Divi’s Laboratories Ltd (DIVISLAB) Q3 FY22 Earnings Conference Call Transcript

Divi’s Laboratories Ltd (NSE: DIVISLAB) Q3 FY22 Earnings Concall dated Feb. 11, 2022

Corporate Participants:

M. Satish Choudhury — Company Secretary and Compliance Officer

Murali K. Divi — Managing Director

Nilima Prasad Divi — Whole-Time Director (Commercial)

Analysts:

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Alankar Garude — Kotak Institutional Equities — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Surya Patra — PhillipCapital — Analyst

Prakash — Axis Capital — Analyst

Chirag Dagli — DSP Mutual Fund — Analyst

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Sonia Lalwani — Stratford House Advisors — Analyst

Abhishek Sharma — Jefferies — Analyst

Amar Mourya — AlfAccurate Advisors — Analyst

Priya Harwani — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the earnings conference call of Divi’s Laboratories Limited for the Q3 of financial year 2022. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [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.

M. Satish Choudhury — Company Secretary and Compliance Officer

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 for the quarter ended December 31st, 2021.

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 the results for the quarter and nine months ended December 31st, 2021 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 this audio call conference call is the copyright material of Laboratories Limited and cannot be copied, re-broadcasted or attributed in press or media without 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 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 Lab or its officials does not undertake any obligation to publicly update any forward-looking statement whether as a result of future events or otherwise.

Now, I hand over the conference to Dr. Murali K. Divi, Managing Director for opening remarks. Over to you, sir.

Murali K. Divi — Managing Director

Good afternoon and thank you everyone for joining us at our quarter three financial year ’22 earnings conference. I hope the all of you, your families and friends are safe during this pandemic. The world is witnessing a new wave with the spread of highly transmissible Omicron variant. Although Omicron is more infectious, the rate of hospitalization is likely to be loyal while our government bodies continue to take strict actions to combat the situation by providing the first two doses as well as the precautionary dose of the vaccine during the uncertain time of this pandemic. Even the fully-vaccinated individuals are witnessing the COVID impact is a sign to be more cautious and continue to practice COVID appropriate behavior. At Divi’s, we are highly committed to protecting the health and well-being of our employees and their families.

We are implementing rigorous safety measures across all the manufacturing units and we’ll continue to do so until further guidelines from WHO, CDC and local governments. All our employees along with their families are fully vaccinated at both the units and at the corporate office. The Company has put in place several measures to ensure business continuity, completed all the expansions to create a steady supply platform. Even during this uncertain time, we continued to adhere to the delivery timelines of our customers, thereby signifying the commitment that Divi’s has towards its customers and the ability to supply. We are alert [Phonetic] and react expeditiously with the market. Backward integration in which we have started to invest is yielding positive outputs, thereby securing the supply chain. We continue to be committed to maintaining strong business continuity and adhering to our supply timelines. There is an increase in sales from [Indecipherable].

Now looking at capex, we have capitalized INR196 crores during third quarter and we anticipate another INR100 crores capex before end of financial year ’22. Being a responsible pharmaceutical company, Divi’s has taken up several CSR activities within the communities surrounding the manufacturing units, delivering the needful services that benefited hundreds of local living in the communities. Some of these initiatives include distribution of laptops to visually challenged students Nethra Vidyalaya supporting the local government schools in developing infrastructure such as building classrooms, providing desks, benches, books, school bags, stationary benefiting more than 20,000 students installed to 150 RO plants in the 61 government schools to ensure adequate safe drinking water to students in the schools.

I would now ask Nilima to brief on operations and financials. Thank you.

Nilima Prasad Divi — Whole-Time Director (Commercial)

Good afternoon and welcome everyone to Divi’s Laboratories Limited earnings call to discuss the results of our third quarter for the year ended ’22. I hope that each one of you along with your friends, family are safe considering the continued existence of COVID-19 pandemic and anticipated third wave. I would like to update the scenario with Divi’s. On the manufacturing front, we are currently operating at 80% to 85% production capacity, while following all safety protocols.

