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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 Q2 FY '23. [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 of you. I am M. Satish Choudhury, Company Secretary and Chief Investor Relations Officer of Divi's Laboratories Limited. I welcome you all to the earnings call of the company for the quarter and half year ended September 30, '22.
From Divi's Lab we have with us today Dr. Murali K. Divi, Managing Director; Ms. Nilima Prasad Divi, Whole-Time Director, Commercial; Mr. L. Kishore Babu, Chief Financial Officer, and Mr. Venkatesa Perumallu, General Manager, Finance and Accounts.
During the day, our Board has approved unaudited financial results for the quarter and half year ended September 30, 2022. 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, rebroadcasted or distributed in press or media without the specific and written consent of the company.
Let me draw your attention to the fact that on this call our discussion will include certain forward-looking statements which are prediction, projection, 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, and that could cause our actual results to differ materially from what is expressed or implied. Divi's Labs or its official do not undertake any obligation to publicly update any forward-looking statement, whether as a result of future events or otherwise.
Now I handover the conference over to Murali K. Divi, Managing Director, for opening remarks. Over to you, sir.
Thank you, Satish for introduction. Thank you, everyone, for joining us for our Q2 and half year financial year '23 results conference call. I hope that all of you, your family and friends are in good health and keeping safe. We have gradually acquainted ourselves to adjusting to the new normal. And yet at Divi's, we are vigilant about the continued existence of pandemic and are having the safety protocols in place.
Now, I would like to give you an operational overview. During the current quarter, we continued to net normal operations across our manufacturing units. We continue to monitor and be aware of the extremely volatile global market scenario in terms of geopolitical uncertainties, confined mobility in China due to widening COVID spread, energy crisis in Europe, and global inflation, and set up various strategies to ensure uninterrupted supply despite the headwinds.
Adding on the progress over previous quarter's update, we have filed multiple DMFs for our county KPI in several of the regulated markets. Our contrast media API have been filed in several countries and are in qualification stage at our customers. 2 of the contrast media API are being produced exclusively for the innovators where all qualification works are in progress.
Our Custom Synthesis business has seen very positive progress, where we believe a few of our customers [indiscernible] will cross Phase 3 and closer to launch in the coming times. Divi's continue to manage our operations responsibly and create a positive impact around the communities we operate. We have undertaken several CSR and sustainability initiatives during the quarter. Some of these CSR initiatives include developing the infrastructure of the communities around our manufacturing unit, benefiting nearly 75,000 people. As a part of child empowerment initiative, we continue to provide child nourishment and stationary supply in government schools, benefiting approximately 24,000 students. With that, I would like to hand it over to Ms. Nilima, to share some operational and financial highlights of the quarter.
Yes, ladies and gentlemen, a very good afternoon to all of you. And thank you for -- very much for joining us today to discuss the results for the second quarter FY '23. I hope that each one of you, along with your friends and family are in good health. On operational front, during the quarter, we had minimal to no disruptions to customer shipments and are operating with a commitment to fulfill all our customer requirements in time. The global logistics scenario has improved and we have witnessed receding sea and airfreight costs during the quarter. However, minor disruptions stemming from issues like manpower shortages continue, and we are being cautious about the inbound and outbound logistics management to keep our operations smooth and meet our customer commitment.
Raw material procurement and availability issues have slightly stabilized and prices for some raw materials marginally reduced compared to previous quarter, while for a few continues to increase. Prices of some base metals such as lithium and iodine, have multiplied several times since last year. And we anticipate this trend to persist. Some solvents like toluene continue to increase. Energy costs continue to rise and we are taking steps to mitigate the impact of the same on our operations. Our critical supplier base is growing and we have enough inventories to meet these difficulties. Our team is also carefully monitoring everyday developments across the globe considering the geopolitical tensions, China's 0 COVID policy and escalating energy prices to prevent any delays in customer shipments and ensure a stable supply chain. We continue to geographically diversify our supplier base to mitigate geopolitical risks.
