Divi's Laboratories Ltd

NSE:DIVISLAB

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Divi's Laboratories Limited. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Satish Choudhury. Thank you, and over to you, sir.

[M. Choudhury, executive]

Good afternoon to all of you. I'm M. Satish Choudhury, Company Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to the earnings call of the company for the quarter ended 30th June 2023.

From Divi's Lab, we have with us today Dr. Murali K. Divi, Managing Director; Ms. Nilima Prasad Divi, Whole-time Director of 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 ended 30th June 2023, and we have released the same to stock exchanges as well as updated the same in our website. Please note that this conference call is being recorded and the transcript of the same will be made available on the website of the company.

Please also note that the conference call is the copyright material of Divi's Laboratories Limited and cannot be copied, re-broadcasted 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 discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectations of future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied.

Divi's Labs or its officials does 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 for opening remarks. Over to you, sir.

[Murali Krishna Divi, executive]

Good afternoon, ladies and gentlemen, and welcome to our first quarter FY '24 conference call. It is great to have you all here. And I hope you, your families and your loved ones are well.

I shall begin by updating you on our operational progress. The Indian pharmaceutical industry is rapidly evolving, fueled by technological advancements and is globally expanding further, driven by increased volumes.

While we acknowledge the potential impact of price pressures in the U.S. and European markets on operating margin, we remain optimistic about the broader trajectory wherein opportunities to keep emerging for a quality API manufacturer to contribute in a sustainable manner.

We anticipate multiple growth prospects over the next 2, 3 years, particularly in contrast media, sartans and soon-to-expire patented products. Our recently filed DMS and about to file DMS in the next 6 months are expected to contribute to future growth beyond financial year '25, as we actively pursue our 6-point strategy.

Notably, our custom synthesis business is doing well, particularly in Phase 2 and 3 projects, with enhancing production capacity, with small volume APIs and reduced lead times. Both the large volume custom centric projects are in commercial phase now and are gearing up for full production capacity. Registration per contrast media API in various countries are under review and quantifications by customers are underway. We are progressing well in the development of MRI contrast media and expect to complete validation for some of them by end of this financial year. The potential in contrast media is substantial.

Our cost effective capacity, established technologies, and iodine recovery advantages, combined with our strong customer relationships, further broaden our horizon in this growing market.

On the CapEx front, our Unit 3 construction project is advancing well with an initial investment of INR 1,500 crores for Phase 1, with scope for further expansion in the future. Our Unit 3 greenfield project will initially manufacture starting material, a few nutraceutical API, advanced, intermediates and complex chemistry API.

Thus freeing of Unit 1 and Unit 2 facilities for new opportunities for custom synthesis and generic products. Our investment in new technologies, expansion of production capacity and diversification of product portfolio point towards the company's sustainable future.

We are also pleased to report that Divi's has consistently obtained responsible operations, contributing positively to the well-being of the communities surrounding our manufacturing units.

Our initiatives, such as Sujalam and Jala Prasadam have had a concrete impact on over 225,000 individuals improving their access to safe drinking water. To support holistic rural development, Divi's has actively contributed to the upgradation of infrastructure, roads, and sanitization system in villages across Telegana and Andhra Pradesh. We continue to engage in the child and women empowerment projects, execute plantation rights and conduct health camps as part of our CSR endeavors.

Now Ms. Nilima will present you with the financial highlights of the quarter. Thank you.

[Nilima Motaparti, executive]

Ladies and gentlemen, I extend my warmest greetings to each 1 of you. Thank you for joining us today as we continue to discuss the financial outcomes of the first quarter of FY 2024. I trust this message reaches you and your dear ones in good health and spirit.

I'm pleased to share that we sustained uninterrupted customer shipments throughout the quarter, reflecting our resolute commitment to meeting the customer deadline. The global logistics sector, it's a positive advancement in sea and air freight during the period. This advancement is mainly seen with respect to ease of availability of shipping space as well as reduction in logistics costs.

Furthermore, raw material prices exhibited a downward trend, and we anticipate continued stabilization in the upcoming quarters. With the ease of availability of materials and stability in prices, we are focusing on optimizing our inventory levels. As part of our ongoing initiative to strengthen the domestic supplier network and mitigate sourcing risk, we have notably reduced our reliance on China compared to the previous year.

