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Divi's Laboratories Ltd
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Ladies and gentlemen, good day, and welcome to the earnings conference call of Divi's Laboratories Limited for the Q1 of financial year 2021. [Operator Instructions] 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. I am Satish Choudhury, company Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to the earnings call of the company for the quarter ended 30 June 2020. From Divi's Labs, we have with us today Dr. Murali K. Divi, Managing Director; Ms. Nilima Motaparti, Whole-Time Director, Commercial; and Venkatesa Perumallu, General Manager, Finance and Accounts. During the day, our Board has approved the financial for the quarter, and we have released the same to stock exchanges as well as updated the same on our website. Please note that this conference call is being recorded and a transcript of the same will be available on the website of the company. Please also note that the audio of the conference call is the copyright material of Divi's Laboratories Limited and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company. Let me draw your attention that on this call, our discussions may include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectation of future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Divi's Labs or its officials do not undertake any obligation to publicly update any forward-looking statements, whether as a result of future events or otherwise. Now I hand over the conference to Dr. Murali K. Divi, Managing Director, for the opening remarks. Over to you. Thank you.
Good afternoon to all of you. I welcome you all for the earnings call of Divi's Laboratories. Hope you are all doing well. First let me update you on global scenario, on pharma and COVID-19 pandemic. COVID-19 has steadily impacted several industries, small, medium and large. Pharma industry as such is less impacted because of need for life-saving medicines. This also created responsibility to manufacturing new APIs for COVID as well as to develop new vaccines for COVID. World over, the pharmaceutical companies are busy in developing new [ clinical entity ] and vaccines for COVID-19. Divi's [indiscernible] API manufacturer quickly developed a process from indigenous raw material, for hydroxychloroquine and [indiscernible] because the blood used in COVID. And are geared up to supply large volume to prevent any shortages of these APIs used to treat COVID-19. Divi's also developed a process for 4 digital intermediates of remdesivir, which is also used as an injection in COVID patients and to supply quantities to prevent shortages. As a corporate under CSR, Divi's is introducing provisions for about 60,000 families, benefiting 160,000 people, around 98 villages near our factory. Divi's has taken sanitization program of 98 villages, benefiting 2,70,000 people. Divi's also supported 15,000 frontline warriors, benefiting police and health workers. Divi's employees supported migrant workers, benefiting 21,000 people. Divi's support for quarantine [indiscernible] and [indiscernible] by supplying the shipments required for the quarantine centers. Divi's also contributed INR 10 crores to local government to support initiatives of the government. I would like to say a few words on CapEx. We want to make Divi's -- Divi's has invented about 18 -- [ CapEx ] as part of the debottlenecking backward integration for [indiscernible] to minimize dependency for supply of raw materials from China, upgrading utilities and quality control infrastructure, setting up the most modern water -- wastewater treatment facility, building future community blocks with automation with maximum mechanization. Your part of the brownfield project already gone into operation. [indiscernible] and batches are completed, waiting for regulatory approval. For the rest of the CapEx, our contractors are experiencing delays due to shortages of technicians and also equipment vendors. Our engineering department is closely coordinating with contractors and vendors for the expeditious completion of the CapEx program. I'll now ask Nilima to brief on operations. Thank you.
