Ladies and gentlemen, good day, and Welcome to the Earnings Conference Call of Divi's Laboratories Limited for Q2 and FY 24. 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 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 Q2 FY 24. From Divi's Lab, we have with us today Dr. Murali K. Divi, Managing Director, Ms. Nilima Prasad Divi, full-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 unaudited financial results for the quarter and half year ended September 30, 2023, and we have released the same to the stock exchanges, as well as updated the same in our website. Please note that this conference call is being recorded, and a transcript of the same will be made 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, rebroadcast 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 Labs or its officials does not undertake any obligation to publicly update any forward-looking statement, whether as a result of future events or otherwise. Now, I hand over the conference to Dr. Murali K. Divi, Managing Director, for opening remarks. Over to you, sir.
Good afternoon, ladies and gentlemen. Welcome to our second quarter financial year 2024 conference call. We are pleased to have all of you here, and I hope that you, along with your families and loved ones, are in good health. I shall commence the meeting with a review of our operational performance. Following our update to the previous quarter call, we anticipate numerous growth opportunities, particularly in contrast media, heartburn, and products with soon-to-expire patents. The demand for most of our established generic products remains stable despite continued pressure, pricing pressure. We're actively pursuing our comprehensive six-point strategy and expect our recently filed DMF to contribute to growth beyond financial year 2025. Notably, with expanded production capacity for small volume APIs and reduced lead times, our custom synthesis business continues to garner interest from several customers.
The large volume custom synthesis projects are now operating at full production capacity. On the CapEx front, our Unit Three, 200-acre, phase one construction project is progressing well, and this greenfield project shall free up facilities in Unit One and Two for new opportunities in custom synthesis and generic products. The plan is to start commencing production activities towards the end of Q1 2024-2025. Furthermore, we are pleased to report that Divi's has consistently operated responsibly, benefiting the communities surrounding our manufacturing units. Divi's has actively contributed to infrastructural upgrades, road development, and sanitation system renovations in villages across Telangana and Andhra Pradesh. As part of our CSR initiatives, we are committed to projects that focus on empowering children and women, promoting afforestation and supporting rural healthcare. Now, Ms. Nilima Divi will present you with financial highlights of the quarter. Thank you.
Good afternoon, ladies and gentlemen. I extend my warmest greetings to each one of you. I appreciate your presence as we gather today to discuss the financial outcomes for the second quarter of FY 23-24. I'm pleased to report that we have maintained uninterrupted customer shipments throughout the quarter, meeting customer deadlines efficiently. Notably, positive developments in sea and air freight persisted in global logistics during this period. Supply dynamics exhibit promising signs with a slight supply chain stability, resulting in improved pricing for starting materials. Nonetheless, we remain vigilant and adaptable in anticipation of potential consequences stemming from the ongoing geopolitical and economic fluctuations. Empowered by a robust supply base, optimized inventory management, and a keen understanding of global dynamics, we are well prepared to address any future challenges that may arise.
I will now provide an overview of the financial performance for the second quarter of the fiscal year 2023-24. We have achieved a consolidated total income of INR 1,995 crores for the current quarter, as against an income of INR 1,935 crores for the corresponding quarter last year, and our total income for the immediate previous quarter was INR 1,859 crores. Compared to FY 22-23 ex-COVID portfolio, there has been a double-digit growth for the quarter as well as half year. Material consumption for this quarter is higher at 42% due to change in product mix and pricing pressure on current portfolio. Inventory of about INR 20 crores has been written off during the quarter.
Profit before tax for the quarter amounted to INR 469 crore, and we have a profit after tax of INR 348 crore. Export for the quarter is about 87%. Export to Europe and US is about 68% for the quarter. Product mix for generics to custom synthesis is 60% and 40% respectively. We have Forex gain of INR 11 crore for the quarter, as against a gain of INR 31 crore in the corresponding quarter of last year. Our constant currency growth for the quarter has been negative at 1%. Our nutraceutical business amounted to INR 205 crore for the quarter.
For the current half year, our consolidated total income came to INR 3,854 crores, and we have a profit before tax of INR 961 crores, and a profit after tax of INR 704 crores. We have capitalized assets of INR 91 crores during the quarter and INR 124 crores for the half year. We have a capital work in progress of about INR 496 crores as at the end of the quarter, of which Kakinada project accounted to INR 263 crores. On this project, an amount of INR 76 crores was spent till last year. In addition, we also have advances of about INR 67 crores for the projects as of end September 2023.