Moving forward, we are catered to optimizing facility utilization to address the uncertainties of the current economic landscape. Our diversification strategy is progressing well and actively pursuing upcoming opportunities while upholding our long-term goals, empowered by a robust supply base, optimal inventory and a vigilant understanding of global dynamics we stand ready to address future challenges.

I will now present an overview of the financial performance for the first quarter of the fiscal year 2023-'24. We have achieved a consolidated total income of INR 1,859 crores for the current quarter as against the income of INR 2,343 crores for the corresponding quarter previous year. Material consumption for this quarter is lower at about 39% of the sales revenue as compared to 42% in the immediate previous quarter due to softening of raw material prices and change in product mix. PBT for the quarter amounted to INR 492 crores and we have a profit after tax of INR 356 crores for the quarter.

Exports for the quarter is about 86%. Exports to Europe and U.S. is about 67%. Product mix for the Generics to Custom Synthesis is 60% and 40%, respectively. We have a ForEx gain of INR 3 crores for the quarter as against a gain of INR 56 crores in the corresponding quarter of previous year. Our constant currency growth for the quarter has been negative at 29%.

Our nutraceutical business amounted to INR 178 crores for this quarter. We have capitalized assets of INR 33 crores during the quarter. We have a capital work in progress of INR 389 crores as at the end of the quarter, of which Kakinada project accounts for INR 130 crores. As of 31st March, we have cash on book of INR 4,208 crores, receivables of INR 1,720 crores, inventories of INR 2,967 crores. You would notice from our annual report that dividend payout of INR 796 crores is scheduled in the first week of September 2023.

[M. Choudhury, executive]

Thank you, madam. With this, we would request the moderator to open the line for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal.

[Tushar Manudhane, analyst]

Sir, on your comments with respect to raw material prices moving down, so would there be a scope of passing this to customers? And so what should be the sustainable gross margin to look for, particularly in the [Technical Difficulty]

[Kiran Divi, executive]

He is not audible.

[Nilima Motaparti, executive]

Can you please repeat the question again?

[Tushar Manudhane, analyst]

I was referring to your comment with respect to the raw material prices moving down. So I just would like to understand what is the scope of passing this further to our customers? And hence, what would be the sustainable gross margin as far as Generic API business is concerned?

[M. Choudhury, executive]

The Generic portfolio, based on the competition, if the general prices of raw materials have come down probably the demand from the -- being the generic industry may be there to asking us to bring down the prices. But where we are having generic industry, then products will give long-term arrangements. Usually, we don't have that. So we will be able to retain the extra margin, whereas in Custom Synthesis, we can retain the margin when the raw materials goes down or I mean, go up to a certain custom date beyond which we will discuss.

[Operator]

[Operator Instructions] The next question is from the line of Cyndrella Carvalho from JM Financial.

[Cyndrella Carvalho, analyst]

Am I audible, sir?

[Murali Krishna Divi, executive]

Yes.

[Cyndrella Carvalho, analyst]

Sir, congratulations on the guided gross margin improvement. We are seeing this improvement coming, and Nilima highlighted that this is driven by lower raw material cost as well as the further improvement in the other expenses that we are seeing is largely the logistical costs also coming down. So how should we see this -- the gross margin, a, is do we see some improvement in our generic pricing portfolio also? Or is this purely by the raw material? And the b part is on the other expenses side, should we see further scope of improvement as we go ahead?

[Murali Krishna Divi, executive]

Yes, on the -- not only some of the -- there is some improvement in the raw material prices, but also there is an improvement happening in the coming quarters by process improvement, by yield improvement, and reducing manufacturing costs by energy-efficient operations. Because we have to look from the holistic point of view.

It's not just raw material prices came down from China or elsewhere, but at a holistic. As Nilima mentioned about the freight outward, carriage outwards being coming down from INR 2,000 a container. It went up to INR 12,000 a container and it came back to INR 2,000 a container. But see, I think these are kind of things sometimes they go up and come down. But the raw material price coming down, the profit at [ PMC ] going up, increasing yields, they will help the company to be elephant footing, making consistent margins.