Hello, everyone. This is Nilima, Director, Commercial. I welcome you to Divi's Laboratories Limited's earnings call to discuss the unaudited results for the first quarter ended 30 June 2020. Before we begin, I hope that everyone, along with your friends, families and colleagues, are safe during this COVID-19 pandemic. The COVID-19 pandemic has greatly complicated the outlook for global pharmaceutical industry. Fluctuations in cost and availability of raw material, supply chain costs and management have been a few threats posed by the pandemic to API industry precisely. We are closely monitoring the constantly changing situation relating to this pandemic and are optimistic in ensuring uninterrupted supplies of our APIs. Q1 resumed to witness a few challenges posed by COVID-19, especially after late March due to the national lockdown restrictions. However, Divi's has been able to sustain the impact posed on our operations and continues to operate at normal pace at both our manufacturing necessities by mid-March 2020 -- mid-April 2020. At Divi's, we remain committed to focus on health and well-being of our employees by closely monitoring the information provided by WHO, CDC and local governments and adapting to the safety plans that reflect the constantly changing guidelines. We are also engaging with the heads of the state and local governments to support various activities taken up to ensure community safety. I would also like to briefly touch upon how we handled business during this unprecedented COVID-19 pandemic. The company has put in place several measures in order to fortify our business continuity by ensuring timely procurement of raw materials, strategic implementation of production schedules and swiftly organizing the shipment of finished products to our customers. We have been constantly communicating and updating our customers about the supply schedule and ensuring commitments with minimal impact. We have been able to move goods to our manufacturing sites from both the domestic and import sources by constantly communicating with our associated vendors to ensure prompt supply, factoring minimal impact due to COVID-19 situation. I would like to thank our employees across all aspects of our business who are safeguarding the continuity of all the business activities while maintaining social distancing and hygiene guidelines throughout their time in the workplace. Moving on to our Q1 FY '21 revenue. On operations, I am happy to state that we have achieved a sales revenue of INR 1,730 crores during the quarter, reflecting a growth of 49% over the corresponding quarter of the previous year. This has been a volume-led growth across our product portfolio. While the profit before tax for the quarter is INR 661 crores, a growth of 77%, the profit of -- after-tax has accounted to INR 492 crores, reflecting a growth of 81% year-on-year. We have a cash on book of INR 1,343 crores, receivables of INR 1,550 crores and inventories of INR 1,742 crores as of 30 June, 2020. Business administration across the region is similar to last year. Europe and Americas accounted for 74% of the revenue. Product mix for generics to custom synthesis is 59% and 41% of the revenue, respectively. Constant currency growth for the quarter has been 39%. Thank you.
With this, I request the moderator to open the line for Q&A. Thank you.
[Operator Instructions] Your first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.
Sir, my question is to understand a bit more about capacity expansion, and we also talked about backward integration program. And I mean just taking an example of one of the molecules, like, for example, gabapentin, when there is a lot of competition, when we are talking about expansion, are we looking at expanding the capacity of gabapentin? Or for example, expanding the backward capacities for say the raw materials like CDA, on that side, curtailing the dependence on China? So if you can talk a bit more about CapEx, where this CapEx is going and specific molecules? I mean we have talked about it in the annual report that we have an endeavor to be a leader in these molecules. So whether it's going to be a volume leadership? Or are we going to be backward integrated? Some color on this, sir.
Somehow, you seem to be loving gabapentin. Definitely, we will be -- are leaders in gabapentin. We want to maintain our leadership. So we are expanding both in terms of volume and also the intermediates for gabapentin. So we will be producing the intermediates as well as expanding the gabapentin, both. That will reduce our dependency on import of the intermediate as well as it [indiscernible] it will bring and margins will be better. And we have taken a [indiscernible] in gabapentin, and it's growing well, and we are ready to take the benefit of the growth. Regarding CapEx -- excuse me?
Yes, sir, on the Capex. Yes, sir.
Regarding the CapEx, there are -- we have already implemented last year about INR 1,000 crores out of the INR 1,800 crores. The INR 800 crores is still capital work in progress [indiscernible] is under implementation. What we would like to say is that the debottlenecking where the [indiscernible] would increase 20%, 25%, 30% of the production in the same process, same building, those we were able to complete. That's what you are seeing, some of the jump in production, which has resulted in sales and the profitability. And some of the intermediates which we were importing, where we started manufacturing also have contributed to the bottom line. And I think these are the main 2. The upgradation of our quality control, both at Unit 1, Unit 2; upgradation of our wastewater treatment plants, which are going to be the state of the art of -- what is being started in the world, these observations are for part of the CapEx and [indiscernible] some of them are complete. Introduction of few new products -- new CapEx. They have been already called the production [indiscernible] validation of the [indiscernible] branches happened and submitted for the regulatory. We are waiting for the regulatory clearances. As and when we get, we will see the jump in those quarters. Regarding expansion in our [indiscernible] products where we're already #1, #2 in the world, mostly #1, we further increased our capacity [indiscernible] is generic, what we started, even as naproxen sodium in '96, they still are growing maybe anywhere between 5% to 10%. So such growth on 6,000, 7,000 tonnes, if somebody needs 700, 800 tonnes each year addition. I think your -- Divi's are able to invest such money to make sure and maintain the leadership in addition to the backward integration, which we have -- they have done long time [indiscernible] strengthening the backward integration and applying the tools of green chemistry to conserve and [indiscernible] resources and recoveries. I think the atom chemistry principles what we are following in addition to the green chemistry is making it more stronger for sustainability. I think the CapEx between, I would like to summarize [indiscernible]. Number one, debottlenecking, which has already resulted from -- both in terms of bottom -- top line and bottom line and expansion [indiscernible] products, existing, introduction of new generic products, also some custom synthesis products and expanding our -- manufacturing the key building blocks for some of our key generic APIs which we were dependent on China. I'm not saying just Divi's, everybody. And I think we are going to be free from that as we already installed the plants.
