Ladies and gentlemen, good day, and welcome to Aarti Drugs Limited Q2 and H1 FY 2024 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Adhish Patil, Promoter and CFO, Aarti Drugs Limited. Thank you, and over to you, sir.
Thank you. Good morning, everyone. Hope everyone is doing well. On behalf of Aarti Drugs Limited, I extend a warm welcome to everyone joining us today to discuss our financial results for quarter and half year ended September 2023. On this call, we are joined by Mr. Harshit Savla, Joint Managing Director; Mr. Harit Shah, Full-time Director of Aarti Drugs Limited; and HNA, our Investor Relations Advisor. I hope everyone had an opportunity to go through the financial results, press release, and investor presentation, which we have uploaded on the stock exchange and on our company website. Let me begin by sharing an update on the ongoing CapEx projects. The capital expenditure incurred during H1 FY 2024 amounted to INR 109 crore, and it is projected that the total CapEx for the entire fiscal year will be between INR 250 crore-INR 300 crore.
Notably, all of the CapEx plans, including Gujarat, Saykha CapEx, and Tarapur CapEx on dermatology, both of which belong to high-margin accretive categories, are estimated to be completed by the end of H1 FY 2024. Such projects shall lead to increment in margins once they are commissioned and capacity utilization is ramped up. Now coming to the financial performance. In Q2 FY 2024, our revenues stood at INR 642 crore as against INR 688 crore, a decline of 6.6%, mainly on the account of negative equations. EBITDA stood at INR 77 crore as against INR 74 crore on year basis. EBITDA margin stood at around 12%. PAT stood at around INR 40 crore and PAT margin at around 6.2%.
For H1 FY 2024, our revenues stood at INR 1,304 crore as against INR 1,310 crore, decline of 0.5% due to lower selling prices as compared to last year. EBITDA stood at around INR 162 crore as against INR 142 crore last year. EBITDA margin stood at 12.4%. PAT stood at around INR 88 crore and PAT margin at around 6.7%. Now, coming to segment performance, in the quarter gone by, despite the geopolitical uncertainty and macroeconomic volatility, API segment volume grew by approximately 10% year-on-year basis, primarily led by domestic demand. However, revenues for the quarter declined by 6.2% due to lower rate volumes. In the first half of FY 2024, API's revenue grew around 1%.
Due to operational efficiency and input cost stabilization for majority of our products, gross margins have shown improvement and is expected to be better going forward. Moreover, export demand has been sluggish in some of the geographies for API in H1 FY 2024 on account of U.S. dollar shortages, increased interest rates, and cautious spending by customers amidst global geopolitical tensions. We have witnessed a marginal increase in our operating expenses due to one-time buyback cost, which we announced in the month of July 2023, with lower rate inflation across all our facilities and other expenses. Within the API business, the antibiotic therapeutic category contributed around 41%, antidiabetic, around 16%, antiprotozoal, around 17%, anti-inflammatory, around 10%, antifungal, around 8%, and the rest contributed around 2% for the total API sales of Q2 FY 2024.
Formulation segment stood at INR 86.6 crore for the quarter, a growth of 5.0% year-on-year basis, with exports contribution of approximately 49%. Whereas in H1 FY 2024, revenue stood at INR 176.5 crore, with growth of 5.3% year-on-year basis. Specialty chemical industry, globally, the demand recently has been built, and there is some spillover of our execution of campaign-based products, specialty products into next quarter, which has impacted this segment timing. Coming to standalone performance for the quarter, the revenue for Q2 FY 2024 stood at INR 578 crore, as against INR 625 crore, a decline of 7.6% year-on-year basis. The standalone business contributed around 37% to the consolidated revenue for the quarter.
Around 67% of this revenue came from the domestic market and 33% from the export market for Q2 FY 2024. Domestic revenue grew by approximately 1% on value basis, while exports decreased by around 20% year-on-year for Q2 FY 2024. On consolidated basis, as on September, 09/30 /2023, net debt stands at INR 589 crore, as against INR 609 crore as on 03/31 /2023. Whereas equity and total assets stands at INR 1,120 crore and INR 2,362 crore respectively, as on 09/30/ 2023. Net debt to equity stood at 0.49x, whereas net debt to assets stood at 0.25x.
