Q4 Red Sea + Biosecure tailwinds vanished.

Second question I have is on the API generic side. This quarter, the performance continues to remain weak with like low single-digit decline in that segment. When can we see the revival happening in the generic side of the business? And is the pricing pressure still positive in the business at present?

See, as I explained you in the last few calls, okay, we are facing pricing pressure on generic molecules. Although we have not lost a single customer or even any loss in volume. The reason why we are able to manage this is because of our backward integration, where even the Kakinada facility has been helping us in manufacturing several of our in-house raw materials and our in-house intermediates. We're hopeful in the next few quarters, it may stabilize and things may come back to normal.

So, what I wanted to ask is having available capacity, does it give us an edge to go aggressive on the pricing? Because earlier 10 years back, Divi's was one of the few players to compete from India, but now we have several players who are competing for the same molecules.

When you see multinationals or MNCs, they don't only look at price as the only factor. They look at EHS, they look at sustainability, they look at whether you're SBTi compliant, they have several factors before they even come to qualifying. Pricing is one factor. Capacity is one factor. Divi's always is one step ahead in terms of capacity in terms of looking at forward, thinking in terms of creating capacity.

The first one on the capex. So, in quarter 1, we had guided for around Rs. 2,000 crores of capex for FY26. But if I see the cash flows, we have already spent around Rs. 1,550 crores in the first half. So is second half going to be more or less muted? Or are we going to raise the capex guidance further for FY26?

Yes, it would be higher in FY26. See, right now, we are looking at several new projects, and we did mention earlier in the SEBI disclosure release, that we are getting into three new projects and the capex is also being included for that. So, this is an ongoing thing wherein we would be creating capacity as and when needed.

And these capacities, which plant would these capacities be focused on, these new capacities?

It would totally be based on what is the stage at which the manufacturing is. So they would be spread across all the three Units, not a single Unit would be getting the entire capex.

And this is the composition of generics and custom synthesis. It seems the custom synthesis business has scaled up really well over the last 1 to 2 years. Specifically, if I have to connect this to the gross margin, which has been pretty stable at 60% year-on-year or even quarter-over-quarter for Q2FY26. So, does it mean that we are broadly at a similar gross margin across both the segments?

This would completely vary on product mix, like you can -- you do observe for the last few years, if you see every quarter, there will be some quarters where the product mix would be slightly more favorable and sometimes the product mix wouldn't be that favorable. So, it's mainly based on quarter-on-quarter, like how the product mix takes place.

Okay. So, 60% is something as a base case to assume? Or there could be a upside risk to the gross margin?

I would say, it would be continuing same, similar manner.

Got it. Secondly, just if you could also share the constant currency growth for us on a year-on-year basis?

Currently, the half year is about 10.79%, and we are assuming that for the rest of the year also, it would be around the similar number.

Understood. And just lastly on peptides, sir, we have been into peptide space for really long number of years. But is there -- like if you could just, sort of, share your experience in terms of the changes that would have happened that -- the CDMO orders or the contract research orders as well have picked up significantly over the last 3-4 years.

No, I think the peptide synthesis and the peptide drug molecule and the drug products have reached -- have been in the market for some time, but with several new therapeutic categories being available and then coming into the market, has spiked interest into several innovators where they have started doing their research, and we had the opportunity of being a part of their journey.

So we have seen there is a significant shift in the revenue mix for the custom synthesis from the level of 40-odd percentage over the years to now 56%, which is the highest ever. But the margin profile remain in the around 32%, 33% in that range. So is it fair to believe, ma'am, the margin, the upside risk is nothing or limited?

I would say, it's mainly to do with the product mix, though the custom synthesis has increased over the last few years as a percentage. We need to also remember that 45% is still generics where it is facing the huge pricing pressures. So when you combine both the margins do look similar. While maintaining that, we will see a hit on the margins there, which you see like a normal gross margin level across the entire product portfolio.

Sure, sir. Just one clarification, sir. Now we are kind of scaling up our activities in the peptide side. So, is it possible -- I mean, is it right to think that we can even tap the generic opportunities in the peptide side, including the GLP-1s? And one more clarification, currently, what is the revenue share of -- for contrast media that we are having?

Divi has strategically decided that we will not look at generic part of peptide synthesis. We are right now fully occupied with the amount of CS projects we have. So, we do not want to venture into that mode. On contrast media: We cannot individualize each segment. We look at it as a total whole and a product mix.

Okay, sir. So let me ask another perspective. Last 10 years versus next 5 years, is the upcoming time more exciting for Divi's? Is it a fair understanding, sir?

We are always hopeful that it has to be exciting, right? Because these are Phase III molecules coming into life. We are also investing heavily with long-term sustainable contracts. So, I mean it's always good to be hopeful to be positive.

On the generic business, if you were to look at the last year, let's say, given our focus on volumes, what would be -- how much of the growth that we have seen would be driven by volume and how much of that has been offset by pricing?

I would say, as a volume, we have been stable. And as a value, you know how much it is based on the percentage and the revenue number that's there. But as a volume, I would say, we haven't lost a single customer nor have we lost the production capacity.