On the procurement side, there was a significant increase in the prices of some of the raw materials due to energy crisis in China. We were able to mitigate some of these cost pressures due to geographical diversification of procurement along with existing long-term contracts with the key suppliers. Backward integration on key products and limited product offerings have allowed us to be focused and react quickly to the changes in the market. I am delighted to mention that the capex program for debottlenecking, backward integration and upgrading of utilities taken up during the last two years are resulting in minimizing supply risk and production disruptions achieving a more improved financial performance. The logistical challenges attributed to the cancellation of flights, congestion at the port, limited availability of the containers and manpower at the port caused a huge slowdown, thereby impacting the incoming raw materials and outbound shipments. We are committed to serving our customers despite all these headwinds. Our operational teams continue to be diligent and closely monitor the ever-changing situation so that we can swiftly act and ensure an intact supply chain.

Coming to operations. I’m happy to state that we have achieved a consolidated total income of INR2,510 crores during the third quarter, reflecting a growth of 46% year-on-year. Profit before tax for the quarter amounted to INR1,034 crores, a growth of 61% year-on-year and the profit after tax to rupees INR902 crores reflecting a growth of 92% year-on-year. For the nine-month period ended December 31, 2021, the Company has earned a consolidated total income of INR6,503 crores higher by 25% year-on-year with an EBITDA of 44%. Profit before tax of INR2,608 crores reflecting a growth of 31% year-on-year and a profit of after tax of INR2,066 crores higher by 39% year-on-year. During the nine-month period exports accounted to 90% of the sales revenue while exports for the quarter constituted 92%. During the current quarter, Europe and US contributed 79% of our revenue while for the nine-month period the contributions from these regions was 77%. Product mix for generics and to custom synthesis for the period is 43% and 57% of revenue, respectively for the nine-month period. During the current quarter CS business was about 60%. Constant currency growth for the quarter is 59%, while for the nine-month period it is 32%.

Our Nutraceutical business for the quarter accounted to INR166 crores and INR471 crores for the nine-month period. We have a forex loss of INR3 crores for the current quarter and a gain of rupees INR9 crores for the nine-month period. We have cash on books of INR2,323 crores. As of 31st December receivables amounted to INR2,209 crores and inventories INR2830 crores. We have capitalized assets of INR196 crores during the quarter and INR762 crores for the nine months. For this, the new SEZ accounted to about INR368 crores. We have a capital work in progress of about INR450 crores as of 31st December of which a major part is capex at DC SEZ. Thank you.

M. Satish Choudhury — Company Secretary and Compliance Officer

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

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Yeah, thanks for the opportunity. Sir, sequentially, we have seen a sharp jump up on the sales. So would you like to call out if there is any one-off into this quarter?

Murali K. Divi — Managing Director

It’s not one-off. We have several projects we have been working on and yes one of the projects have taken little faster but it is a combination of several projects and also lumpiness in our business, which cannot be said quarter to quarter. It’s more on year-to-year is more reasonable.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Right. But from INR2,000 crores sales for the past two quarters now it is INR2,500 crores. So can that be now kind of a base to look for from here on?

Murali K. Divi — Managing Director

I would say that we would like to maintain that. Now, it also varies on these projects we’re working on. While our generic products are very stable but the custom synthesis projects we are working on it more depends on the customers’ products movement than we producing and offering.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay. And just secondly, we have been working on COVID products like [Indecipherable] but any further development even on let’s say the Pfizer drug which is Paxlovid?

Murali K. Divi — Managing Director

I think we should not be discussing products, we should not be discussing names of the companies, at least I should not. You have the freedom. We the Directors we are bound by confidentiality agreement. We cannot discuss on the specifics of the products. But yes, we are involved in anti-COVID drugs. We are the largest manufacturers of active ingredients. We are the largest capacity. Out of 1,700 reactors, the occupancy is 80%, 85% that means you still have about 300 reactors that can accommodate any requirement of any of the APIs. So if somebody needs volumes we the place.