As of 30th September 2023, we have cash on book of INR 3,604 crore, receivables INR 1,858 crore, and inventories INR 2,969 crore. Thank you.
Thank you, ma'am. With this, we would request the moderator to open the lines for Q&A.
Thank you, sir. 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. Participants, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The first question is from the line of Mr. Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead, sir.
Yeah, thanks for the opportunity. So just on, firstly, on this inventory write-off of INR 20 crore, so how different is this from a typical, over past many quarters?
These are some of the materials that were left over from the COVID drugs, so that's what they were, and we didn't then-
Understood. And secondly, when this Unit Three commercializes or production starts by 1Q FY 25, what kind of OpEx one should consider?
... Can you repeat the question again?
With respect to Unit Three, where the construction is currently ongoing, but is going, the production is expected to commence from first quarter FY 2025. So what kind of operational cost one should build in?
The operational expenses will definitely go up because we have created, the, we are creating a total setup of Unit Three with all infrastructure, so hence there will be increase in operational, expenditure. And also it will be directly proportional to volume of business we are going to load into that by quarter-on-quarter.
Okay. Sir, any broad, ballpark, number you would like to highlight?
Oh, we can't anticipate at this moment.
Okay, sir. Thank you. That's it from my side.
Thank you. The second question is from the line of Mr. Surya Patra from Phillip Capital. Please go ahead.
Yeah. Thank you for this opportunity, sir. So my first question is on the growth. The like-to-like growth, if we consider, adjusting for the, let's say, the Molnupiravir related base, then overall business looks a very strong growth, the way, madam has indicated in the opening remark. And also similarly, the custom synthesis growth also look on a like-to-like basis, really strong. So, what has driven this, custom synthesis growth, sir? This custom synthesis segment is not facing any kind of inventory rationalization or anything. Is that the kind of, understanding one should have? And, even if you have seen a very strong robust growth on a like-to-like basis in custom synthesis, what has driven? Whether your second contract that got started, if you can give some clarity about custom synthesis growth?
The custom synthesis growth is not just one company or one product, it is distributed over several therapeutic segments. I think we mentioned that one of the growth engine is the big custom synthesis projects from the Big Pharma, two of them. Now, both are geared up, and they are fully on production line, and you will see the additions in the next quarters. Now, on the second, I think there is both in custom synthesis, also our generics are on growth mode. We have seen after the COVID, many of the custom synthesis opportunities coming, as several of them were kept aside, looking only, focusing only for the last three, four years on COVID. Now, I think the COVID being under the table now, all projects have been resumed, and that's what you are seeing now, and I think you'll see in future.
Okay, sir. Sir, then a related one is that, although we have seen a kind of strong growth in the custom synthesis side, despite generics witnessing some moderation or muted growth due to possibly the price pressure, what you have indicated, as well as the inventory rationalization aspect might be continuing. But then sequentially, we have seen the gross margin has deteriorated, almost like 400-500 basis point, despite the strong performance at the custom synthesis side. Is it because of your the high cost inventory or raw material that you have been talking about, that is still hitting us, or it is the realization in the API side that really suffered? What could have contributed to the weakness in the gross margin, sir?
I think Nilima has mentioned the pricing pressure. Yes, there are pricing pressures in the generic, and there's no issue with the custom synthesis. And overall, probably some of the stage starts towards the end of consumption has already happened. All that happened, I think, together. So I think going forward, we should be doing better.
Okay, sir. Sir, just one last question from my side. Let's say in terms of the custom synthesis business, if I talk about a bit, the industry trend, what we are currently seeing that because of the funding, venture capital funding issues and all that, the small and mid-sized biotech companies, they are facing some challenge, and that is what is impacting the service provider, or CRO or CMO or CDMO players to some extent, and that is what we have witnessed for many global CDMO players also. But here, as we know that Divi's is largely known for in the CMO or CDMO, it is for the late-stage projects, and we have seen a very strong growth in the custom synthesis this quarter.
So, is it fair to believe that since we are associated with the late-stage projects, we have not seen any kind of industry challenges in terms of inventory or slower pickup by the customers and all that. Is that understanding correct, sir?
We are not working with, you know, that the startup companies and-
Correct.
Small companies needing funding from various institutions. We are working Big Pharmas, either for their pipeline or the pipeline they acquired from some of these small companies.
Yes.