Moving on, I shall now take you through the key financial parameters of the quarter Q2 FY '23. We have achieved a consolidated total revenue of INR 1,935 crores for the quarter as against a revenue of INR 2,007 crores for the corresponding previous quarter. PBT for the quarter amounted to INR 615 crores, and PAT of INR 494 crores. For the half year period, we have consolidated revenue of INR 4,278 crores and the profit after tax of INR 11,196 crores. Our EBITDA margin for the quarter accounted for 36% and 38.5% for half year. Exports for the quarter accounted to 87%. Export to U.S. and Europe accounted for 68% of our revenue for the quarter and 71% for the half year period. Product mix for Generics to Custom Synthesis is 57% and 43% respectively for the quarter, and 52% to 48% for half year. We have a ForEx gain of INR 31 crores for the quarter. And a gain of INR 87 crores for the half year. As we have lower sales during the quarter due to, and due to the change in the product mix, our constant currency growth for the quarter has been negative at 13% for the quarter, while it has been negative at 2% for half year.
Our nutraceutical business amounted to INR 163 crores for the quarter and INR 350 crores for half year. We have capitalized assets of INR 89 crores during the quarter and INR 200 crores for half year. Capital work in progress is about INR 542 crores as at the end of quarter. As of 30th September we have cash on books of rupees INR 3,336 crores, receivables of INR 18,140 crores and inventories of INR 2,970 crores. Thank you.
Thank you, madam. We would request the moderator to open the lines for Q&A.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
My question relates to some outlook on the Custom Synthesis business. As I understand, given that the share is lower and hence the gross margin is kind of little muted, if you could highlight that. Some outlook for the second half and next financial year, please.
Actually, in fact, our Custom Synthesis business looked very optimistic and probably much better than any given time. There has been several opportunities we received in the last 6 months where we think, and these opportunities are mainly in Phase II, Phase III, and hopefully in the near future we'll see good results from those products. When you say the bigger opportunity we had on the fast-track project, it completely depends on the COVID on the rise or not. The volumes cannot be fixed on year-on-year but our dynamics where demand would be very high are very low.
Okay. And would there be any, you know, qualitative guidance on the gross margin and EBITDA margin going forward given there has been some volatility?
I think the margins, if you look at material consumption, it remained the same 36% compared with the previous quarters. And yes, there were pressures on the raw material prices, and there were pressures on products. I mean, generic price of API, increasing logistic costs as this has impacted but we are slowly energy costs went up very high, 2x to 4x. And we are trying to work on each of these to see how to become less reliable on them, how to become less dependent on them.
Okay, so, in summary, can we assume that this quarter margins is the new normal and then it starts picking up as and when the Custom Synthesis business picks up again?
If you recall, in 1920, we used to have a run rate of total income of INR 1,100 crores to INR 1,400 crores, with a for-profit after tax of around 24%, 25%. And in, as we started -- as we have started taking up several of the expansion plans, it went up to INR 1,700 crores in the Q1 '20 and '21 with slightly upper margins of 28% and '21-'22, the with the fast-track project, it went to INR 1,900 crores, to the highest of INR 2,546 crores. Yes, with a better margin of 31%, 37% being the highest.
And I think in the immediate quarters, 1 or 2, we will be facing probably the same. But going forward, with these new opportunities in the Phase III and with several opportunities from the big pharmas what we got in multiples of times opportunities we should be able to see quite a big growth in the -- it will only take about 4 to 6 quarters before they can yield totally the qualifications, the secondary site doing the formulation qualification. Then I think the commercial volumes will start.
[Operator Instructions] The next question is from the line of Cyndrella Carvalho from JM Financial.
Sir, I just want to understand, if we look at the top line of INR 1,854 crores for this quarter, how should we -- should we consider this as a base and from here onwards it will grow? Or is there any kind of shipment delays that have happened or shipment deferrals, which have happened for the next quarter in this? Any color on this, especially on the generic side that you can explain?
First, I think we have been always saying that we should not be looked at as on quarter-on-quarter basis. It's very difficult. Either in the Generics or in the Custom Synthesis to look at quarter-on-quarter basis. So we have not left any opportunities. And as I mentioned that in the coming quarters, few of Custom Synthesis projects which are on, I would say, fast track, they should start doing well. And also the fast-track project which we had, we do not know all the customer is there looking at it, and it all depends on the pandemic and the strategies.
Right. And sir, if we have to understand our new generic launches, you were mentioning to a lot of DMF filings. When should we expect these launches from a timeline perspective? Would second half be part of it? Or it will be largely from an FY '24 perspective we should start looking at it?