Sure, sir. Sir, one question, if I may. The recent thing about the government proposal of the API parks and identifying the APIs in which India was dependent on China. If you can talk a bit more about when do we see -- what kind of benefits that we see, whether we are going to see the benefits in the next 3 to 4 years across the industry. And a lot of people are talking about this whole China to India story. I mean India geopolitically being better. In contrast to China, a lot of companies willing to bet more in India. So do you think that this is more of a structural story from a longer-term perspective as well?
See, the strength of India in the API manufacturing, for sure, I think it's very difficult for somebody to take it away and to build the mass chemistry capabilities, technology capabilities, training of the people, both in chemistry manufacturing and the analytical and VHS medical safety, this cannot be [indiscernible] by any European or U.S. companies. This will take several years. And on top of all this, there is what is called cost structure. So everywhere, whether it's Europe or U.S., governments are planning to bring the prices of these formulations down, whereby the patients get benefited. So it's very difficult to compete, starting new plants now, API plants, and compete with the existing generic API manufacturers.
[Operator Instructions] The next question is from the line of Prakash Agarwal from Axis Capital.
Congratulations on good numbers. Sir, my first question is on the CapEx. You clearly outlined the INR 17 billion of CapEx, out of which INR 6 billion each was for Unit 2 and Unit 1. Just wanted clarification that both these units would be completed by end of this year? And when would it be revenue generating? And do you expect U.S. FDA to come and first give the clearance? And then we start booking revenues? Or just give us some pathway to that, please?
The CapEx is both Unit 1 and Unit 2. Again, the CapEx is for debottlenecking at both sites because we make generic products, where we have generic products at both sites. The CapEx is also for backward integration [indiscernible] intermediates at both sites. The CapEx is also for new products at both sites, because we also have a [ DPS ready ] Which we started in Unit 1. And also a new DPV is used in Unit 2. These are the 2 main, I think, growth engines with all -- a few of the benefits [indiscernible]. Now we will be able to complete before end of the financial year at both sites all this CapEx. Now when I say we will be able to complete, it also includes that we will be running validation batches and put them on stability, doing the certain regulatory submissions and waiting for the clearances. Your second question [indiscernible] contribute to the sales growth. I think that is the most difficult question to answer [indiscernible] at least I don't run the U.S. FDA, I don't run the European regulatory agencies. But I think with the track record of what we have because we see these are like-for-like and similar technologies, similar products. So we hope to see them clear very soon. So as and [indiscernible] get cleared, you will see the sales jump or sales impact.
Okay. So would it be fair to think that debottlenecking and intermediates could start immediately, whereas the new products would require a new set of approval -- regulatory approvals, like regulatory post inspection?
I think you are right. Debottlenecking one, you see immediate impact on -- already, you started seeing it, and you will see more. Backward integration, not only it will help us to -- for sustainability, but it will also help us, the bottom line, because when we do it, we design the best process, and that will also improve our bottom line, that we will see the impact in the coming quarters. The expansion of the generic products, probably, we don't want to wait that long for the regulatory agencies to clear because these are not new products. It is the same technology, same generic [indiscernible], it's a like-for-like. The -- some of the new products, yes, that may take a little time for the clearance -- for the regulatory clearance rate.
Perfect. And my second question is on the 39% dollar terms growth, CC terms growth, Ma'am clearly said it's volume led. So is this a onetime phenomena? Or the things that you said about that the debottlenecking has started playing out, so this kind of growth is expected going forward also? And why there is an expenses Q-on-Q decline? I mean that piece, we could not understand.