We are not seeing any of that slowdown, we're seeing number of opportunities.
Okay. Okay. Sure, sir. Thank you. Wish you all the best.
Thank you. We request the participants to restrict their questions to two per participant. The next question is from the line of Mr. Shyam Srinivasan from Goldman Sachs. Please go ahead, sir.
Yeah, good afternoon, and thank you for taking my question. Just wanted some more clarity around the excluding COVID opportunity growth, which was being called out. So we have not called this number out in the past, so if you could help us with what those numbers roughly are. So when I do the math, using your 60/40 for this quarter, for custom, I arrive at a 765 odd crore number for quarter two. And I remember last quarter, last year, last quarter, it was around 800 crores. Right? So what is the base that we are talking about? Is it like a double-digit growth Y-o-Y? I know there is Q-o-Q growth on custom, but I'm unable to see the very strong growth. Maybe it's the base. I'm not adjusting correctly.
So if you could help me understand that, please. Thank you.
So, you can assume that, you know, the Molnupiravir sales could be around the number that you're mentioning, but we cannot because of the non-disclosure that we signed, we cannot disclose the actual value of the sales that we have done for that particular product.
No, no, that's-
What we can actually say is we did see a double-digit growth, year-on-year for the quarter as well as half year, excluding the COVID drug.
Nilima, ma'am, are you saying this for the custom only? This is total corporate, if you could clarify, please.
This is for the entire corporate. It's not just for the custom synthesis. It is custom synthesis plus generics, total sales together.
If you could just bifurcate that between generic and custom, any directional color, that will be helpful.
I would love to do that, but at this point in time, we are not, you know-
Okay.
We cannot say more than what I'm saying currently.
Let me impute, because we were at 48% custom at the half last year. We are at 40% now. So that would imply, let's assume, I don't know, 7-8% is molnupiravir. I'm just making it up. But that still wouldn't mean any Y-o-Y growth on custom. I'm just trying to... Am I directionally right?
Uh, probably.
Okay. Okay, so we have yet to see probably Y-o-Y growth on custom. Maybe it's coming ahead of us. Would that be-
Yes.
-a fair?
You'll be seeing more from the third quarter, the sales happening in a way where you will have the clarity.
Understood. That's very helpful, ma'am, for that. Just a second question, and I'll stop after that, is on the, pricing pressure that was mentioned in, in the generic API piece, right? I think despite that, on a, on a recently high base, I have like a INR 900 crore number for quarter two. We have done INR 940 crore, I'm excluding obviously nutraceuticals out of that. So INR 940 crore, 5% growth, despite pricing pressure. So what's... Can you help us understand the volume trends here, please? Thank you.
Can you just repeat your question again, please?
Yeah. Nilima, ma'am, I'm just wondering, we had a high base growth last year, same quarter. INR 900 crore was the number for generic API, excluding nutraceuticals. When I see that number today, based on your 60%, number, again, INR 940 crore is what I have. So we have grown 5% on generic API, despite the pricing pressure that you talked about. So is there very good volume trends we are seeing on generic API?
Yes, I would say we are seeing good volume trends in generic API, but yes, because of the pricing pressure, the revenue, which we would have, say, like for example, last year prices, if we would have had this year, the revenue would have been much better. But because of the various pricing pressures that the entire pharma industry is facing in the generic industry, the volume is there, it's just that the pricing is lower. So that's when you're seeing the revenue is moderately more than what it was last year.
Got it. Just squeezing one in, is that like double-digit volume growth and like mid-single digit price erosion? Would that be a way to disaggregate it?
Yeah, I would say so.
Okay. Thank you. Thank you, and all the best.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi, good afternoon, and thanks for the opportunity. So my first question is on contrast media opportunity. So you obviously talked about ramp-up, which is happening in your business. So can you elaborate bit like what is the progress in the iodine-based supply so far? And what is the progress on the gadolinium-based product development part? That's my first question.
... The iodine-based contrast media, we are doing well. We are already in the two products for the generic market, Iopamidol and Iohexol, they are growing well. And also, we're entering into the other iodine-based compounds. At least two of them, they are going to be doing very well. On the gadolinium, just we are in the final stages of completing our process, and once that is done, we need to get approval from the customers to go. That's where we are on the contrast medium.
So, for gadolinium-based, most likely towards end of this fiscal, you expect to start supplies and then, pickup will, maybe more in next fiscal year?