[Cyndrella Carvalho, analyst]

Any thoughts on the overall API [ sizing ] scenario? Do you see or you highlighted that there is a pricing pressure across, but you also highlighted that there is a scope for an emerging opportunities that you see coming -- going ahead in terms of generic filing that we are doing. So how should we see the overall sizing scenario and any new products that you want to highlight for us to track going ahead?

[Murali Krishna Divi, executive]

On the -- in our growth engine, the growth engine on established products, where like Naproxen Sodium, pentene products like that, they are stabilized. The price pressure is a question mark in some of them, whereas most of the generics, I think they are settled and there are no price pressures now.

So going forward, we see an improvement in terms of margins and a slow growth. On the rare compounds where we improved capacity recently increases capacity. Their filings have already taken place by us and our customers are waiting for the clearance as new customers, as and when that happens in the coming quarters, we should see improvement.

[Cyndrella Carvalho, analyst]

Okay. That is helpful. And sir, one request from my end, that is we've been requesting for the analyst call for a very long time. Initially, we used to do that after our AGM, but as AGM have shifted on the virtual platform, we are not able to meet you and the entire team for a very long time. Requesting you to please consider one analyst call for all of us. That will be very, very helpful. I'll join back the question queue.

[Operator]

[Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

Just on the split of generic and custom that was shared. So when I just add the generic piece and the nutraceuticals together and look at growth on a Y-o-Y basis, really it seems to be still subdued like low single-digit, like flattish kind of a Y-o-Y trends. Even if I look at it compared to the quarter before also, it seems to have declined. So I just want to understand and also reflect upon our guidance for fiscal '24 when we exclude Molnupiravir, we are looking at double-digit growth. So if you can help us understand that, sir.

[Murali Krishna Divi, executive]

I wouldn't say there is a decline in the quantity of generic KPIs. Yes, I agree with you. The growth of the matured generic is in the single digits. Yes. But when you say that in a compound of 5,000 tonnes, even a single digit can be substantial, let's say, 5% growth.

You are talking about a 250 tonnes growth year-on-year. There will be always new entrants to take some of the capacity or some of the products from the market, but where we are in the advanced markets, where it's highly regulated. So then it depends. After the COVID, which is over towards the end of the last year, now everything is getting stabilized to see first anti-infectives, then antibiotics anti-infectives, then life saving medicine, lifestyle medicine. We are more into the life saving medicines in the generic market. So now we will see they are stabilized. We will see an improvement and we are the major player there.

[Shyam Srinivasan, analyst]

Got it, sir. That's helpful. Just a second question on the Custom Synthesis. With the current base, I'm assuming there is no one-off or special opportunities like Molnupiravir base anymore. And I remember you have said that you stop shifting it some time back. But just trying to understand the path forward for custom synthesis, the 40% number, should we now start assuming that with your projects that you mentioned, also the commercialization of, say, sartans and even the second project, you will likely see a sequential or a Y-o-Y growth starting quarter 2?

[Murali Krishna Divi, executive]

I don't think we should look it on quarter-to-quarter basis, but Molnupiravir is not the only one. We are seeing several opportunities. We don't know which 1 will become again better than Molnupiravir. We are working on a number of projects with a number of big pharmas, in the small molecule segment. At the same time, we are also in the now the separate building blocks, which are really -- which have really become a hot cake. All of a sudden it's requirements of 100 per tonne, where we have just started the sample approval qualification after long waiting of 10 years.

Because some of the new drugs are coming in the obesity and the glycemic compounds with these synthetic liquid state peptide drug. So in the custom synthesis, we see a great opportunity, and we cannot predict in which quarter, which blockbuster may happen. But overall, we have a number of Phase II, Phase III compounds. And these protected amino acid for the first aid and also the nucleotide for the nucleotide type drug. So the opportunity is great. We just have to wait for our customers to come.

[Operator]

[Operator Instructions] The next is from the line of Surya Patra from PhillipCapital.

[Surya Patra, analyst]

Sir, my first question is on the inventory position that we are having. So earlier that we have indicated, one of the key reasons for suppressed margins is the high-cost inventory what we have been carrying. So from the annual report, if I see both in front of the raw material inventory as well as the capital movements of the work-in-progress inventory, both have gone up by INR 500 crores kind of levels from the normalized level. So when do you think that this high cost inventory or what portion of this is a high-cost inventory? And when do you think that it would be liquidated so that you can go back to your normalized margins?