I think it is always the API industry, and API industry, nobody should look at it on a quarter-on-quarter basis. I think it is very difficult because we have a product mix, we don't just -- don't make 1 product or 2 products. We have a basket of products, both generics as well as the big pharma custom synthesis. So sometimes, the product mix is such that lumpiness happens and there could be increase in volume. That doesn't mean our business is not improving. I'm not saying what you have seen all that this growth rate, and this will go, then draw a line closely into the sky. But I am saying that, yes, top expertise. A growth, cost that we see is lumpiness and some of it is for our good product mix. But in this basket of products, I think we are very strong to take significant [indiscernible] our generic products, where we have long-term contracts with our customers and the customers are always increasing their business.
Okay. And the expenses Q-on-Q decline, sir?
Pardon?
The other expenses are down Q-on-Q. I mean if production in full is full blown, why other expenses has come down on a quarter-on-quarter basis, sir?
I wouldn't say they have come down. Probably if we increase it -- maybe -- 1 minute.
The other expenses actually hasn't come down. If you compare it from the -- so if you compare this with Q4 of last year and Q1 of this year, we are almost [indiscernible] rate. Last year, it was significant because of some more expenses on CSR side. And this quarter, this is more or less same pattern of the expenses that we are counting.
I think one of the reason is that during last year or the prior because [indiscernible] issues. We have now legal issues when we were trying to address that. And now that it's being done, so we have come back to our normal expenditures. I think that is one of the main reasons.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Congrats for the good set of numbers. Sir, just would like to understand, like -- so at least for this quarter gone by, most of the API companies have delivered strong numbers. And the general feedback is more or less led by volumes rather than pricing. So are you seeing any structural changes happening at the API industry level? And specific on the set of products, which are the major product for us?
Can you please speak a little loud? I couldn't get exactly...
So basically, at least for the quarter gone by, the numbers has been phenomenal for most of the API companies. So just would like to understand here -- and more so driven by the volume than the prices. So just would like to understand whether this is more of a structural change happening at the API industry level and it's driving more of the shift for the business towards the Indian companies? Or it is more due to the supply disruption on account of COVID and which might pipe down as the COVID scenario eases out?
I think in -- there are 2 or 3 things that may be happening is that probably Chinese supplies have come down, API supply, that has probably helped every company to sell more API. That's number one. Two, the -- based on the COVID and the business pattern right now what is happening in the last 4 to 5 months, I think there is less usage of antibiotics, there's less usage of some other therapy segment, more usage of antivirals and antiinflammatory and other therapy segments. So in the therapy segments, where we are -- the demand is quite high, maybe in some other therapy segments, the demand could be less. But overall, I think with the -- what we are seeing in U.S. and Europe, less encouragements to China and more encouragement to India and more collaboration with Indian companies, more [indiscernible] European and the Indian companies, I think this is what we are seeing. Whether Indian companies are going to invest there or how we are discussing [indiscernible] make up [indiscernible] and maybe finishing can be done by one of our associate companies in U.S., I think things like that will evolve over a period of time. But definitely, it is encouraging for the API industry.
And you see the Chinese supply is coming down even now? Or it's now coming back to a little bit of normalcy?
I think it will be -- definitely, the Chinese supplies have come down. I do not know whether it's due to they're unable to manufacture or there is a resistance to buy. I cannot comment on that. But what I would say is we are gearing up to make sure there are no shortages in the APIs we are in.
Got it. And just secondly, if you could just help us with the carotenoid sales for the quarter.
Hello? I could not hear.
Just on the carotenoid sales for the quarter.
Carotenoids is -- sales is improving. We had INR 127 crores for this quarter, and the business is growing. Both the -- the COVID-19 issues are not only in India, but in Europe and everywhere else. So maybe there is a slightly less -- going to be less growth in the next 3 to 6 months. But eventually, everybody would like to have the carotenoids, the natural phenomenon to create immunity. I think everybody is saying immunity has to be big. Thank you.
I think the call disconnected.[Technical Difficulty]
Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected.The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
I just asked, but now that you've given a chance, let me just ask one more, if that is okay. Just would like to know the capacity utilization for [ BCSs ] unit and [ DCSs ], which recommenced in February and March.
Pardon?
Just would like to know the capacity utilization for the 2 units of the DCSs, which we commercialized in Feb '20; and BCSs which we commercialized in March '20.