Now coming back to your specific question anti-COVID drug, it’s not just these two drugs only. If you are seeing they are now saying that the combination drugs is much better than the single drugs. Number one, there is a new variant coming NeoCov which again needs a dependent modification of the drug. So several big pharmas are now coming up with a variant [Phonetic] chemistry more or less concentrating the nuclear facts. I think we are very — following very closely to see what kind of new technologies, new synthetic chemistries are required to quickly develop and manufacture and supply. When I say quickly develop, supply manufacture there is a reason because you don’t know what was in demand three months ago, six months ago. There may be no use six months from now. As we have seen with earlier drug Molnupiravir and prior to that our hydroxychloroquine and a few others. So the variants demand newer COVID drugs and newer probably mechanism of action. But we are — the chemistry is same. If you’re good in, good in newer chemistry, we can make them.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Sure, sir. That helps. And just lastly on the raw material side. While the backward integration has helped us in terms of maintaining or improving the gross margins per se, do you see this to be sustaining even for the upcoming over the near to medium term?

Murali K. Divi — Managing Director

Yeah, the raw material backward integration is a strategy not only just for the sake of saving some costs, but also from the point of assurance of supply both from the generics as well as from the [Indecipherable].

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Sure sir. That helps, thanks a lot.

Operator

Thank you. [Operator Instructions] Next question is from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.

Alankar Garude — Kotak Institutional Equities — Analyst

Hi. Good afternoon, everyone. Sir, given the big COVID upside in FY22 numbers, how should we look at growth in custom synthesis over the next couple of years? Maybe if you can throw some light on the order book that would be really helpful.

Murali K. Divi — Managing Director

I think I was just explaining about the COVID drugs. They may be short-lived or they may back soon. And the new — requirement of the newer ones is probably coming much faster to work on the variants. So I think it’s not the order book or it’s not — it is how quickly you can accommodate a new product, how quickly you can scale up and supply the order of the day to day. That’s where we are very strong. Now yes we wish to maintain the speed. We wish to maintain the same profitability. I wouldn’t say just custom synthesis because our generics portfolio is very strong. Our future generics portfolio is very, very strong. So I think it should be balanced because it’s not just custom synthesis alone, a balance of custom synthesis and generic will be the win-win. If you just concentrate on one you can be in trouble. The drug all of a sudden stops.

Alankar Garude — Kotak Institutional Equities — Analyst

Okay, sir. Yeah. Sorry, sir. Go ahead.

Murali K. Divi — Managing Director

No, no. Please go ahead.

Alankar Garude — Kotak Institutional Equities — Analyst

Okay. Sir, my second question was in terms of capacity, how are we placed over the next few years? And any update on Kakinada and are there any backup options if there’s any further delay in Kakinada?

Murali K. Divi — Managing Director

On the capacity we never had an issue because always we invest ahead of time. We have been investing for the last three years, about INR2,500 crores and it’s probably what we added is close to INR3,000 crores. Always keeping two or three blocks ready to take products, because we don’t build product specific buildings. We build always multi-product, multi-purpose blocks. That means any product could be produced in those blocks and very specific technologies they would go to different blocks. That’s the concept from day one we have been doing.

So I was explaining for the first question that out of the 1500 plus reactors we have, 80% occupancy is still leaves 200, 300 reactors available. These are all very large volumes which can accommodate one, two, three anti-COVID drugs coming it should be able to. And also the new [Indecipherable] coming into also the other new customs synthesis projects and the new generic that would go out the — MCEs that would go out of patent in the next two, three years, I said $20 billion goes out of patent between ’23 and ’25. We are geared up to get the business.

Alankar Garude — Kotak Institutional Equities — Analyst

And on Kakinada any update?

Murali K. Divi — Managing Director

Kakinada, it has moved quite a bit in terms that the APIIC finally agreed and they will be handing over the 500 acres of land to us in this shortly.

Alankar Garude — Kotak Institutional Equities — Analyst

Fair enough, sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Shyam Srinivasan — Goldman Sachs — Analyst

Thank you and good afternoon everyone. Sir, when you give your disclosure in the Annual Report you give your largest product. It was 20% Naproxen last year. This year certainly you will call it out. Let’s assume it’s molnupiravir. So what is the kind of number that you think are we doing specifically on molnupiravir?

