Q4 Red Sea + Biosecure tailwinds vanished.

How should we see the strong sequential and YoY growth in the generic business after a two-year period - whether it is driven by price rise and whether that has contributed to the overall margin scenario?

The generic performance itself is at a high competition level whereby we have continuous pricing pressure on the generic side. As market share continues, we are still a dominant player in the market. In terms of new molecules coming off-patent, as and when they come off-patent, we will start producing them and slowly start building our shares.

Regarding the margin scenario, the exit rate for the quarter in terms of gross margin or EBITDA margin is one of the strongest over the last two-year period - how should one think going ahead, or is it just a quarter-specific product mix driving this?

This is mainly to do with the product mix that we have and it would keep changing quarter-on-quarter. So I would recommend looking at it on a yearly basis rather than just focusing on one quarter.

With the Biosecure Act and China Plus One now in the back stage, any practical change in RFQs or customer engagement, and any commentary on next year's outlook or guidance?

We have always been in the CS business right from inception - it's not something we started after China Plus One or Biosecure Act. With the Biosecure Act or China Plus One, we are seeing a little more than what we have seen before. We have several products in the pipeline, some going through R&D phases, some in pilot scales right now, but it's hard to put a finger on it because of confidentiality. Divi's is very strong in custom synthesis as well as the generic side of the business.

Would it be fair to assume Kakinada will take a couple of quarters to become EBITDA-neutral from a cost versus benefit perspective?

Instead of looking at Kakinada as a single unit, the raw material or starting material it produces goes straight into one of the units where GMP material is being produced. So we have to look at the molecule as a whole. We cannot look at the molecule into separate units and break it up. As a whole, yes, there will be a benefit. I would look at it more as a company and look at the molecule being manufactured in different areas.

On the April announcement of around Rs.700-crores long-term supply agreement (similar to last April), can you compare and contrast - this year was advanced intermediates, why not API in this one?

That's quite a difficult question because I am bound by confidentiality. Both are related to CS projects. Yes, the recent one is an advanced intermediate; the one before, all I can say is it is an active API.

On full year FY25 vs FY24, EBITDA margins moved from 29% to 32%, gross margins were flat, but the biggest delta came from other expenses (excluding wages) which came down by 250-300 bps. Other expenses as % of sales last year was 17% and this year 14% despite 18% constant currency growth. What is driving this operating leverage?

The major driver behind it could be quite a few things, it's not just one thing. We did have higher repairs on older plant and machinery considering some units are about three decades old. Besides that, there has been an increase in freight and travel expenditures and environment management expenses. These are the ones that have made all the changes.

Any guidance for revenue and EBITDA for Fiscal '26?

The revenue guidance, like I have said earlier, we would always look at double-digit growth. Our work would always be towards making sure the organization grows at a consistent pace of double-digit growth.

Any rationale behind not participating - is it because we are bound by contract with the innovator or not lucrative enough to enter?

As of now, I am bound by confidentiality. Whether I am producing for innovator, based on our knowledge, knowhow and everything, we believe we are best suited now to work on innovative molecules in the GLP space.

For the innovator space, since products have been there for a while, is there any wallet share being committed by customers, or how are we thinking about that?

We have long-term supply agreements with several customers. Apart from molecules in the market, there are several molecules in the pipeline at various phases - GLP-1s, GIPs, GLP-2s in various stages of development where we are active. We have long-term contracts in place and we will see how it forms out.

Within segments, do you expect API/generic also to grow in double-digit next year?

I cannot comment on that. I would say the overall revenue of the organization would be approximately double-digit growth.

On investments in the new project (GLP-1, GIPs, GLP-2) - any color on what is the investment done into this space so far in terms of capacity addition?

We haven't classified it as a particular investment towards GLP-1s because several of the equipments could be used both for the API or other custom products or GLP-1s. So we haven't classified it in particular saying that this is only a GLP-1 based situation.

How do you think the next three years is going to be far better than past few years, and what gives you confidence?

We have always been a conservative organization. We have not been extremely competitive or extremely proactive in sharing numbers or revenues or growth because we believe in being conservative in projection and want to deliver what we promised. We would be thinking about having a double-digit growth for the next few years.

How have you increased your sales force or client development activities qualitatively in the last two-three years?

Divi's has been in custom synthesis from the inception - it's not something new we started today where I have to develop my BD and give them incentives. Our reputation is where we have been given opportunities with several existing and new customers. We have already been working with several multinationals - if you go back even 10 or 15 years our CS business was worth 50% of our total revenue. Our teams are already in place, there's nothing new about it.

Any insight in terms of the quantum of total order book contracted yet to be executed?

I am sorry we cannot comment much about that particular kind of numbers.

Any insight on how that contracted backlog has been growing over the last two-three years - any growth trends historically?

Historically and as well as in the future, what we've seen so far has been a double-digit growth year-on-year, be it generics or our revenue as a whole or custom synthesis. So that's something that we also expect to see in the future, the double-digit growth.

Inventory has been around Rs.2,800-3,000 crores for last four years since Molnupiravir despite hitting highest sales this year - is the RM environment easing on pricing and availability side, which is why you are not building larger inventory?

Sales are going up but our portfolio is also increasing over a span of many products, and we maintain raw materials based on the entire product portfolio. From the time of Molnupiravir there has been some or other crisis with respect to COVID, China or logistics - constantly facing pressure. Based on product mix, the kind of raw material that requires attention, we've been stocking those kind of raw materials.

Going forward as we clock double-digit revenue growth, would inventory level as percentage of sales (around 30% now vs 40-45% in '23-24) be the kind of normalization on working capital side?

It's difficult to comment - I wouldn't normalize it. It depends on products being manufactured, whether large or small molecule, which unit, material availability domestically or internationally. My wishful thinking would be to maintain a lean inventory and implement more just-in-time, sourcing what I am manufacturing at that point in time.

Prior to COVID we never had dedicated blocks but since Molnupiravir we have dedicated blocks. What are the underlying guardrails on which we decide whether to go for a dedicated block or not?

We did have dedicated blocks way back if it is a product of large volume manufactured throughout the year, and multi-purpose blocks for smaller volume products with campaign-based production. However, I don't think we ever mentioned that we are setting up dedicated blocks for the expansion plan. We said we are going to invest a certain CAPEX of certain value but we have never mentioned that it's a dedicated block.

Even for the two new molecules, the Rs.700-800 crores CAPEX announced, these would all be multi-purpose plants - this is not dedicated for any customer?

Since these products are mainly custom synthesis projects, I am not at liberty to divulge information, I would refrain from answering that question.