In terms of state [indiscernible] are still under constructions. And the parts of [indiscernible] have gone into only validations. And you can pretty much say that the [indiscernible] are still -- these 2 new [indiscernible] haven't commercially -- haven't added any commercial value, any significance.
The next question is from the line of Ashish Thavkar from Motilal Oswal Asset Management.
Sir, you spoke about volume growth being very good this quarter. But can you also help us understand what was the impact or -- from dextromethorphan and something like naproxen [indiscernible] on our portfolio? Have the prices for these products gone up as well?
We -- your question is that whether the price has now gone up. I think prices are about stable. I think they are pretty much -- as I said that since -- there could be air lifts and some of them, those prices may be -- may -- the cost of sending by air may have been added, but otherwise, the prices remain same. There's no -- nothing like $1 went into $10 price.
Okay. Just one last question on this CapEx part. The CapEx for Kakinada, are we like going to announce any incremental CapEx for Kakinada? Or you feel we are still some 12 to 15 months away?
The Kakinada plant, still we are going through the legal issues to be resolved by the government. We are ready and our clients are ready on the board. We are waiting for the -- on the -- in the current -- the corporate and to complete the legal issues within the base structure and give us the clearance. That's where we are waiting.
But sir, as I understood, a part of that Kakinada space is already being cleared, right? And there's -- I mean, there's no claim on that land.
There is nothing cleared by the government. It is only probably a discussion, but nothing is -- we are still waiting for the legal issues to be cleared by the government.
The next question is from the line of [ Anmol Kunj ] from JM Financial.
Congratulations on a good set of numbers. My first question is that is this hosting of call going to be a regular feature from here on? Or you made an exception because of uncertain -- of the environment?
Can you -- it was not clear. Can you please speak a little loud?
Yes. I said that are we now going to have this kind of an interaction every quarter? The good step that you've taken of hosting an earnings call, will this be a regular feature from hereon?
It will be a regular feature for the -- for every quarter here onwards that having a call, yes.
That's very helpful. That helps us understand the business on a quarterly basis. So thank you for that, first of all. So my first question is that given that most of the revenue growth has been volume led, and we expect some debottlenecking. From the current capacity standpoint and what lies ahead in terms of bottlenecking, how comfortable are we in terms of driving growth? And directionally, with the current capacity plus debottlenecking, what does it allow us in terms of room for growth?
That -- out of the INR 1,800 crores investment, debottlenecking still is very, very little, I would say. The majority of the CapEx is for [indiscernible] jets at Unit 1 and [indiscernible] jet at Unit 2. That is where the majority of the CapEx is. So those would give additional products, increasing capacity for our generics and also making some of the backward integration for assurance of supply and cost savings to improve the bottom line. So there's not going to be -- we are not going to -- there is going to be enough capacity to meet any surge in demand or increase of demand for generics.
The next question is from the line of Damayanti Kerai from HSBC.
Congratulations on strong set of numbers. Sir, my question is on the custom synthesis segment. In the post-COVID era, we believe there will be more and more emphasis on cost efficiencies by customers. So how do you see this part of business going for you? Are we seeing more inquiries or interest from customers who are right now not our traditional customers? If any comment you can provide on it?
In the custom synthesis, there are only x number of big pharma, and we are connected with most of them, the business is already happening. Now what we see is that looking at the relationship with China, looking at -- the finance is going towards the China, maybe we will get -- India will get more opportunities in terms of the custom synthesis, yes, I agree with you on that. And we are geared up to access such opportunities.
Okay. So sir, we are seeing already, I'll say, a higher interest on India compared to China on this part of business, and we hope to grow from here?
That's correct.
[Operator Instructions] The next question is from the line of [ Charu Lasa Kaithani ] from Dalal & Broacha Stock Broking Private Limited.
Can you give me the gross block value in this quarter? And second, I wanted to know whether -- how much is our dependence on China in value terms or percentage terms.
[indiscernible] for this quarter [indiscernible] is INR [ 215 ] crores.
Can you repeat?
Yes, the gross block addition during this quarter, INR [ 215 ] crores.
Okay. And have we added any new APIs to our product basket in the last 2 quarters?
Yes. We -- always, there will be additional products as and when I think -- in the beginning of my presentation, I did mention that the COVID-19 products, hydroxychloroquine, [indiscernible] and the intermediate for Remdesivir, they are all new products in addition to few generics. So definitely, we have added products, and we will continue adding products both from the generics and custom synthesis.