Murali K. Divi — Managing Director

I did mention in the earlier answer that we cannot talk about products or big pharma. It’s highly confidential and I’m sorry, I cannot disclose. The reason even this name came out Divi’s and the product is because the big pharma did the voluntary licensing scheme. That’s how the name came out. So

Shyam Srinivasan — Goldman Sachs — Analyst

Okay, sir. Helpful, sir. Let me ask this question differently. Your partner Merck has said we have done 10 million treatment courses in the calendar year 2021 and this is going to 20 million courses plus next year. Should we assume that we are tied to the hips in terms of how that movement calendar year 2022 or fiscal ’23 for us relative to the last nine months, at least?

Murali K. Divi — Managing Director

What I would say is, again, we are ready to produce whatever they need irrespective of whether it is company A, company B, company C, company D, their requirements will be met. As I said that, it is a very dynamic situation. It can be 50, it can be 100, it can be zero. It can take three months, six months, one year. It’s very dynamic because nobody could predict this pandemic how quickly it will come, how it will disappear, how you should dress up and how should you dress down. So it’s very, very difficult situation. But what I’m saying is that we are ready to take all the opportunities we can meet the capacity requirements and we will produce and supply. There is no question of any shortage. We will make sure that.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. Sir, thank you. And my last question, I’ll quickly ask it, is on the generic API. If I were to use the 43/57 ratio for the nine months and back out the generic API, and I am also reducing nutraceuticals here, generic API piece is still declining 10% Y-o-Y, at least what math I could do, correct me if I’m wrong, but do you see that the pain in the generic API is probably over in terms of inventory drawdowns? Do you think fourth quarter or next fiscal you will likely see growth back again?

Murali K. Divi — Managing Director

I would not say that generics have declined. We did not lose a single customer, we did not lose volumes. The generic business and the custom synthesis I have been saying from the beginning 40-60 60-40. Now it may become 57, it may become 57 on the generic side or on the custom synthesis side. It’s not our intention to drive towards that. It so happened in the lumpiness it so happened that it is now 57, 60 or 63. That does not mean that we lost some business in the generics, no. Yes, competition is there in generics, will be there. We just have to be aware. We just have to try more chemistry and see how we can improve our margins all the time and face the challenges of the raw materials and work on it.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it, sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra — PhillipCapital — Analyst

Yeah. Thanks for the opportunity and congratulations for the great set of numbers, sir. I think the best ever number that we reported, although influenced by [Indecipherable]. Sir, I just wanted to understand your view, going ahead do you think this growth in the custom synthesis will be higher than the generic growth because at least this year we are seeing almost like over 50% kind of growth in the custom synthesis in the nine-month period. Whereas obviously on a high base of last year, generic is looking relatively softer. So your view on that?

Murali K. Divi — Managing Director

I’ve been saying for several quarters that we reached 50-50 because generics we decide what to produce, how much to produce when to produce. Custom synthesis — the customer demands, you produce this, you produce this much quantity, you supply at this time. So a combination of these two gives us flexibility, productivity and highest amount. That is our digital thinking.

But on quarter-on-quarter basis, we should not get confused, we should see more on year-on-year basis, whereby this lumpiness of quarter-on-quarter should not be. I think I said it’s $20 billion API going out of pattern between ’23 and ’25 and we are aiming at them that’s when you will see the generics again growing faster. We are launching the additional [Indecipherable]. We are launching the additional the [Indecipherable] which I already explained in the last quarter. They’re all our growth engines and also the news generic growth engines. I think one should not get carried away about one product or one COVID division, but I think we need to see what is the overall and is the Company to be able to handle multi-product task. I think that’s where we are experts in doing it.

Surya Patra — PhillipCapital — Analyst

Sir, slightly differently. Let’s say, over three — next three-year period, couple of things that I wanted to understand your view. So in the overall periods what is the growth that you are expecting, let’s say in the custom synthesis as well as generic business? You may not give — required to give the number, but I think directionally, if you can share some idea and also what is the capex that you are planning over next three years?

I’m asking these two questions because there is a kind of, I would say, a new wave of opportunity for manufacturers, particularly Indian manufacturers and to be specific a player like Divi’s that the supply chain replacement from the China or derisking supply chain from China, what the global world is looking for. So considering that and that is kind of strongest wave for Indian manufacturers. So what is the kind of growth momentum that you are looking at for custom synthesis opportunity as well as the generic opportunity and what capex that you are anticipating over next three-year period?