The patent expiry of these new molecules where we submitted [indiscernible] the expiry itself will start from '23 to '25, depending upon which ones. And so we should start looking at because '24 onwards we should look at the opportunities.
So, sir, if we are looking at the Generics business this quarter, almost around INR 870 crore level, and it's showing some bit of growth for us given the contribution breakup that we have shared. So how should we look at this portion in the second half and over coming 3 to 4 years from -- including all these possibilities and newer launches? Do you think that the volume should continue to grow? Or you still see some bit of volume or a demand aspect still stagnant at this point in time?
Post COVID, the other regular therapeutic segments are growing, and we see everything to be either normal or growing in the Generics. I'm going with this therapeutic segments. When COVID was severe, all the other therapeutic segments because of the hygiene and nose masks and less [ communable ], so whereas now everything is open and there is again demand for anti-infectives and anti-arthritic, anti-allergics and pain killers. So I think we see a possibility for the improvement in the generic industry. Especially the cough and cold medicine, which I think is getting more in demand as the cold season has just started, but this is a year-on-year quarter-on-quarter basis. It goes down in summer and again fall and winter it goes up. That's a seasonal variation. But I'm talking about before COVID and after COVID. I think we are reaching a situation soon on therapeutic segment's demand going up. Prior to COVID whatever we had, I think we will reach that.
The next question is from the line of Neha Manpuria from Bank of America.
Sir, on the comment that you made that a couple of your customers who have products in Phase III, we will start seeing contribution from those in 4 to 6 quarters. So is it fair to assume that the Custom Synthesis improvement will probably come through in CY '24, FY '25 probably. And this is the base that of Custom Synthesis business we should work with till then?
As I said, we have never seen so many opportunities in the Custom Synthesis, both -- earlier we used to get them in the very early on Phase I, Phase II. Now we are also seeing not only we have many opportunities in Phase I, Phase II, we have a couple of fast-track Phase III projects which we think will start [indiscernible] in '24. Usually it is -- that's not the case usually. Usually you enter in a Phase I, Phase II, travel 2, 3 years, then it will take 1 more year for launch, then you see. But during COVID, most of the companies concentrated on anti-COVID drugs, everybody. So now once this demand has gone down, they started looking at the next immediate requirement.
So they looked at their own pipeline, and they found some good compounds who were work launching billions of dollars' worth. So they started pushing them. This is where I think the fast-track projects which we took and executed in 1 year, making hundreds of tonnes, it's a benchmark in the industry. Nobody from the [ AMC gram process ] had delivered -- validated, delivered hundreds of tonnes in a year. This is the first time in the history in the API industry. So Divi's has put that benchmark that it can be done in 1 years. That's why I'm confident based on again this is all, I think, to the best of our knowledge and also looking at them finally getting clearance, the regulatory clearance or regulatory hurdles. But we are quite optimistic at this moment.
Understood. And from your comment, it's fair to assume that post the fast-track project that we executed last year, we are seeing more inquiries for such Phase III projects which are near Phase III increasing. So that pipeline is probably becoming much larger than it was pre-COVID?
As I said, nothing like seeing the benchmark, seeing the execution. The world's press is a very small community of 10, 15 companies who did this project to extend who did that project to why. Naturally, I think if somebody's volumes and quick execution I think we are looking -- they're looking at us as one of them who can execute and bring the product on to the table.
Understood. And sir, an update on the Kakinada CapEx. What have we seen there? What have -- has there been any progress?
Stands same as of last time. There is not much movement from the government, and we are still waiting for the clearance.
Okay. So there's been no change in the...
No change.
Okay. And last one more, if I may squeeze in. What is the utilization in the current quarter?
Around 80%, 83%.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just going back to custom synthesis and what's happened quarter-on-quarter, 1Q versus 2Q, just doing rough rounding up numbers, INR 1,200 crores has gone to about INR 800 crores. We are aware, sir, that you had this fast-track project COVID-related, but does that explain all the change quarter-on-quarter for this second quarter?
I don't think we should be looked at as quarter-on-quarter. It's more, I think in Generics it can be looked at, if at all. Whereas in the Custom Synthesis, contract manufacturing, I think we should not be looking at it from quarter-on-quarter. I think sometimes it can lump up based on the delivery. Based on the cold container availability, I think more to do on the availability of the containers, refrigerated containers.