The next question is from the line of Fatima Pasha from ICIC Prudential Life Insurance.
Sir, great set of numbers and congratulations. Sir, we've had discussions before, and we said that because we were nearly at peak utilization levels. And you also rightly like pointed out that the current mix is now because of COVID. So what are you seeing, sir? Is this kind of a mix sustaining because I remember -- because like you said, your new capacity will come in mostly by year-end. So do you see this improved mix sustaining? And just the next thing that I want to ask, everybody is talking about government PLI scheme. Do you think companies like Divi's can significantly benefit from this scheme? And do we want to do a dedicated CapEx for this?
A bit unclear, can you please repeat your question, please?
Sir, the first question is, I remember that at INR 1,400 crores quarterly revenues, you practically said that you were operating at peak utilization. So I understand that the mix changed. So are you seeing that kind of mix a permanent change? Or it was more like a COVID-induced change that you saw in the quarter and things are normalizing? And the second thing is the government PLI scheme, which they're talking about the API-related PLI scheme. Are we planning to do something on that line for setting up a dedicated capacity? Can it be a very meaningful opportunity for us?
On the scheme what you have mentioned that a 10% benefit, 5% benefit to the API manufacturers for selling in India, it is less applicable to us. The reasons, we are still evaluating because most of our products are exported. We have very little, very less scale in India. We are still trying to understand what will be the really benefit and with the PLI scheme, whether -- how we should be addressing it.
The next question is from the line of Rahul Sharma from KARVY Stock Broking.
Yes. Sir, just wanted to carry on where Fatima had left. Is this quarter having more of one-off sales due to HCQS and Remdesivir API intermediate supplies, which were there? And will this sustain going ahead, sir, because HCQS has already peaked out and a lot of people are coming off it.
I think I did mention in my beginning presentation that we have only validated the process of HCQ, validated the -- we have developed the process for [indiscernible] and manufactured and intermediates for remdesivir. It's not that we want -- this did not contribute an insignificant number at all for this quarter. We just started sales. Our interest is to make sure there are no shortages if these are proven to be the drugs of choice for COVID. Because when it came in March, they said HCQ is the drug. Then they said, the Remdesivir is the drug of choice. Then they said [indiscernible] is drug of choice. No matter, there may be 3 more which will come. But we would like to develop technology and be available, so that if there is a shortage, we can supply what is required for the world.
But sir, were there any one-offs which you foresee that will not recur in future, which happened in this quarter because of volume growth?
I think I did mention that it is a favorable product mix and lumpiness in business. These are quite common in the API industry. I think that's what I would like to say.
The next question is from the line of [ Rafi Bara ] from NK Global.
Provide a bit more color on your custom synthesis business, especially in terms of the number of molecules we currently sell or any outlook there.
We have not been mentioning anything about how many number of molecules. What we can say is that the number of molecules always get added. And of course, there are less number of molecules compared to 10 years ago or 5 years ago because the new NPEs less number are coming. But where -- whenever they are launching these new numbers -- new NPEs in Phase II, Phase III, most likely, they will be launched and they will grow well. And I think we are here to take advantage of those and we do have good opportunities.
The next question is from the line of Girish Bakhru from Bank of America.
Great quarter. Sir, just one question on custom synthesis side. What are the long-term areas you are looking in terms of scale development within Divi's? I mean by -- besides Divi's, regular APIs and some of these COVID drugs, are you looking at some technical technologies for future?
I think you hit the right point, it is not want product you want to make, it is what technologies you can handle, what kind of chemical, difficult to make a chemical reactions you can handle in a large-scale. That's what has put Divi's into a very strong position from the beginning. Because we always have new technologies into the pipeline, whereby traditional chemistries where the yields were less or the conversions were poor, the utilities were high, we are able to get over with these new technologies, new chemical reactions. It's always a challenging thing to do, and we are in -- the front runner of those. Yes, that gives us more opportunities with the big pharma. In addition to the ESS, which is -- which they do expect quite a bit environmental safety as well as quality and regulations.
The next question is from the line of Nitin Agarwal from IDFC Securities.
Sir, on -- in the custom, is there any major margin difference between our custom synthesis and the generic API business?