Murali K. Divi — Managing Director

Okay. It’s a quite complicated question but I would like to bring clarity. As an investment there is no problem with us for investing because the reserves the funds are available in the bank. We don’t need to borrow, INR2,300 crores from the bank in the fixed deposits. We never invest for the sake of investments. I mentioned that always we keep two or three multi-purpose blocks getting ready equipment installed ready for validation ready for erection of equipment. Equipment ordered, received maybe about 5,100 reactors and several of the other equipment to see which starts to go, so that when we give the go either for a generic product or for custom synthesis projects we need not look for the land, we need not look for buildings, we need not look for. What we need to look for only chemistry and technology. We typically work on them. The reason I mentioned is that I still have 200-plus acres at Unit 1, still have 150 acres land at [Indecipherable] So we could quickly if required more blocks we can install in those facilities.

Now coming to Kakinada, yes, once the Kakinada or the Krishnapatnam [Indecipherable] where when we stop, yes, there will be huge investment, at least INR500 cores, INR600 crores at each place whereas at the current, I think, in the next one, two years, we can see investment up about INR1,000 crores at the current prices current federal both unit 1 unit 2 and the new projects [Indecipherable] and probably it will be much higher, but again it’s all from internal equity holders.

Surya Patra — PhillipCapital — Analyst

Yes, sir. Okay. Just on the opportunity from the China supply chain replacement, particularly on the custom synthesis side or the intermediate for the innovative molecules that business opportunity, if you can throw some light, sir.

Murali K. Divi — Managing Director

You must be reading quite a bit about reaction from United States recently in the last one week from the FDA, both on vaccines, as well as API putting a red list on some of the companies, which really making the big pharma as well as other companies to worry about how they can source from China. Yes, it’s an opportunity. And since several companies have been sourcing from China, they’re looking at an alternate source either Europe or in US or in India. Definitely it costs 10 times in Europe, US, and also it takes a minimum of five years to bring a new plant forget about expansion [Indecipherable] small areas. So India have lot to gain in the next five years in the API industry. And we are geared up to take all the opportunities both from the big pharma side as well as being the generic side.

Surya Patra — PhillipCapital — Analyst

Sure, sir. Thank you. Wish you all the best, sir. Congrats for the great set of numbers.

Murali K. Divi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Prakash [Phonetic] from Axis Capital. Please go ahead.

Prakash — Axis Capital — Analyst

Hi, thanks for the opportunity. Good afternoon to you, sir. Just wanted to understand, I mean obviously we’ve done a good job. Great job. And you mentioned that these opportunities will keep on coming given the chemistry skill sets that we have. But from a number perspective it is a big step-up function that we have seen in this quarter. Would you suggest that this number will continue this way for the next couple of quarters also and we grow on this pace for next year also? Would that be correct understanding?

Murali K. Divi — Managing Director

I think I just answered that in very detail. It all depends upon the customers product performance in the market. It’s not one product, it’s not one project. We have a few projects lumpiness and the lumpiness is what you are seeing. So yes so far so good. We anticipate next quarter definitely we should be doing good. But what’s happened here from now, especially the COVID drug is very dynamic, even non-COVID drugs are also dynamic because during COVID we have seen several therapeutic segments the demand went down, like nobody was using antibiotics, nobody was using few other compounds, people were just concentrating on vitamin D, vitamin C and few other compounds. So I think this dynamic situation will be there at least for another one, two years until the COVID variant, the new variants which are going to come out in the very near future, I think that will determine whether the current COVID drugs work, may not work or the combi should work. That means, a compound A from X company has to be mixed with compound B of Y company and the new combo drug will do better than a single drug either currently available in future invented because there handful of more [Indecipherable] these anti-COVID drugs are coming out with new structures and they may all of a sudden show up to be very, very promising on the new COVID variant.

So, it’s how vigilant we are, how quickly we can develop that structure how quickly we can validate and supply to the customer is the challenge because somebody is applying $0.20 or $0.100 in three months or one year doesn’t mean anything because it may be zero is the requirement of next six months because on the variant it may not work, hydroxychloroquine or Molnupiravir or something else. So I cannot — I don’t want to comment on that. But we are geared up. We API manufacturers, we own technology to handle various types of chemistry and we are ready to take the challenges and do it.