Probably it is more towards the next year than, because first the qualifications, the samples, that would take time. So we are looking more at the 2025.
Okay, got it. My second question is on generic pricing pressure, which we discussed earlier during the call. So, just want to understand, like in some of the newer launches, are you seeing more competition compared to what you had seen in the past? That's where we are seeing, like overall higher pricing pressure or something else is there. Like you said, volumes are going or demand is steady, et cetera. So is it mainly due to competition, you are seeing higher pricing pressure? And how do you see this trend ahead?
It is not in the newer generics where we introduced it recently. It is mainly in the, some of the large volume generics we were doing early, from long time. There was some price pressure in certain markets. I think we need to see in the next coming quarters, I think it should settle down. Now, when there is little price pressure, everybody would like to enter the market, get rid of their stock, and then the stock will deplete. Then everybody looks for a product which is not available. It happens.
Okay, so prices may be in like cyclical move, but on the newer launches, you said not much of pricing pressure. It may be more like-
Correct.
Yeah, okay. Okay, sir. Thank you. I'll get back in the queue.
Thank you. The next question is from the line of Mr. Ravi Purohit from Securities Investment Management Private Limited. Please go ahead, sir.
Yeah. Hi, good afternoon, sir. Thanks for the opportunity. Just couple of questions. Most of the other questions have been answered. One is, I think in the earlier calls, you mentioned about a couple of our projects going, you know, commercial in the custom synthesis side in Q1, Q2 of this year. So have they kind of gone into production mode or, we are still kind of, you know, waiting for that? And second question was on the peptide drugs, which I think we had briefly discussed in the last call as well, and you had said that we were doing basic amino acids, so any, any progress on that? Because that opportunity seems to become bigger and bigger as, you know, time passes by. Those are my two questions. Thank you.
Yeah, I think I did mention in the beginning of the call that the 2 big custom synthesis projects, they have gone on full scale production now. We reached that, which you will see in the coming quarters, the results of it. That's your first question. Second one, on the peptides, I think we are going to have excellent opportunity based on these GLP agonists, the glutides, the type 2 diabetes going towards the weight loss. All of them requiring large number of peptide building blocks, dipeptides, tripeptides. I think this is where we have done a lot of progress, and we will become one of the major suppliers very soon.
Okay. So how large is the opportunity size for us in terms of, you know, absolute scale of business? Because, like I think you had mentioned, we don't do the APIs, right? But we do the basic amino acid, and so is it like, in your assessment, is it like to be a substantial opportunity going forward? I mean, does it like add to one of those, I think we had been, like, talking about our growth engines. Like, does this kind of... The scale is as big as one of those growth engines, or is it more like a, you know, like a decent opportunity, not like a very large or a very significant one? Yeah.
First of all, I think outside China, there are not many companies who can supply these building blocks. We are not talking about amino acids. Everybody buys the amino acids for $3-$4 a kilo. But these are the peptide-protected amino acids with a lot of chemistry involved, and there are not many companies who can supply hundreds of tons. I think we are one of them, number one. The opportunity is like another growth engine, you are right. It's not a small opportunity. It can be even bigger than a single protein unit. So the arm, because you're, you don't, you're not talking about 1, 2, 3, 4, there are several products coming up in this segment of the GLP-1 agonists. So we see there are a lot of demand for our building blocks.
The building blocks, there is always can be a value addition by going forward integration into dipeptides, dipeptides up to at least four or five residues. That's where we see in the next two, three years, jumping with substantial added value. Yes, we may not go to the protein peptide, the 29 or 32 amino acid, the whole chain, but we can graduate to the major segment.
Okay. And just, just to clarify, sir, I think we had mentioned in the earlier call results, for these products, we don't need USFDA approval. So if our new capacities come on stream, we can actually start manufacturing some of these. Is that a correct assessment?
As long as they are key starting materials, yes, the quality, but the qualification is very, very tough. It's not that easy.
Right.
So it depends upon when, where they are adding. If you are, they are adding at the 31st, last amino acid, probably it needs USFDA inspection. But if you are talking about the very beginning of the chain, maybe not. So whether you are getting qualified for starting material, key starting material, advanced intermediate, or N minus one.
Okay. Okay, great. Thanks, Siddharth, and all the best.
Thank you. The next question is from the line of Ms. Charul Agrawal from Bank of America. Please go ahead.