Okay. Because if I look at our growth for the last 4 quarters, we've grown about 7% in the generic business. So would it be fair to say that the volume growth is 7%, is broadly that?

I wouldn't say there's a degrowth in this business. 7% is the growth on the revenue side. But also there have been pricing pressures which are increasing quarter-on-quarter. So the volume also, the increase is there, but it's not visible or reflecting on the revenue as much as it would have, say, 2-3 years back.

And this pace of price erosion, is that slowing at all? Or we haven't seen any moderation in the pace of price erosion in the last few quarters or, let's say, even recently?

See, yes, there is -- I don't think I can foresee any, at least in the next 2 quarters, anything that is going to be in a better situation for generics than it is today.

And my last question is on the generic API business, which we have discussed quite a bit, but I'm excluding nutraceuticals out of it. If I were to see that number, and this is a little puzzling to me, because some of the participants have said this has declined, but I still see growth. So, what is the generic API business done for the quarter?

As a number and the volume for each individual product, it has been very stable. In terms of pricing, either you talk about Naproxen, Dextromethorphan, Phenylephrine, Carbidopa, Levodopa. All these molecules have been very stable, maybe a slight increase based on the shipments which are coming. We have pricing pressure but we are able to sustain because of our backward integration in Kakinada.

Actually, just checking on the Shyam's question earlier on capacity and expansion in peptides. Kiran, can you also give some color on downstream, what have you invested? And what kind of capacities have you created for downstream SPPS? Mainly asking, can you also comment on the investments made on the purification side?

As of now, Divi's is only manufacturing mers fragments. We are not in the purification of the API. We're only manufacturing. Fragments are basically like 4-chain amino acids, 8-chain. They are purified and then they're sent to the customer where he again links them and then makes the final drug product, which is then -- undergoes purification.

Yes. So I mean, I'm just asking because this purification is more of a bottleneck in the whole process, right, not the SPPS per se. So for you, it's not a bottleneck, right?

Just to be clear, in peptides when people talk about purification, they talk about drug product purification, not tetramer octamer purification. Not the fragment purification. That is not a factor because you purify it in the SPPS. But what the world is talking about bottleneck is on the drug product purification.

And this flexibility customer allows you to do, right, in changing the process a bit to get more yield or vis-a-vis purity. Is that something right to...?

The Fmoc-protected amino acids are proprietary to Divi's process. So, we manufacture and we supply either to the customer-defined places or in our in-house usage. Coming to fragments, these are defined processes given either by the customer who are the innovators anyway. And then, we would exactly follow the recipe they have given us.

Understood. And second question on Unit 3, we are supposed to shift Unit 1 and Unit 2 products to Unit 3. So whether that shifting is complete? And if this is complete, what is the capacity utilization there across units now?

It's an ongoing process right now. We have completed the construction of six production blocks where we are making certain of our key starting materials. Apart from also transferring a few of the products in Unit 1 and Unit 2 emptying part of the -- a little bit of the capacity. Apart from this, we are constructing another two blocks which should be completed shortly.

My question is again on Unit 3. So right now, you are using it for manufacturing key starting material, intermediates, etcetera. But can you update us on the GMP qualification for the facility? When do you expect that to come and you can do the regular GMP price from Unit 3 as well?

Right now, what we're doing is, we are manufacturing starting materials, not key starting materials, because key is under GMP. So making starting materials and intermediates required for our in-house APIs and several new projects coming into -- in line. Apart from this, we will also start shortly qualification of some of our in-house APIs. This would be in the near future in the next few quarters.

Okay. My second question is actually a clarification. This peptide center of excellence, where does this fit? It's in Unit 2, 3 or where is it located?

So, it is spread across both the Units. And I wouldn't say it is only at one Unit or at -- because, our -- historically, we have always made sure that all our Units are equally distributed with our products.

Sir, just one clarification. Of three projects that you've announced to the stock exchanges, what would be the timeline for commencement of those various projects, if you can give us some reminders of those timelines?

All the three projects are at different phases. There is -- some of them are under -- equipment is still being installed. Some, they're undergoing qualifications, some are undergoing validations. So all-in-all, we expect in the next 1 to 2 years, we will start seeing revenues into our books, provided all regulatory approvals are in place, and then there is no hurdles from any agencies.

I have two questions. The first question is, can you please help us understand how our Contrast Media scale-up is progressing and when a CSM Gadolinium products should get launched?

In terms of our contrast media, on the Iodine-based contrast media, we have progressed quite well. We are working on validations and there are only three or four big players in the world. We are working closely with them. Coming to Gadolinium compounds, we are working with several of the innovators on their Phase III molecules. The whole process will take at least, I would say, at least 1 year before we start seeing anything.

Got it. My second question is that many pharma companies have announced U.S. capex, including capex for APIs. So, does this news have any negative impact on Divi's?

So far, we haven't seen any negative impact for Divi's. I mean, why people are putting capex in U.S. is something I cannot answer for, but we have not seen or lost any customers nor any of our branded customers have raised any questions about it.