Prakash — Axis Capital — Analyst

Yeah, I totally understand sir. I was just trying to understand given the order book kind of system, so we would have some visibility for the next three, six months. That’s what I was trying to get some color. But I hear you. My second question was on the input cost, and many companies have talked about this costs, etc. since we have large exports and the generics business in exports would require all these and obviously custom synthesis also. Would you like to call that out that the cost in general have gone up significantly or — I mean because of your custom synthesis it might be looking small. But business as usual is there a substantial jump in input prices as well as freight cost and has the trend started to come down?

Murali K. Divi — Managing Director

If we e had not done anything six months ago, one year ago, two years ago, we would have been in a mess because we anticipated this from China, we started working on backward integration, making our own starting material investing on them two years ago. That’s why the impact on us is much less compared to for several other companies. And we think the industry cannot pay these higher prices for a longer time or always people will find alternatives instead dose solving, instead of those compounds, instead of those derivatives. So what I’m saying is that the impact on us is much, much less because we were prepared backward integrated and purchased the raw materials, the [Indecipherable] planned and anticipated probably we have purchased some of them six months, nine months, one year stock. Now, will this continue? Can people — other generic companies, will they be able to bear, I doubt about that, but we are prepared.

Prakash — Axis Capital — Analyst

Thank you and all the best.

Operator

Thank you. The next question is from the line of Chirag Dagli from DSP Mutual Fund. Please go ahead.

Chirag Dagli — DSP Mutual Fund — Analyst

Yes, sir. Thank you for the opportunity. Sir, in your opening remarks, did you mention that the custom synthesis contribution for the third quarter is 50% 5-0?

Murali K. Divi — Managing Director

I did mention that we would like to maintain 50-50. That is my wishful thinking, but the custom synthesis is I think 57% and generic is 43% that small it was. But it’s not our intention to either put 60-40 or 40-60. It varies quarter-on-quarter because of the lumpiness of the custom synthesis projects. So I would prefer 50-50 this is what I said.

Chirag Dagli — DSP Mutual Fund — Analyst

I think Nilima mentioned 50. Just wanted to double check on that number. Did I hear it correctly.

Nilima Prasad Divi — Whole-Time Director (Commercial)

No I didn’t mention it.

Murali K. Divi — Managing Director

No, I think it is 57 customer synthesis, 43 of generic.

Nilima Prasad Divi — Whole-Time Director (Commercial)

I did mention that for the current quarter custom synthesis business is about 60%.

Chirag Dagli — DSP Mutual Fund — Analyst

6-0, okay, sorry. So you mentioned 60%. Okay. Okay. That is it. The other thing ex of the COVID business, how would the custom synthesis business have grown in the last nine months? I understand we don’t look at it quarter-on-quarter, but when you look at the first nine months of the year ex of the COVID business, how has this performed, sir?

Murali K. Divi — Managing Director

We don’t reveal or we don’t disclose that what segment wise business. We only — from the beginning, we only have been revealing or disclosing what is generic, what is custom synthesis. As I said that we maintain highest confidentiality both customer product numbers, and that’s how we are respected by the big pharmas and we would like to stay that way.

Chirag Dagli — DSP Mutual Fund — Analyst

Understood, sir. And the last question, sir, on the custom synthesis business was that typically the fourth quarter is very strong, seasonally the strongest for us. This year also do you see similar seasonality?

Murali K. Divi — Managing Director

We don’t see any reason for not — it is not our wish that last quarter we wanted to ship more. No. Probably it so happens that I don’t even monitor that way. But I think it looks good, opportunities are good, validations of several of our projects are underway, both in the custom synthesis in the contrast media in the fast track projects as well as our new generics, all things are happening for good and let’s hope for the best.

Chirag Dagli — DSP Mutual Fund — Analyst

Okay, sir. Thank you so much and best of luck.