[Nilima Motaparti, executive]

So when we are looking at the high cost inventory, we did mention in our earlier -- at the last quarter call that the prices have been softening in the earlier call itself. But high cost inventory was being reflected at that time, and that's why the, four years say, there has been a higher raw material consumption at that point in time.

But the materials that have been procured at a higher price have been diminishing. And right now, what -- in the quarter Q1 that you have been seeing the reduced production in the raw material consumption has been taking place mainly because of consuming the lower cost ones. And compared to -- it has been a lower trend in some of the materials, which we consume in larger quantities. And we are definitely seeing that the downward trend happening much more in the coming quarter. So this is something that we feel would enhance the -- not just the production cost, but also based on what we are looking at improvement in our own processes, it would be a kind of an advantage that the organization would have.

[Surya Patra, analyst]

Sure, ma'am. But is it possible to kind of indicate, let's say, what portion of this elevated inventory is relating to the high cost base so that your process of blending with the low-cost ones and managing your margins, so that process will continue?

[Nilima Motaparti, executive]

Well, as I mentioned earlier, the most of the high-cost procured material has been consumed, which has been reflected in the earlier quarter.

[Surya Patra, analyst]

Okay. Sure. And -- is it fair to understand that the elevated work-in-progress inventory that is to do with the kind of inventory rationalization that is going on industry-wide, for largely for the APIs. Is that the case?

[Nilima Motaparti, executive]

I wouldn't generalize it as for the entire industry because each organization has their own strategy and way of taking these kind of decisions.

[Murali Krishna Divi, executive]

The difference between the API industry and the pharma industry that are in the formulations is different. Where we -- for us, it's the processing industry. So when we buy raw materials that has high price, they become the API and get sold out. Our inventory of API is not high, it's marginal. Whereas in the dosage forms, they convert and warehouse them in India, in abroad and in these stores. So there's a long gestation period between manufacturing of the dosage form and realizing the sales.

That's the reason, till that time, it will be inventory. But for us, once we come back to API and out, our inventory is lower. The reason it was more, 1 year ago or 2 years ago is that for assurance of supply, we procured extra quantities at higher price anticipating there could be a substantial shortage, because of the explosions that happened in China, because of sharp rises we have seen. That is the reason.

And the COVID, where there were problems of the transportation of these raw materials. That's the reason we have precluded at that time, and they have been, as Nilima said consumed now and the APIs are already out.

[Surya Patra, analyst]

Sir. Sir, second question about the input price correction. So the general trend what we are witnessing for the chemical industry, hence for the fall range and all that, that there is a dumping from China that is also happening worldwide. And that has brought down the prices meaningfully and hence helping APIs more. So possibly, we would have also seen some benefit out of that. But how sustainable -- or how long that trend can continue? That is one.

And secondly, when we are seeing the trend of inventory resonation across the industry, including APIs as well as a supply chain of APIs, so do you see the similar kind of trend even for custom synthesis product?

[Murali Krishna Divi, executive]

The solvent you gave example, I think there are -- what goes down like that always bounce back. Because is that the realistic cost, they will be able to supply continuously at this price is a debateful question. But I think we do not source from 1 country or we don't source from 1 supplier. We have quite a good distribution.

And in -- there are certain solvents you want to keep in mind that are very common like methanol, ethanol, propanol, and there are certain solvents like hexamethyl, tetrahydrofuran. These are very rare solvents and only so much is available by production. We are big equipment available, installed, to recover, reuse with the right specifications, whereas not many companies are equipped to do that. This is where we have an advantage over other API manufacturers. But coming back to your question, yes, price variations could be there again in solving, but we are not dependent on that.

[Surya Patra, analyst]

Okay. And regards to the question, sir, whether the inventory rationalization happening even for custom synthesis, can you respond, please.

[Murali Krishna Divi, executive]

In custom synthesis, there is nothing like inventory. As and when they are made, the first shipment, the shipment lot is 1 metric tonne, the big shipment lot is 5 metric tonne. As and when the lot is ready, it will go out.

[Surya Patra, analyst]

Last question, sir, from carotenoid side. So what is the pricing trend, sir? That is one. And secondly, what we have been seeing, sir, since last few quarters that it is kind of stagnated at that level, in a very narrow range. So are we operating currently at 100% utilization? And unless until we see expanded facility, we may not see growth in the carotenoid. That is one question. And secondly, whether the prices of carotenoid has also seen some impact given because of the current situation. Yes, these two things about carotenoid.