Sir, thank you for taking my question. Continuing on the question from the previous participant regarding the peptide product, could you also provide some indicative timeline as to, by when can we see the monetization from these projects happening, and where do we lie in terms of the progress?
Ms. Charul, if you could speak a little bit louder and repeat your question, please?
Yes, am I audible now?
Yes, ma'am. Please go ahead.
So, sir, continuing on the lines of the previous question regarding the GLP-1 products, sir, could you give more, more color on the timelines that we can look for this product? Would it be, FY 26 opportunity, or would it come even later? And at what stage are we doing... Are we already sending exhibit batches to customer, or where do we lie in terms of progress over there?
I think you'll see some value towards the 25, and going forward, you'll see much bigger numbers.
Thank you, sir. That is helpful. That was my only question. Thank you.
Thank you. The next question is from the line of Nitya from Bernstein. Please go ahead.
Yeah, thank you. Another follow-up question on the GLP-1 peptide opportunity. If I look at either the commercial peptides or one that's in phase three, the two that are based on a synthetic process are Tirzepatide and Retatrutide. Tirzepatide, we understand that, there are CDMOs that have been disclosed as supporting Lilly, and they're setting up substantial capacities in the range of 32,000 liters. So the question is, what sort of capacities is Divi's invested in? Is this something that will be part of Kakinada as well? And if you can give us a little bit of color on what sort of capacities you're investing in for peptides.
Thank you for repeating the names of the products. Neither I'm allowed to say the name of the product, nor the name of the company, nor the name of the billion dollars products which use the CDMOs. I'm not allowed to talk about that, the names and the products. But what I can tell you is that they all need the building blocks, and outside China, there is no company that can supply at this moment hundred substantive dose. This is where we see a great opportunity. We started working from the beginning of this year. So once the approvals and qualifications complete, we see light towards the 2025 happening, and probably then on, very large volumes. It involves not just one step of amino acid conversion.
It involves coupling agents, actuating agents, building blocks with protection, and making from the very basic raw material. That is the most important thing. One can buy all of them and put together, then you are not cost competitive, and you can't control impurities, especially in products like that, doing by solid phase. They'll be ending up with several impurities if they don't control the starting materials or building blocks.
So, follow up on that, I fully appreciate that you already have the capabilities to make and you're commercializing coupling agents as well.
Mm-hmm.
But the question, my question was on your capacities to actually produce multiple fragments, which are chains of amino acids. Is there any color you can provide us on the capacities you're setting up?
The capacities we have already available, all the reagents will be produced in Kakinada or at our unit one and two, and all the building blocks, including the dipeptide peptides, can be produced in our existing facilities. We do not require any additional capacity.
Understood. Thank you so much.
Thank you. The next question is from the line of Mr. Anirudh Shetty from Solidarity Investment Managers. Please go ahead.
Hi. Thank you for the opportunity. I have just one question. In our contrast media, I just wanted to know, how backward integrated are we, you know, to what level?
We are the most backward integrated company. Number one, we make from iodine. Iodine is the basic starting material. We make from isophthalic acid. That is the basic petrochemical.
Got it. Thank you for answering the question.
Thank you. The next question is from the line of Mr. Nikhil from SiMPL. Please go ahead, sir.
Yeah. Hi, good afternoon. I hope I'm audible.
Yes.
Sir, you are audible.
Yeah. Just two questions. One is a clarification. Sir, on... You mentioned that most of the pricing pressure we are finding is on our existing, molecules, where we were always present. If you can just give some highlight that, is this pricing pressure led by new capacities or new players coming in, or is it still, inventory, destocking, which is, leading to the pricing pressure? And additionally, what we have seen is that, many of the solvent and, intermediate prices had been falling for last one year. And, most companies have talked about that prices are now stabilizing at the intermediate level, but still, for us, the prices are going down. So, how should we understand this?
It is not from any new players or new entrants. I think even in the existing players, maybe so getting some stock play, getting rid of the stock, there are price pressures for that. And I think I answered the same question earlier, saying that once the stocks are over, then people look, and there's no more stock available, the price will go up. We have seen this happening in the last, I think, 10 years, at least two, three cycles.
Okay.
But, for a stable player like this, like ours, it should not matter.
Okay.
We don't disappear when the price comes down, and we don't appear when the price increases by 20, 30%.
Okay. So it's only a matter of time by the, by when inventories settle down and things should improve for us?
That's what we are... That's what we think based on the experience of earlier cycling mechanism.