Operator

Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets. Please go ahead.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Hi, good afternoon and thank you for the opportunity. My first question is on generic API segment. So here obviously you mentioned about volatility in commodity prices supply disruption, etc. So in some of your contract with customers do have headroom to pass on some cost?

Murali K. Divi — Managing Director

Yes, in most of the contracts, the when I say contracts not order book, quarter-on-quarter, year-on-year. We usually have contracts for about five years. And these contracts we will have some built-in system whereby neither of our customer will have issue nor we will have an issue when the prices go either too high or too low. There is a built-in system whereby we can pass on some of these extra costs. Yes.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Okay, sir. So it’s applicable for some contracts, but you mentioned like five year or longer contracts, but do you have similar levy in shorter-term contracts, say like something is one or two year and then you can pass on cost there too?

Murali K. Divi — Managing Director

What I meant is that most of our contracts are multiyear and they all are covered under that. But some of our newer generics, some of our development products they all [Indecipherable] in the last six months, one year, two years, these will take time before we enter into the longer contracts. This is what I meant.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Okay. Okay, sir. Understood. And sir, can you call out your capex plan budgeted for next two years?

Murali K. Divi — Managing Director

I have mentioned just a few minutes ago that it may be anywhere from INR1,000 crores to INR2000 crores in the next two, three years based on our investments into the greenfield projects and also our brownfield projects.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Last question, like, how much is maintenance capex for you per year approximately?

Murali K. Divi — Managing Director

It’s about INR100 crores.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Okay, sir. Thank you. I’ll get back in the queue.

Operator

Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hi. Good afternoon and congratulation on good set of numbers. Sir, in view of this performance so we were earlier talking, sorry but first let me take that, we were setting up several new technology of a micro processors reactor. So that which can give a much better higher asset turn than the I mean on the whole. So what is the status of that and how do we see that when we are talking of new technology?

Nilima Prasad Divi — Whole-Time Director (Commercial)

Can you repeat your question again, please.

Bharat Sheth — Quest Investment Advisors — Analyst

I mean — hello, am I audible?

Murali K. Divi — Managing Director

Yeah. Yes, please.

Bharat Sheth — Quest Investment Advisors — Analyst

We were working on I mean, setting up several micro process — I mean reactor. It can give where the turnaround time is faster and it can give a better asset turnover than the existing one. So what is the status of that project?

Murali K. Divi — Managing Director

It’s not project, it’s a process development capability or technical development capability. We have — number one, most of the products are made by batch projects. So we are planning continuous process number one. Two, we are also doing automation into process. Three, yes, micro reactors or micro cell production. So it is in the laboratory stage. There are advantages when you look at highly energetic reactions the micro reactors are very helpful because whatever is the quantity of highly reactive compound you have, small quantities available at a given situation so can it can advantage for such reactions. Yes, we are involved in those. They are still in the laboratory or in the scale up they not gone into the plant. Not only with anyway maybe for some [Indecipherable] they may be using. For the commercial still it is on the bench.

Bharat Sheth — Quest Investment Advisors — Analyst

Sir and in terms of this good stellar performance, we would like to revise our full year FY22 and ’23 growth number? Approximately, some kind of a ballpark range if you can give?

Murali K. Divi — Managing Director

I think some of the green I have to do and some of the greens you need to do. we don’t give — we have been giving only guidance in the past of 15% year-on-year and we would like to maintain that. There will be lumpiness, there will be projects delay and projects coming forward. And I think we don’t give any futuristic guidelines.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay, thank you very much sir. All the best.

Murali K. Divi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sonia Lalwani from Stratford House Advisors. Please go ahead. Sonia Lalwani your line is in talk mode. Please go ahead with your question.Ms. Sonia Lalwani please unmute your line from your side if muted. Yes, ma’am. Please go ahead.

Sonia Lalwani — Stratford House Advisors — Analyst

Congratulations on a very good set of numbers, sir. My questions have been answered. Thank you.

Murali K. Divi — Managing Director

Thank you.

Operator

The next question is from the line of Abhishek Sharma from Jefferies. Please go ahead. Yeah, thanks for taking my question, sir. Just trying to understand why there is so much uncertainty around Kakinada expansion that we are finding it difficult to commit to CapEx over a two-year period despite handover in near future?