[Murali Krishna Divi, executive]

We have not seen any price pressures in the carotenoid. In fact, our plant of carotenoid is earning in the 99% capacity. In fact, we needed more capacity of the API of carotenoid. That's where the Unit 3, we are putting additional capacity of carotenoid, which will come in line sometime in the Q1, Q2 of next year.

[Surya Patra, analyst]

So then, is it fair to believe that the carotenoid is the one segment which has seen the best benefit of this corrected input prices? And while the demand is stable and the prices are kind of stable with the corrected input prices, carotenoid, are you seeing the best improvement in terms of margin?

[Murali Krishna Divi, executive]

I didn't get your question.

[Surya Patra, analyst]

So carotenoid is not witnessing any kind of pricing pressure and you are operating stimulated kind of optimal utilization in any way. So with the input price correction, the -- this is one segment which is showing the best improvement in terms of margin and [ spread. ]

[Murali Krishna Divi, executive]

No. The import prices coming down need not be carotenoid raw material. Because most of the carotenoid raw materials, we make it ourselves. We start from the basic materials like ethylene, propylene, acetylene, including now we are putting a plant of [indiscernible] production itself.

So there, we are very strong with base materials, that's not an impact based on the imported raw materials. Now as I mentioned that we are installing additional capacities in Unit 3. It indicates that the demand is much more than right now, what we can do. I'm not saying there are no competitors or the competition. I think we have enough business to expand and needed more capacity.

[Operator]

The next question is from the line of Anirudh Shetty from Solidarity Investment.

[Anirudh Shetty, analyst]

I have two broad questions. So my first question is, in FY '23, we had a gross block of about INR 6,800 crores, and I presume this is Unit 1 and 2. So wanted to get a sense of what is the broad range of peak sales that we can kind of generate to this gross block and a range is okay, because I understand we have different products and the asset turns will depend on what product mix we're making. So a broad range is fine. Hello?

[Murali Krishna Divi, executive]

We do not -- because we have a peculiar situation of projects of Custom Synthesis, projects of Generic and Nutraceuticals. So we don't -- some of them need more equipment which will give more value -- less value, like some of our 5,000 tonnes of Naproxen or 3,000 tonnes of Gabapentin. They may need large equipments. But at the same time, some of the products we do in custom synthesis need a smaller equipment in volume, cubic meter capacity, but that will yield higher production value.

So it's difficult for us to say, [ grass block ], meter cubic capacity and so much of growth of business. I think it's very difficult in our -- and also, in the last 5, 8 years, we have started doing as much as possible automation and bringing a lot of instrumentation into the process, to bring 30 environment controls, all this add up into the grass block assets.

[Anirudh Shetty, analyst]

Is the right way to look at asset turns then by segment-wise that given the instrument requirement is, say, more in generics, would it be fair to look at what the asset turns could be for generics and what it could be for custom synthesis? And if yes, could you share what the asset turns are by segment?

[Murali Krishna Divi, executive]

It's not -- we cannot differentiate because we don't have blocks built for custom synthesis and building built for generic. We have block -- buildings dedicated to type of chemistry like carbon fluorination, hydrogenation. So different products going to different buildings for different stages of chemistry. But the products like Molnupiravir or Valacyclovir, where we have built production buildings as per the requirement of the customer, that is different. But usually, that's not the case. We use our custom synthesis, we use our multipurpose plants available for that.

[Anirudh Shetty, analyst]

Got it. And sir, my final question is, I understand that in the near term, there could be some short-term benefits as to our margin as raw material and other cost fall. But -- how -- when you think about more long-term steady state numbers, what kind of EBITDA margin do you think these can achieve? Because when I look at your history, I see for a long period of time, it have been between 35% to 40%. And in 2021 and 2022, you broke that and went 40% to 43%. So what is the steady state number that you all can achieve?

[Murali Krishna Divi, executive]

I think we used to be 35%, 40% before the COVID. And with the COVID up and down, and the COVID that came, again, it went up. So we see a stable, probably a steady 35%, 40%. I think that's what we can comfortably say.