In spite of short-term challenges, we remain optimistic about the growth avenues of, for our API and non-API business. All our growth plans shall enable steady growth over the next few years, basis the completion of ongoing projects, some improvements in the current manufacturing processes and better utilization of current capacities. The pace of growth in exports is expected to continue in the formulation business. With this, we can now begin question and answer session. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Participants present on the audio bridge who wish to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take the first question from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Sir, primarily on the pricing of API segment, we have seen this is second consecutive quarter where the prices have been on the downtrend. If you could comment on this, and is it across the portfolio or certain select API which are driving the overall pricing of API segment?
Yes. The overall pricing trend has been down. What we have seen, the raw material pricing had been stabilized from the month of February, but last two months, we observed that for few of the antibiotic products and some antidiabetic products, the prices of raw materials had gone down further. Subsequently, what we observed for our sales portfolio, that for the month of July and August, the prices were stable. For the September month, the prices had gone down further. Having said that, our price rate, negative rate variance, quarter-on-quarter, means September 2023 versus June 2023 quarter, is approximately around 7.5, -7.5%. Whereas, if you compare it September 2023 versus September 2022, the negative price variation, the price percentage rate growth is almost around 16%, -16%.
I understand. At the same time, the volume pick-up has been, you know, quite decent in terms of.
Yes.
Price impact. Is it to do more with the significant demand you're seeing, or this is more like a market share gain?
Harit, would you like to answer that question?
Yeah, partly market gain and partly domestic demand looks good these two quarters, first two quarters. Yeah.
Just lastly, the raw materials which we procure are largely imported from China or more domestically obtained?
Usually, it is a sound mix. Import is around 60% and domestic is around 40%-45%. It changes from quarter to quarter, and out of total imports, around 80% is coming from China.
Even currently, let's say, over past month or so, still the prices are further going down. Is that the way to think about, say, for the upcoming quarter?
See, for few of the intermediates, for some products, we saw that the prices had gone down, but nevertheless, with the increase of crude, the prices of basic solvents like toluene, xylene, they are going up slightly.
Understood. Thanks. Thanks once.
Thank you. A reminder to all the participants, anyone who wishes to ask questions, may please press star and one. We'll take the next question from the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. Again, on, you know, volume growth, in first quarter, we have seen 18% volume growth, whereas in this quarter we have seen 10% volume growth only. Quarter-on-quarter, along with the price decline, have we seen a volume degrowth also?
It has come up, right?
Quarter-on-quarter, we do have a positive volume growth, actually, of around 5%, roughly around 5%.
It's 5%.
Yeah, but then the run-rate degrowth is there of almost 7.5%.
Okay. You know, in the coming quarters, you know, like in the October month and the subsequent quarters, what is the trend likely to be? You're going to see... I mean, this time we have seen quarter-on-quarter decline in prices of around 7.5%. Are these prices supposed to fall further, or you feel that, you know, somewhere it is going to get stabilized?
What we see is for the September quarter as well, what we have observed, that the September month prices were slightly lower. For the top few products, were slightly lower by 4% as compared to August and July prices. Taking these things into consideration, probably it's a very rough estimate, that probably around 3% odd negative price rate growth can be seen in the December quarter with respect to September quarter.
Okay, got it. Related to your CapEx plan, you know, Tarapur CapEx on dermatology and specialty, the brownfield project, and the Sarigam project, which you're referring in the press release, is it for greenfield expansion for specialty chemicals?
Yes. Yes.
Out of this INR 250 crore-INR 300 crore, can you just give us a breakup, you know, how much will be for the Sarigam project at greenfield, and how much would be for the?
Both, coincidentally, both the projects at Sarigam and the dermatology greenfield project in Tarapur, both of them are roughly around, means roughly the same amount. Both of them would be somewhere between INR 350 crore-INR 400 crore combined, and it will be almost 50/50 split.
Okay. Okay, got it. This Sarigam project is expected to get completed, you know, by which year?
Yeah. Actually, we were planning, we were hoping that we will be able to complete by December of this, means, current quarter, current December-end quarter. There were slight delays in terms of equipment delivery, and because of rains also, some part of fieldwork delayed. Nevertheless, we've seen that by the end of January, we should be able to start the water trials. Maybe 15-30 days later, the commercial production batch can also start in the month of February or February, end of March even.