Got it. So you're saying maybe it's not a demand issue -- sorry, I'm trying to interpret your point here, sir? So it could be because of delays, and that's the earlier participant also, was there any delay because of unavailability of say, cold containers that led to the lumpiness in the business?
No, it is not the lumpiness on the business. It is more -- it's not having raw material, it is not having business. It's mainly, I think, some cold container availability and probably most of the projects that get, some of the projects probably are getting cleared on the Certificate of Analysis. It took a little longer time for them. It has nothing to do with our regular business in the Custom Synthesis other than the fast-track project.
Anything you can quantify there as how much of that could be booked in the upcoming quarters? Any quantum -- I'm not looking at exact crore number because that Q-o-Q is a big slip, right? And it can't be just explained just by fast-track going to 0, which you have flagged already last quarter. So we are aware of that. But the quantum is where there is some surprise.
But if nobody asked me when the fast track because of fast track project it went to INR 2,500 crores, nobody asked me why it went up. Is it only the fast track project? Or is it also some other Custom Synthesis project. I think it's very difficult to explain on quarter-on-quarter basis. But I can tell you that 2023, end of 2024 it is going to be a year where we'll have lot of opportunities in Custom Synthesis happening.
Got it, sir. That's helpful. Second question is on the generic API nutraceuticals. So generic API on a low base, I think we have grown. But if I do like a 1- or 2-year CAGR, it seems to be still flat. So if you can talk about industry, either price volume dynamics. In the past you have mentioned that we are not losing volume share, but we have seen pricing pressure. So if you can just update us in what has happened in quarter 2, sir.
Here, I think it has nothing to do with losing any business from outside. It is -- the price pressures still are there. The big 2 pharmas who are our competitors, I think for them it's not very important at least one of them going to be -- what we hear is that they may be leaving. In such a case, probably we will have a large chunk shifting to our side as we already expanded and we have plans to expand further.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
And sir, the first question is on the Custom Synthesis. People have already asked them before. But for the new projects where you are expecting some fast track in 4 to 6 quarters, what would be the size of this opportunity? I mean, is it comparable to what we had done in the -- with the COVID products? Or is it going to be different?
We believe it's not for COVID. I think I did mention that because pre-COVID they were developed, and I think they were -- the COVID took over and only the COVID drugs were promoted. Now I think these drugs are not of COVID. And how big is the dream? I'm not dreaming. The dreamer is the big pharma. So we think they are quite big compounds.
Okay. You think it's the big compounds. And so these are not emergency use authorization type of products, these are more of a regular NDA approvals, right?
I cannot comment on that. The reason is that I think several of the -- if I say a little bit, you will be able to guess what they are, then the big pharma will come after me. And I don't think I will lose business, but I use my faith of maintaining the confidentiality. Till now, the credibility has been that we maintain the highest confidentiality. We don't even talk about the contract being existing. We don't even talk about with which customers what.
No, worries, sir. And sir, you cite for the generic API business the opportunities from patent expiration from 2023 to 2025. I'm just a little curious because every year, $15 billion to $20 billion worth of drugs lose patent protection, and it's not going to be too different for those 3 years. So you should be having these as an ongoing opportunities rather than for those 3 specific years. So if you can just talk about that. Sir, are you there?
Members of the management?
[Technical Difficulty]
We request all the participants to please stay connected while we reconnect the management. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over you, sir.
Sir, this is Sameer here. I had asked a question on the generic API. Do you want me to repeat the question?
Can you please?
Yes, sure. Sir, the question was that every year we have $15 billion to $20 billion worth of patent expiration, and that probably defines an API opportunity for companies such as yours. So you are highlighting those which are from 2023 to 2025. So anything that's more specific for those years? Your thoughts on that.
I think we have never disclosed. We said that $23 million to $25 million -- $20 billion expiry of the patents. And we were developing process. We have completed that. We have filed a few drug maker files, and we are in the process of filing the remaining. And soon some of the qualifications by the customers will be completed and as the patents expire, they will be able to launch, and we will be able to continue supplying the API.
Okay. Sure. Sir, with your permission, I can -- let me ask just one final question. It's on the sartans opportunity. So if you can just share what's the update over there?