It's very difficult to say that. I think both custom synthesis and generic are good for us. It's not one makes more margins, one makes less margin. I think it all depends upon which are those products and what kind of technological strength we have in conversion, in SCNC and productivity. So as you can see in the margins, we vary between 40% to 60%, whether it's custom synthesis sometimes goes to 55%, generics goes to 45%, sometimes, generics goes to 60%, custom synthesis, 40%. I don't think we drive them to those percentages, it happens.
The next question is from the line of Rohit Bhat from B&K Securities.
Dr. Divi, I just wanted to know, recently, Sanofi announced plans to set up a API company globally. So by '22, they are hoping to generate about [ USD EUR ] 1 billion from API operations. So if an innovator company gets into API manufacturing, what kind of impact would it have on companies in India or from the Asian region because they are also trying to reduce their dependence on Asia? Your views on this will be helpful.
Okay. I just make sure, which is the company?
Sanofi.
Sanofi, Sanofi-Aventis?
Sanofi-Aventis.
I thought you were saying Kodak from America.
Yes. I mean Kodak was also there, and Novartis also announced plans to get into penicillin APIs. So a lot of entities are investing -- yes?
I think there are 2 things we need to understand. The big pharmas [indiscernible] pretty much stopped API production, most pharmas sold the API manufacturing plants because they could not sustain costs. That is the reason they've started outsourcing. And they don't have any more manufacturing capabilities in U.S., definitely in the majority of the European companies, number one. So it's not only they are not having the manufacturing plant, when somebody puts their manufacturing plant, it is very difficult to create their human resources. Number three, the training. Number four, the regulatory impact, regulatory clearances by the FDA and European authorities. All this will take time even if the big pharma concentrate on local production, number two. Three, at what cost they will make these generic products? Can they sell naproxen at $40? Can they sell gabapentin at $40 a kilo? Now when they are unable to produce at $100 a kilo and start to bring -- and started outsourcing, I think it is very difficult to put new plants now in Europe and U.S., and that goes for all companies.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
A quick question. How much contribution do you get from biologics or antibodies in your overall business? And what are your thoughts about building capabilities around these?
Did I hear right, you would like to know about biologics?
Sorry?
No, did you say biologics?
Yes, sir, biologics, antibody, monoclonal antibodies, and that's right. Biotech drugs.
We are not in biologics. We are not in antibiotics. We are not in injectables. We are API manufacturing company. That is where our strengths are, and that's where we are counting on our future. At this time, I think we are not contemplating on biologics at this moment.
The next question is from the line of Naresh Sudar from HCI Life Insurance.
So my question is, when last year, we announced this CapEx of INR 17 billion, INR 18 billion, that time, we had some certain outlook for API industry. After that, the COVID thing happend and the outlook has improved over time. So whatever you assume for the order book or the opportunity size for at the time of announcing this INR 17 billion, INR 18 billion CapEx, has it gone up substantially after this post-COVID scenario?
Can you please repeat the question again?
Sir, my question is, last year, when we announced the question -- sorry, the CapEx, the outlook for the size of the opportunity which we might have seen at time, maybe certain. And after that, the COVID happened and the outlook has been very improving. So whatever you were seeing in terms of opportunity size that time, has it increased substantially after this COVID?
I think the opportunity, it remained the same because COVID has influenced in a different way, but the requirement of this therapy segment, these APIs, whether for generic or custom synthesis remain. The opportunities remains the same. Our focus remains the same. Adjusting, we took the challenge making even the COVID API to prevent shortage of supplies in the world.
Okay. Sir I think I -- continue. So my question is after this increase in inquiries, based on the COVID-related issues and people are now thinking more about moving from China to India. So in this scenario, have your inquiries increased? And for that, you -- are you announcing more CapEx or further down the line based on this increased improved outlook?
Okay. If I understand, right, with the Chinese [indiscernible] from China, whether there are going to be more opportunities, some CapEx and more number of products?
Yes.
Yes, definitely, there will be opportunities in custom synthesis. There will be opportunities in our own generic products, not necessarily new products with additional volumes. And we are ready to take if we need to invest more as a CapEx.
Due to time constraints, I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us today for the earnings call of Divi's Laboratories Limited. In case you need any clarification, please reach out to our Investor Relations. Thank you.
Thank you. On behalf of Divi's Lab, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.