Just want to understand more on this. You know, like you have already mentioned, that the demand for the specialty chemical is pretty muted, and you know, there is a complete demand slowdown for most of the products. We are putting out this brownfield plant will also get over by mid of H2. Greenfield plant will also get over by you know, December. You know, we will have a lot of capacities, but you know, we will not be really supplying the project. Will it take time, you know, for the capacity utilization to run at full level?
Yeah. The products which we are putting up at Sarigam, they are actually different line of products. Those capacities will be for different products, not for the existing products. Moreover, whatever slowdown we are seeing in specialty chemicals, that is mainly due to the inventory pileup. We don't expect that sluggishness to remain more than a quarter or two. Definitely, by the time we come up with capacities, the specialty chemicals segment should be better. Moreover, if you see the quarter-on-quarter, we have volume growth for specialty chemicals. Only year-on-year, it is slightly, it's almost sluggish, but it is not that negative as far as specialty chemicals is concerned for us.
Okay. This chlorosulfonation products will be manufactured in which plant? Will it be in your Tarapur plant or in the Sarigam project?
In Tarapur we have two facilities. In two of them, we manufacture the chlorosulfonation products, whereas the Sarigam one will be totally different.
The derivatives of chlorosulfonation will also be manufactured in Tarapur only?
Yes.
Got it. The last question, if I may, related to your gross margin improvement and your EBITDA margin improvement. Since you are foreseen that, you know, demand continues to be weak, you know, in the next two quarters also, and the rate variance also is likely to be negative. You know, we have done around 12% EBITDA margin in first half. You know, what is the guidance which you give for the entire year, that is for FY 2024?
The thing is, for the next half, we feel that the gross contribution should increase slightly, at least 0.5%-1%. We hope that the contribution will improve for the next half of FY 2024. Where we are seeing the negative side is that, you know, quarter-over-quarter, June 2023 to September 2023, the other costs, the other manufacturing costs and administration costs, the percentage of that has slightly gone up. The reason being the selling prices have come down quite drastically. That is one of the reasons. A part of that is we are trying to offset by better volume growth. Look, there were a few other things also. In fact, our factories, which we have been improving processes of, few API products.
While doing so, we had some negative, you know, raw material costs, means higher consumption for the last quarter. That also we plan to improve going forward. All this put together, we feel that at least we should improve by 1% in the next half of FY 2024.
You mean to say around 13% total?
Yes.
Okay. This includes your cost, which will be coming from the new facilities also, that is Tarapur, both the facility and the Sarigam project, because that cost will also be added, right?
I'll just use the period. [audio distortion]
Okay.
Yes.
Okay. Thank you. That's it from my side.
Okay. Thank you.
Thank you. Participants who wishes to ask questions may please press star and one. The next question is from the line of Bhagwan Chaudhary from Sunidhi Securities. Please go ahead.
Yeah, hi, and thanks for the opportunity. Just one question. This is regarding earlier, we were expecting our margin to reach by 15% by the end of the quarter, end of the fourth quarter. The question is that what, on the one side, we are looking there, there is a volume growth, while there-
Mm-hmm.
Is a pressure on the pricing side.
Mm-hmm.
Margins are not able to move from here onwards. What is holding exactly us to take that pricing part, given the fact that volume growth is there?
Yeah. One thing what we noticed from our internal analysis is that the raw material prices have gone down more in terms of percentage basis, but this came into, if you take GRN rates, which is goods, which is based on that. Those rates have gone down further, but then we have an inventory of almost around 90, 94-95 days, you know, for that inventory to get accounted into P&L. That is the reason why you see that there is slight squeeze in the gross contribution. We do expect that the gross contribution will improve mostly. The second biggest factor for us has been exports. The broken exports because of global scenario. That has caused, that is something relatively new, which happened this quarter. From this quarter itself, we saw significant impact of that on the numbers.
Okay. What I'm understanding out of this, that inventory pricing, the higher pricing inventory was holding us so far, which is likely to normalize from the next quarter onwards, but the impact of that would not be more than 100 basis points.
Correct. As of now, as of now, at least, we expect 100 basis points, but going forward, if everything stays as then, we will try to achieve even better than that.
Okay. Let me put this other way. For example, in the next year, to reach the 15%, what are the circumstances and what are the conditions we are looking for?