On the sartans, we became more stronger because we are backward integrated and no other sartans manufacturer is backward integrated. We make our own ortho tolyl benzonitrile, which is the starting material that's using a new technology by what is called photochemistry. People do not even understand photochemistry but we produced hundreds of tonnes a month using such technology where we have an advantage. And these raw materials are common to all sartans. This is what puts us on the forefront of the sartan. So we have -- we have already leaded in 2 sartans. We have a Custom Synthesis project of sartan, which we -- where qualification is complete. Another big pharma, sartan again qualification is complete, commercial quantity is already, manufacturing is under progress. So with the 2 of sartans from these big farmers and 1 sartan, 2 sartan from our own, that leads to 2 more sartans in generic that are with decent volumes which are where qualifications are under progress. I think that would complete the circle of sartans.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Just on the nutraceutical business, if you could share the capacity utilization.
We are about 80% on the nutraceutical utilization right now.
Which -- whatever the capacity which we have doubled over the past 1 year, right?
Yes.
Yes.
So the sales run rate has been pretty stable at about INR 155 crores, INR 160 crores. So anything we're missing out here?
It depends on the combination of vitamin D, vitamin A, our alpha therapy, beta therapy in the combinations of what campaigns we take us, I think that's one thing. And then the customer demand is another thing.
Okay. And receivables also have been sharply down over the past 6 months. So in line with reduced Custom Synthesis opportunity?
What is it, I'm sorry?
The receivables have also been down over the past 6 months.
Which is a good thing, receivables being down is a good thing because the I think the sales are comparatively down than the early year. And we are again back to what we were in the 2021.
The next question is from the line of Surya from PhillipCapital.
Sir, you have been indicating about the contrast media as a kind of a key growth driver for us in the near future. So can you give some more clarity about how many products are currently that is there in your portfolio, this contrast media? And you also mentioned recently that for one product you've got a tie up with a big pharma, and that could be the true growth driver in the near future. So could you please provide some clarity about that? And how big is that contrast media as a segment for you to target?
First, I think we need to understand what are our strengths to enter into contrast media to be competitive and to sustain. Everything is iodine. Contrast media is based on iodine. Iodine what used to be $15 per kilogram today is about $80 to $90 a kilogram. So most of the cost of contrast media is iodine. This is where we develop technology to recover iodine, both organic, inorganic from our waste streams and became very cost effective. This has attracted and given us more opportunities into the contrast media. And for 2 of the contrast media, one with big pharma, another one, I don't know whether I should also call it big pharma, but they are the largest in the contrast media. -- we have completed qualifications and are contrast media. We have completed qualifications and are continuing the production. So we should see good growth, good sales.
Okay. But sir, is it possible to say that the contrast media is an opportunity, whether it is in the kind of like $1 billion to $2 billion kind of a global market and we are trying to have a kind of a bigger pie of that or bigger picture about contrast media if you can.
I think there are 2 kinds of contrast media. One is for the CT scans, which will get where are the blocks and what's happening, our blood vessel. The second one is which is used for MRI. We have not entered that. Before now we are entering into the contrast media of MRI. These are called gadolinium compounds, gadobutrol, gadoteridol, these are all very specialized chemistry which uses gadolinium. Now we now mastered the iodine-based and it is not $1 billion, $2 billion, it's several billion dollars. And the contract media, no doctor wants to give you any treatment without a CT scan.
Similarly, you go for neuropathic pain or you get any pain in the brain, headache, they want to immediately take MRI and MRI needs gadolinium compound. So we understood this. We have developed some processes for that. And now we are in discussion with the leaders in the contrast medium. So we should be able to soon have, I think, sample approvals and then qualifications and all that. It will take more time. But it's not just contract media iodine-based, but there are also another set of medium that's called gadolinium which are for the MRI, which is probably much bigger market.
Sure, sir. Sir, second question is about the, let's say, the new units that we have created over the last 2-year period. So as kind of a part of our expansion projects. So how many units have already been currently under the commercial manufacturing and how many would be, let's say, have not yet seen commercial manufacturing as of now because of the regulatory clearance or something like that?
Most of the units have already commenced. 2 units, 1 small volume, number of products at a time, high-potency compounds, that is under completion. And another 1 more block that is for commercial comp where that's why you are seeing the INR 500 crores of capital work in progress. That is. So other than these 2 blocks, everything else is done.