Murali K. Divi — Managing Director

It’s not the difficulty, from our side, I think the regulatory bodies the APIIC with whatever exists situation with the farmers and the government. That is where it is. We have already fully paid. We have a constructed a wall around the part of the land and we are ready to go with our blueprints and drawings and the whole thing contracted. So it is the government APIIC missed to hand over the land. As I mentioned that we go about 200 acres of land at Unit 1 and 150 acres of land at Unit 2. We can invest based on the opportunities and we will never lose an opportunity.

Abhishek Sharma — Jefferies — Analyst

No, that’s fair enough, sir. But if I heard you correctly early on in the call you said that APIIC was close to handing over the land to you. What is still holding it back?

Murali K. Divi — Managing Director

There were farmers who raised questions to the government that the pay less or whatever it is to [Indecipherable] to the pharmas. We have paid extra, they went to the court to dismiss it. That’s why APIIC is actually able to now probably handing over the land to us.

Abhishek Sharma — Jefferies — Analyst

Okay. And is there some uncertainty around the time frame here that’s making a little tentative on when do you start the project.

Murali K. Divi — Managing Director

We don’t have any — we only can say that what we have been told by the APIIC, but once it is handed over, our line is clear. We will start work right away.

Abhishek Sharma — Jefferies — Analyst

Understood. Thank you.

Operator

Thank you. The next question is from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors — Analyst

Yeah. Hi, sir. Sir, thanks a lot for the opportunity. Sir, first question, like we all are trying to understand I think the same thing, I mean as you indicated that there is the customer lumpiness and lumpiness can be both on the positive side and the negative side. So, I believe, is this quarter was more of a positive lumpiness for us and that kind of momentum is not likely to sustain let’s say after one quarter. That is what you are indicating or how should we read this kind of lumpiness in the number?

Murali K. Divi — Managing Director

I did not say anything about — I said lumpiness is common in the APII manufacturing industry when somebody is making both generic and custom synthesis, number one. Two, when lumpiness happens, it’s like the curve, it can a little higher than normal lumpiness because there could be a combination of few projects. And also I mentioned that say will it continue the next quarter, the following quarter I made it clear that it’s not what we decide, it is what our customers’ compounds fails, performance that decide it. But what I said was we are not looking at one project, we have many projects going on with many customers. I think, in contrast media, in sartans, in the COVID drug, in our own generic drugs that would go out of patent in between ’23 and ’25 $20 billion [Phonetic] of products. So these are the various combination of projects that are going on.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay. Okay. So basically, is it like despite — I mean you also indicated that you’d like to continue this run rate going forward, so are you indicating that we have various such projects lined up so that this kind of step-up in the revenue, which we have seen is likely to continue going forward?

Murali K. Divi — Managing Director

I don’t think anybody will wish that the business to go down. No promoter will wish that it will go down. Every promoter will wish that he will at least maintain where he is now and maybe he will do better. That is my wish. Now what happens decides on — is decided by how is this COVID, how is this COVID variant will go into work and what kind of new drugs are required, can they be supplied faster. At the same time I don’t want to only look at COVID drugs. We have a number of projects going on both in custom synthesis as well as our own generics and new generics. That is what I would like to see that.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay. Okay. Okay, sir. Thank you.

Operator

Thank you. Ladies and gentlemen, due to positive of time, we will take one last question from the line of Priya Harwani from [Indecipherable] Ventures. Please go ahead.

Priya Harwani — — Analyst

Hi, sir. Good afternoon. So I just wanted to know the net cash as on 31st December.

Murali K. Divi — Managing Director

Can you please repeat?. I could not hear.

Priya Harwani — — Analyst

What’s the net cash as on 31st December?

Nilima Prasad Divi — Whole-Time Director (Commercial)

About INR2,323 crores.

Priya Harwani — — Analyst

Okay, thank you.

Murali K. Divi — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. M. Satish Choudhury for closing comments.

M. Satish Choudhury — Company Secretary and Compliance Officer

Thank you all for joining us today for the earnings call of Divi’s Laboratories Limited. In case you need any further clarifications, please reach out to our Investor Relations. Thank you.

Operator

[Operator Closing Remarks]