Okay. And just, last question. See, over last two years, we've been talking about Sartans as an opportunity, and, if we see, in most of our facilities, we have been making Sartans. Not exactly as a number, but if we consider the whole Sartan as a family, would it be now featuring it among the top seven or top 10 product segments for us? So generally, when we say top five products contribute 40%-45% of revenue, would you say Sartans would be now in the top 10 segments for us? Or just some clarity on how we have shaped up or scaled up that opportunity.
I think it will be in the top 10 are in the opportunity, yeah.
Oh. So existing revenue contribution, they would be among the top ten?
Yes.
Okay. Thanks a lot, sir. I'll come back.
Thank you. The next question is from the line of Mr. Surya Patra from Phillip Capital. Please go ahead, sir.
Thanks for, thanks for this opportunity again. So just, one, one from viewpoint that I wanted to have from you. See, in the recent quarter, we have seen, USFDA commissioner visiting your facility, and, subsequently, we have heard a few, positive statements by him about Indian industry and all that. So if you can just, comment your experience, of his visit and, and what would be the priority that we are currently looking for, and, how would that be helpful for our, progressive growth that we are having currently?
Yes, it was quite, quite an exciting moment when the USFDA commissioner visited our facilities along with twelve officials from the USFDA... and visiting our plants, touring in our plant and seeing the facilities in detail, all the departments, definitely gave him or gave the team a better picture about how the API industry, it, at what kind of magnitude and the quality systems exist. I think he was quite pleased. Now-
Okay.
I'm sure he has gone with a good feeling, but now we need to see. It doesn't mean that you'll be automatically approved or you'll never be inspected. I think the routine business is business. There will be USFDA inspections, and always inspection is, each inspection is different. But when we do our day-to-day productions in line with the full CGMP, I think, in the last 20-25 years, we have seen several inspections, and we have gone through without any issues. So it's a good opportunity for us. I think it's a good feeling. The world knows that he has visited us and carried some good impressions.
Okay. So sir, is it fair to believe that India, the way it has been talked about, is positioned currently as a partner of choice so far as, let's say, the supply chain for even innovative molecules are concerned for the global market? And truly, China plus one can play out in Indian pharma and more importantly, in the APIs and intermediate space, and possibly we are just on the inflection point. Is that understanding can be deduced from the experience, whatever that you would have had from him?
I think you are right. With all the large capacities available in India and the requirements being there in US and Europe, I think, it's fair to say that.
Sure, sir. Yeah. Thank you, sir. Wish you all the best.
Thank you. The next question is from the line of Ms. Nitya from Bernstein. Please go ahead, ma'am.
Hi, I just had a quick bookkeeping question. So when you, when you say custom synthesis, is that, are these only patent-protected products that you're working with Big Pharma, or would this include any product, generic product as well, that you would be selling to Big Pharma?
It's very difficult to say that. When we enter most of the products, we enter when they are under the still under patent, maybe just discovered or maybe just getting launched. And for a period of time, yes, they would go out of patent and some of the generic companies will enter. So we always are in the basket that some phase one, phase two, phase three compound, some launched compound, some patent just expired, but still we will be making post patent expiry. And sometimes it can be a generic compound from our own process, and also we will be following a process that the innovator wants for any particular reason.
Is it then fair to say that your custom synthesis to generic ratio is actually Big Pharma to non-Big Pharma ratio?
No, the custom synthesis and generic ratio is about. We like to maintain 50/50, but it changes 60/40, 40/60, year-on-year, which is not in our control.
No, sir. So just, let's say a Big Pharma company comes to you and asks you to sell Naproxen, which is one of your oldest generic products. Now, is that sale being accounted for in CS, or is it accounted for in generics?
It is a generic product. It is like they can shop from anywhere as long as it is USFDA inspected and after qualification. There's no difference in that. It's like it is generic. But if the Big Pharma comes, their own product just going out of patent, and they want us to produce as per their process, then it comes under, CSM.
Custom synthesis. Got it. So one of your peers also mentioned demand weakness in the segment because of inventory destocking and not... and in addition to pricing pressure. So are these two linked? Are these two separate? When do you see these getting sorted out in the future?
I think these are, cyclic in nature. Every three, four years, you will have people build inventory, cannot hold, or got, got to dispose them, then the pricing starts going down. They will deplete the stocks. These are not the very large players. These are mid to low. And then the demand remains same. It won't grow, but there's no product. Then the shortages happen, price goes up, then it settles down. These are the... We have seen these cycles. It works. One year it can be two or three A, B, C product. Next year it can be D, E, F product. So it does happen.