Okay. And even the contrast media, the block that is -- that commissioned the operations, sir?
When you say commissioned, it is validated?
Commercial commissioning.
And production started.
Okay. Okay. Just last one question, sir. Rather 2 point in this. One is that as per your sense there was a kind of a component of this COVID product in this quarter as well as in the corresponding previous quarter. As for you, what is the like-for-like growth? And the second point is that, have you seen any kind of progress in terms of the new contract addition or the project addition because of the kind of the disturbances what we are witnessing in the European world or, let's say, supply disruption coming from the Chinese segment?
Definitely there is global inflation at all-time high, confined mobility in China due to widespread of COVID, energy crisis in Europe. We just came back from CCHI where several of our customers they are complaining at homes, there is no either connection or there is a premium price for the gas or oil. They all have been lost for the coming winter and what used to be like $50 a month now it is about $500 a month for the heating or cooling. So an increase in logistics is another thing. I think this will play a lot in the coming, I think, winter as well as following the winter.
So is it fair to believe sir, this way that since Europe is facing all these kind of problems as you're indicating, so possibly -- and the majority of our export happens to Europe, and that could be one reason of lower Custom Synthesis operations this quarter?
Number one, which I didn't want to share really, but I think the indication that sourcing from China, either generics or the big pharmas for the Custom Synthesis is going to be very difficult. One, they want to reduce their dependency where I think confined mobility in China, and all of a sudden stopping and geopolitical, which I don't want to bring it up. I think these are causing big pharma to look outside, either in Europe, U.S. or India. In Europe and the U.S., there's not enough capacity to produce anything. So India will have a lot of opportunities in the Custom Synthesis. Irrespective of what the general conditions are in Europe or U.S.A., energy crisis and few others, people need medicines, that cannot be ignored. So we see -- the demand either will be -- will stay as is or it will go up. We don't see any coming down.
Okay. Okay. But no greater sign of really significant additional business that you're finding?
In the Custom Synthesis, I did mention that often some -- 2 fast-track projects and opportunities, Phase III and several opportunities in the early stage, that's all Custom Synthesis. Generics is different. It's our own where we are working on the $20 billion project between '23, '25.
Okay. Sure, sir. And if you just lastly, sir, like-to-like basis, what growth that you would have seen in the quarter? This is my last question.
Pardon?
Like-to-like basis without this COVID supplies, what growth that you would have seen, sir?
We cannot discuss on quarter-to-quarter. I think it's very difficult for us to discuss because either generic or customs synthesis, some are driven by the customers, some are driven by, I think, this cold containers availability, so it's very difficult to say.
The next question from the line of [ Deepak Mehta from Capex Investment ]. We move to the next question from the line of [ Rithvik Sheth ] from [ One-Up Financial ].
I have 2 questions. By the end of FY '23, we will be close to INR 5,000 crores of gross block. So would it be fair to assume that on current pricing we would be around, our peak revenue run rate would be around 2x sales as we have been guiding historically, around 2x asset turnover ratio?
Could you please repeat the question again?
Yes. So by the end of FY '23, our gross block would be around INR 5,000 crores. So is it fair to assume that peak revenue run rate from the gross block would be approximately INR 10,000 crores? At peak utilization.
One is the dream, second is making the dream work, and the third is dream becoming true. I think it's very difficult to comment on whether it is dream or true, somewhere in between.
Okay. Sure, sir. Okay. And sir, my second question is related to Kakinada CapEx, assuming that we were to get clearance from the government, what would be the time line in terms of starting the CapEx and then commissioning, if you could throw some light on that?
I think we have been making for 6 to 9 months for the final, final clearance, and I have no say so on when they will clear because we had all statutory regulatory clearances, accepting the clearance from the state government as a final pickup.
Okay. Sir, my question is not related to the approval. I'm saying that hypothetically, if you are getting approval, say tomorrow, we would start constructing the facility. So when would -- what would be the time lines to get it commissioned from start till the end? Would it be 1 year, 2 year or period more than that?
I think we should complete within 1 year and start seeing the results starting from the second year because, again, once you complete your are to again requalify whether it's expansion of existing products or new products. We have to validate, requalify and customer has to again give clearance. I would say fair 2 to 3 years.