[Operator]

The next question is from the line of Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

Sir, in the opening remarks, you mentioned that custom synthesis had a lot of Phase 2, Phase 3 projects that are doing very well. When should we see conversion of these products into, let's say, revenue monetization. Based on the progress that you're seeing, would you say some of these start contributing in FY '25-'26. How should we -- based on your assessment, what's the best base in terms of conversion rate of this pipeline?

[Murali Krishna Divi, executive]

I think, I would like to say in general, based on the strength we have in sartans, based on the strength we have in contrast media, we should be able to see a good growth in the coming year. I can't be specific on a product or a customized, and that will be preference to the big pharma only. For the contrast media or the sartans.

[Neha Manpuria, analyst]

Got it, sir. And sir, custom synthesis, again, I think there was a mention about it's progressing well and we should complete a lot of the pipeline products by the end of this year. Did I hear that correctly that most of the products will be ready for filing or would be ready for monetization by the end of this year?

[Nilima Motaparti, executive]

Can you please repeat the question again?

[Neha Manpuria, analyst]

I think, sir mentioned that the MRI contrast media products are also progressing well. And a lot of them should be completed by the end of this year. Did I hear that correctly? So would that mean that would be ready for highly monetization -- whatever, sorry I missed that.

[Murali Krishna Divi, executive]

What it meant is that, the contrast media processes are ready for customer sampling and customer clearance to submit define. That's what it would be. The $2 billion contract may -- MRI contract media, our gadolinium compounds, there are only a few players, 2 or 3. The same thing, of course, iodine based contrast media plants also, there are only 4 in the world. So already, we are in the iodine contrast media. The contrast media for the gadolinium compounds will be ready towards the end of the year, total process with 30 per scale. So that would take 1 more year for the filings and commercial.

[Neha Manpuria, analyst]

Got it. Got it. And sir, this would be a $2 billion opportunity you said, right, the MRI contrast media?

[Murali Krishna Divi, executive]

The formulations of contrast media of MRI is about gadolinium, it's about $2 billion, and contrast media for iodine is $5 billion plus -- maybe plus. And growing very fast because the contrast media is used quite a bit, and there is really a requirement of more manufacturing requirement right now. This is what we are seeing API requirement.

[Operator]

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio. Well, we've just lost the line for the current participant in queue. We take the next question from the line of Chirag Dagli from DSP BlackRock.

[Chirag Dagli, analyst]

If I look at the last 4, 5 years, your CAGR in INR terms is about 12%. And in USD terms, U.S. dollar terms is about 8%. When you think of your business, do you think -- which of the 2 numbers kind of broadly indicates the core business growth? Because if I look at your EBITDA growth also, it is inching closer to that U.S. dollar growth rather than the INR terms. So just broadly, how do you think about which number kind of broadly indicates the core growth?

[Murali Krishna Divi, executive]

It's very difficult to say about the last 3, 4 years because, first of all, we are -- fortunately, we are alive, escaping the COVID. I think that's true for everybody. So there is a lot of uncertainty with reference to launch of new products of other therapeutic segments, investment into research of other therapeutic segments. And the whole world looked at towards a single point anti-COVID drug. That's all.

They forgot that there are other therapeutics segments that would also require newer medicines. But now having COVID either controlled, disappeared, may be reduced, now everybody is concentrating on the newer therapies for anticancer, antidiabetic, losing weight and lifestyle medicines. Our expertise is that -- expertised more is in lifestyle medicines where they need hundreds of tonnes or thousands of tonnes. I think, we see -- last 3, 4 years cannot be considered normal for any business, not only in the Pharma segment, I think in any other segment. Because it was very unusual. So I think from now, whatever growth we are seeing, I think, we should start saying this is 0 and look at how much -- how we are going to grow from now.

[Chirag Dagli, analyst]

Understood, sir. So the next few years will be substantially better than the last 5 years, is how you are kind of thinking about the business?

[Murali Krishna Divi, executive]

That's not optimism. I think, it should be as much a fact it should be.

[Chirag Dagli, analyst]

Understood. Okay, sir. Fair point. And sir, the contrast media gets categorized in custom synthesis only, right? There is no generic opportunity?

