods also would go up substantially. It's a combination of all those.
Okay. Let's say this INR 500 crore kind of an inventory change which we saw this quarter, what kind of a number, let's say, do you anticipate for the rest of fiscal 2027? Because last year this number was around INR 300 crore odd. Yeah, if you can just help in terms of that so that it becomes easier for us to model in terms of what the sustainable margins are for the company. Thank you.
It's a very difficult question to answer considering what's happening in the Middle East currently. If tomorrow everyone decides, okay, we are going to cease and we are not going to have a war at all, things would be again back to normal. The cost would go down, and the cost of inventory itself will go down, and our cost of our intermediates and work in progress would go down. Would our volumes go down? Yes, they would because we wouldn't be stocking so much as well. It all depends on the macroeconomic factors on which we don't have any control on.
Okay, sure. That's also nice. Thank you.
Thank you so much, sir. Ladies and gentlemen, due to the time constraint, that was the last question for today. I now hand the conference over to Mr. Satish Choudhury for closing comments. Thank you, and 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 so much, Satish. Ladies and gentlemen, on behalf of Divi’s Laboratories Limited, that concludes today's conference call. Thank you for joining us and you may now disconnect your lines.