The next question is from the line of [ Nikhil ] from SiMPL.
Two, three questions. One is one clarification. You made a statement that one of the competitors or 2 players in one of the products would be going out. One player would be going out. Was it with respect to nutraceuticals or with respect to the API business? During the call, you made a statement that there are 2 competitors and one of the innovators would be going out. So was it with respect to nutraceuticals or API business?
It is in the nutraceuticals side. I didn't say the company will go out of business. What I meant is that they may drop some of the products for nutraceutical, as there were severe price pressures. It may not be of interest to them to continue because they always may have better products to produce in the European U.S. context. This is what I commented. These companies are too big and they're too diversified and they have excellent profit-making products. So they don't have to hang on to some products in the nutra that to continue. So we hear, when you say hearsay, we don't know what is the truth in it. So we hear that it may not be of interest to them and some of these nutraceuticals, they may drop. This is what we heard. So we are ready to take any of such opportunity.
Okay. Okay. Now 2 questions, sir. Like in -- if we follow our last call, like '10 quarter calls, we've been -- we've done a lot of work on backward integration and improving the yields in our product and improving our cost structure. But still, if I look at our margin profile this quarter and even adjusting for the one-off products, we are around that 33%, 34% adjusting for the other income. So is it like the cost pressure in the P&L are so high that the benefits of the work we have done on backward integration are not completely reflecting in our P&L as of now?
Because of the backward integration, we are able to maintain the profitability of what we were in the 2019, '20 at bottom line, 23% to 27%. If we did not take up the backward integration, had we been totally dependent on the supply for the raw materials to keep -- for the raw material from China, which increased prices anywhere from 20% to 40%, it would have troubled us in even staying in business. Now there are 2 things that happened because of our backward integration. One, assurance of supply because in some of the provinces, China just closed the walls, borders, no shipment of starting materials. We would have been out of our Generics business. 2, by just increasing the prices 20% to 50% there's no way we can accommodate them. So I think this is what benefit we got from the -- in spite of the energy cost increase, in spite of other cost increase, we are able to maintain profitability before the fast track project.
Also, I would like to add here that since we have taken up the backward integration and also supplier geographical diversification, our dependency on China, this half year has reduced by 20% compared to the previous year's half year.
[Operator Instructions] The next question is from the line of Mithun Aswath Of Kivah Advisors.
Just a little bit more broader question. I wanted to understand what would your CapEx plans be for the next couple of years since you're sensing large opportunities on the generic side? Because we've seen quite a lot of CapEx in the last couple of years. Would your next couple of years, what kind of CapEx you would be looking at? Number 2 is also on that portion you talked about on the starting materials side. Do you see the backward integration that you've done is coming to some sort of leveling off? Or is there an opportunity to do a lot more there? Those are the 2 questions.
The first question, I think we need to expand in the next 2, 3 years. We have the requirement of some of the fast track projects we are entering now because it depends on how fast the fast track project's needs are. Is it few tens of tonnes or few hundreds of tonnes. Two, also the new contrast medias further, as a mentioned 2 MRI compounds we are developing, once we are successful in developing the chemistries and also qualifying our -- validating our processes, then definitely we need capacity to produce them. I think this is where we see a big opportunity, and we need to expand. Two? What's your second question?
So I wanted to know in terms of what would the approximate CapEx that you'd be looking at over the next 2 years?
No. Your second question was on backward integration, what we did to the few compounds, you [indiscernible] stay in business or do some more. I think what we are doing is now coming up with new technologies in the backward integration, like the flow chemistry, vapor phase chemistry, liquid-liquid, solid-liquid, electrochemistry. And this will make sure that our dependency on methyllithium and other metals and solvents will come down. We have introduced [ new swing ] technology whereby several of our raw materials, solvents could be reused. These are all the things we are way ahead of other companies whereby we should be efficient. And everybody is talking about energy conservation, green chemistry, carbon footprint, less emissions, and we are ahead of that.
Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to Mr. Satish Choudhury for closing comments. Over to you, sir.
Thank you all for joining us today for the earnings call of Divi's Laboratories Limited. In case you need any further clarification, please reach out to our Investor Relations. Thank you.
Thank you. Ladies and gentlemen, on behalf of Divi's Laboratories Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.