...In your experience of having seen these cycles, how long does such an inventory destocking phenomena last before demand picks up again?
Not more than 2 years.
Thank you so much.
Thank you. The next question is from the line of Ms. Charul Agarwal from Bank of America. Please go ahead, ma'am.
Thank you for taking my question. Sir, this quarter we also saw an increase in sales for the carotenoid products by around 15%, and given the carotenoids were already at 90%-95% capacity, would this be more price driven or is there something else that is going there?
Can you please repeat? I missed the first sentence.
Sir, I was asking that for the carotenoid segment, there was a decent 15% QOQ growth. So what was driving this growth? And given that the carotenoid segment is already operating at 90%-95% capacity, was it more of a pricing growth?
Do you mean carotenoids?
Yeah, the nutraceuticals.
The nutraceutical growth, I think 10%-15%, which has been happening, and there are not too many players in the product we are in. More so in the animal nutrition, the complex astaxanthin and compound, we are now getting to be... We are almost the major players now.
Okay. Thank you, sir. Sir, another question, we also saw a jump in our other expenses this quarter. What's more, to support R&D for the GLP-1 products or for the other elements? And, like, do you expect these costs to sustain?
Can you just repeat the question again? I'm sorry.
Yes. So we also saw some bit of a jump in the other expenses this quarter. So, could you please explain what drove the expenses, and, do we see these expenses as sustainable from here?
It is an increase in repairs and maintenance expenditure, mostly. And, it is because, you know, at unit one and unit two, we did a little bit of modernization, upgradation, so that is the reason.
Okay. Thank you.
Thank you. Participants who wish to ask a question may press star and one on their touchtone phone. The next question is from the line of Mr. Pogas, who is a retail investor. Please go ahead, sir.
Thanks for the opportunity, sir. My question, sir, is related to the contrast media division, related to the MRI, sir. Sir, I just want to know what is the market size, complete market size, and which geography are we targeting? That's my first question, sir.
The contrast media is about $5 billion, that is the market.
You're talking about the MRI or the contrast media?
The contrast media for MRI, sir, related to MRI.
Contrast media for the MRI is mainly the gadolinium compound.
Yeah, sir.
We are not targeting about any region. We only target the main innovator or innovator company.
Okay.
They will market them in India, U.S., Europe.
Okay, sir.
We are not involved in that.
Sure, sir. So the reason for that question is, the out of this whole $5.5 billion that we—you mentioned, sir, the contrast media, 70%-75% market share is with the top four. And one of our Indian player is saying they're claiming they hold a 70% market share in it. So what is the opportunity that Divi's, as a company, we are looking, sir? Is that... The statement that I'm making, is that correct, sir? Just correct me if I'm wrong, sir.
I think the $5 billion what I mentioned is for the iodine contrast media, iodine-based, whereas the MRI is gadolinium-based. That is different. So I was referring to the gadolinium compound, where the supplying to the innovator or the... Yes, you are right. There are only three or four companies worldwide. This contrast media, they do, and I'm not sure whether it's 70%, 80% market is with one company in India. I'm not sure about that.
Okay. So the claim is, the 70%-75% market share is with this top four companies. In that 70%-75%, the four companies, right? They're supplying for three companies, which is 70%-70%, they are supplying for it. Out of the 70%, they are supplying 70%. So and they are also claiming, sir, these people are not looking at an API level, they are looking at the intermediate level. So, those companies just want the intermediates, and they want to form the API on their own. So are we trying to do the API here, or like are we into the intermediates, sir? Because the names in our company and that companies are same, and I checked the product list. So just little got confused there, sir. Can you clear me there, sir?
In the contrast media, we make APIs, the Iohexol, and also we are, we make other contrast media for our, for the innovators. To do that, we also make our own starting materials, intermediates from iodine. I think, I hope I have given a clear picture.
I got it, sir. So we are saying we are doing API for some other companies who need for their API itself. Okay, I got that, sir. Thanks for the clarification, sir. All the best.
Thank you. Participants who wish to ask questions may press star and one on their touchtone phone. We will wait for the question queue to assemble. As there are no further questions, I would now like to hand the conference over to Mr. Satish Choudhury for closing comments.
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, sir. On behalf of Divi's Laboratories Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.