[Murali Krishna Divi, executive]

Contrast media is there in generic market also, as it is there in India. But if you look at the volume of convention by the innovators, the consumption in the rest of the market is much less. Because usually, they are connected with the instrument and supplies along with it or dominated by the innovator. So rest of the world, marketing is there, it's not negligible, but yes, it is much less. But it's growing very fast, in the developing and under developed countries.

[Chirag Dagli, analyst]

Okay. So for us also, it will reflect in the generic line item as well as the custom synthesis.

[Murali Krishna Divi, executive]

Yes. Depending upon the name of the contrast media compound, some of the compound like Iopamidol, a gold product, it is also being supplied into the generic market, probably still reflect in both.

[Chirag Dagli, analyst]

Understood, sir. And the two projects that you talked about in your opening comments is scaling up in this year. Those were both custom synthesis products and are these both contrast media products, sir?

[Murali Krishna Divi, executive]

Yes, no. So what I meant to say is that, yes, there are the custom synthesis two projects, very large. And we're never disclosed to what they are. But for your question, I think, I would say, yes, no.

[Operator]

The next question is from the line of Cyndrella Carvalho from JM Financial.

[Cyndrella Carvalho, analyst]

Picking up on the same discussion, I think as we move ahead over 2 to 3 years, should we see our top 10 products, [indiscernible] gabapentin, naproxen, dextromethorphan, and all that. Should we see more addition, will be from the [indiscernible] products?

[Operator]

Ma'am, I am so sorry to interpret. Requesting you to please use the handset mode while speaking as your audio is not audible.

[Cyndrella Carvalho, analyst]

Is this any better? Is this any better?

[L. Babu, executive]

Yes, ma'am, you'll have to repeat your question, please.

[Cyndrella Carvalho, analyst]

Sure, I will. I will. Sorry for this. So I'm asking that if we look at our top generic API products in past, like the naproxen, gabapentin, dextromethorphan. Going forward, over 2 to 3 years ahead, should we see more of parcels, contracts in India and new operating products to form part of these top products in over 3 to 4 years' time frame? Do you see that happening sir?

[Murali Krishna Divi, executive]

If I understand your question right, that our top products in the generic, the naproxen, gabapentin, dextromethorphan, that number is growing where we are the major players, and it will keep happening as we are beating our technologies, which will give these newer technologies of photochemistry, atomic chemistry, these will give lower cost and will allow us to produce large volumes with least appliances and more environment-friendly that will allow us to be the leader.

But they will add up 2, 3, 4, 5 each year, and we expect a much bigger basket than what we are in now. We are not talking about new products, new generics. We are talking about the generic products where we are already in, where we have a present and we see that they will grow. People are living longer. As I said, we are more into lifestyle medicines than life-saving medicines or generic products. So as people live longer, they have to use for a long time, the lifestyle medicines.

[Cyndrella Carvalho, analyst]

That's helpful, sir. And sir, if I may understand this from a 3- to 4-year perspective, what should be our goal from a top line and a margin perspective. You mentioned 35% to 40% is a larger range. But again, the earlier call also, you have mentioned a double digit. Should we affirm these two numbers again?

[Murali Krishna Divi, executive]

Barring COVID and any unfortunate incidents or issues of China or any other country, we should be able to see good growth, a double-digit growth. I don't want to talk too much. But as we need to prove that we actually are on that track. And I think a quarter result towards the INR 2,000 crores plus. I think that's what we'll give confidence again coming out of the moment where there are no sales, coming out of the INR 1,700 crores of sales going towards the INR 2,000 crores per quarter, then jumping into the INR 2,200 per quarter. Ours is, we don't jump, slow, steady, consistent and debt free. These are our model.

[Cyndrella Carvalho, analyst]

That's really helpful, sir. And sir, on the Kakinada, you have highlighted in the annual report, around INR 700 crore CapEx in this FY '25. And we're looking at commercialization in somewhere second half of FY '25 with the intermediates and the advanced materials. Is that the correct timeline to look forward to?

[Murali Krishna Divi, executive]

I don't remember that. We did not project any sales jump of INR 700 crores in Kakinada unit. It's not CapEx.

[Cyndrella Carvalho, analyst]

CapEx of around INR 700 crores anticipated in FY '25?

[Murali Krishna Divi, executive]

The CapEx anticipated, when we planned the project, it was about INR 700 crores a long time ago. Then we said, it is INR 1,200 crores to INR 1,500 crores of CapEx. A INR 700 crores being spent to in the very immediate near future. But, it's a greenfield project. What it meant is, right from boilers, pre-heating, cooling systems, environment treatment plant, all needs to be built. So, total infrastructure like some administration, hostels, the total employee institution has to be created which would take time.

But we cannot say how much of turnover. But we know that CapEx is about INR 1,500 crores on that project, we'll be doing that, expanding neutraceutical. Just to give you a clarification. As I was mentioning that there are more opportunities, we needed more capacity in neutraceutical, also intermediates. We have a lot of business, and we're also looking at some of the advanced intermediates and new chemistries and API. This will free up a lot of our existing U.S. FDA inspected facilities, both of them Unit 1, Unit 2, which can immediately the capacities are available for the custom synthesis projects from our big pharma. So, it has a double advantage.

[Cyndrella Carvalho, analyst]

Yes. Understood, sir. This is really helpful. I was just asking like from the advanced intermediates and KSM perspective, should we aim that a formal commercialization could happen mid of FY '25 or beyond FY '25? That is what I was trying to understand.

[Murali Krishna Divi, executive]

It should be mid of FY '25.

[Operator]

The next question is from the line of Ravi Purohit from Securities Investment.

[Ravi Purohit, analyst]

Most of my questions have been answered. Just one broadly, I think you mentioned somewhere that a lot of our business in grams comes from small molecules. But we also spoke of the new obesity drugs where we are kind of -- and these are -- these look like large molecules. So can you just kind of give us broad insight into how do we look at small molecules and with the large molecules as opportunities going forward?

[Murali Krishna Divi, executive]

Yes. We are experts of small molecule. We are not experts of large molecules. When we say small molecules, these are products like naproxen, dextromethorphan, gabapentin, several APIs, by which are produced by synthesis. The large molecules we refer to are peptides, monoclonal antibodies, vaccines. These are the large volume -- sorry, these are the large molecules where the molecular weights are goes into 1,000. Whereas usually ours is molecular weight of below 500. So these large molecules with the molecular weight some 1,000, they are peptides, they are nucleotides. But there also, our presence is required.

It's like if there is a big building of, but still it needs the brick, mortar, cement, steel. So we supply all the building blocks for the amino acids, protected amino acids or dipeptide, tripeptides. They will be assembled together in liquid phase and that's how the peptides will come out, which are large molecules, they are called.

[Ravi Purohit, analyst]

Okay. And at the time of our IPO, ip.com, you had mentioned about work on peptide technologies and lot of peptide products. And I think last few years, I mean, not heard too much about that, but suddenly the [indiscernible] family of obesity drug. It will become very, very large molecules. Just wondering if we have been working on these or these are the opportunities that you are anticipate portions or when they become more generated products?

[Murali Krishna Divi, executive]

I'm glad you remember all that, much hard work. We did and we were leaders at one time, supplying a lot of protected amino acids and coupling agents and protecting agents to the C20 projects at that time.

Then, of course, everything was silent on peptides. Now all of a sudden, people started on peptides. So we, again, approached these few customers who are involved in these, they assigned, qualify us, and we should be in good shape to supply these of the approvals and properly qualifying us. These are very big volume that's what we are thinking in the anti-obesity and anti-diabetic.

You may note the difference. The reason it was not successful at that time was they were trying to give it by IV, intravenous. A large peptide, putting it in oil and giving to intravenous was quite painful and that's how it couldn't succeed. But as today, you are talking about big that their goal -- so by oral, I think it is capsule, it is much easier.

[Ravi Purohit, analyst]

Right. And sir, is there like a typical time line to date as well, for process like approvals or filings or something like that? Or how does -- because the opportunity is right there, right now. So...

[Murali Krishna Divi, executive]

We are not doing any filings. We will be supplying them the building blocks. We are not doing the API. I think, we don't need to. It's not a waiting period, because it's only a customer approval and we meeting customers' requirements on the impurity profile and that would lead to the business.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Satish Choudhury for closing comments.

[M. Choudhury, executive]

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.

[Operator]

Thank you. On behalf of Divi's Laboratories Limited, we conclude today's conference. Thank you for joining. You may now disconnect your lines.