One is, the crude levels should not go up sharply from here. The current levels are still okay. There should not be much volatility in the market. The geopolitical tensions, what are happening right now, globally, that should ease out, because that means they definitely impact business quite a lot in terms of transaction, ease of transactions.
Got it. Secondly, what is the status on this, our specialty project? Has that commenced first?
Yeah. Are you referring to the Tarapur one?
Yes, Tarapur.
Okay. Yes. The thing is, we were hoping to start it by September end only.
Right.
We were quite in line, except for very few, few days of delay from the instrumentation vendor. When that is done, the thing is, we had to install a titanium, little, little bit in detail. We had to install one titanium pipeline, so there were few leakages, so we had to take it out again and again send to vendor. Because of that, it got delayed by a few days. Otherwise, by now it should have been already started. Anyways, anyways, in October itself, we will mostly start it. Once we start it, we will give update to you on that.
Great. On the Salicylic Acid project, we are on track?
Yeah, Salicylic Acid, by December end, we are planning to start the commercial batches.
Awesome. Any update on the USFDA part?
Yes. Yeah, very big update on that, actually. After the last response what we had filed back in March, so we had done few follow-ups on that. In past month, we were able to speak with them on the phone. We asked them about the response part. They said that the response is complete, so they don't need any more information as far as the response is concerned. However, by that time, they had not intimated their Indian counterparts to initiate the audit. They told us to follow up in this, by the end of October or the start of November, to check with them again. Most probably they will be intimating the Indian counterparts to initiate the audit, but it will be mostly an unannounced audit.
That can happen anytime from now onward?
Anytime. Yeah, so we are, like, ready because it can be a surprise inspection as well.
Understood. Thank you. All the best.
Okay, thank you.
Thank you. You may press star and one to ask questions at this time. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead. Mr. Desai, I have unmuted your line, kindly proceed with your question. As the current participant is not answering, we'll move on to the next question, which is from the line of Chirag Dugli from DSP BlackRock. Please go ahead.
Yes, thank you for the opportunity, sir. On the facility where there can potentially be a FDA inspection, has a mock audit been conducted already?
Yes. The thing is, before giving the final response, just before that, we had done almost a week-long, 4-5 days or a week-long mock audit from two ex-FDA inspectors. That report also we had submitted as a part of response to FDA.
Mm-hmm, mm-hmm.
Nevertheless, almost a few months have passed since that time. Probably we might think of having few more checks, you know, for the facility.
Understood. Understood. Adhish, assuming that, you know, let's say sometime in the future, this facility does get approved by the FDA, what happens over the next 6-12 months post that? Just if you can, you know, throw some light on what will be the next steps as far as we are concerned?
There are a couple of DMFs which are actually referred in ANDAs, so those product launches will start. That will be definitely positive. Then how it scales up, that is to be seen. We are very confident about products like Ciprofloxacin from that facility, because there is a huge demand of that product in the European market. Because of FDA import alert, they also are not able to purchase from us. Even that business will kick off, because our EDQM for the same plant, last year we had EDQM audit in around October or something, and that has been cleared now. We had been issued the E.U. GMP certificate for the same plant.
You're basically saying Europe will open up rather than the U.S. per se. U.S., you have 2 DMFs, which you're saying-
Yeah, U.S. will definitely open up, but then the thing is, the other businesses, then we will have to reinitiate. Two of them are already active, but Europe will kick off much faster than U.S., is what we believe.
Understood. Understood. Can you give us a sense of for your chosen products, whichever you can come back in the market with, you're obviously selling them in the non-U.S., non-European markets? What is the kind of price differential, for example, in Ciprofloxacin that you see in European market or in the other two DMFs that you talked about in the U.S.? What is the price differential versus your current realization in these markets?
Yeah, yeah. Harit, would you like to answer this?
Harit sir, I would request you to kindly unmute yourself and speak, please. We are not able to hear you, sir.
Sorry, I can repeat the question, please.
No, Harit, I was asking that Adhish was indicating that 2 DMFs can be launched in the U.S.
Yeah.
Assuming that the facility gets approved today.
Correct.
In those products, what is the price realization difference in the U.S. versus what we currently sell?
In one of the narcotic products, the price realization is almost 25% more than what we are selling in Europe also. These are in domestic, it is around 35%-40%. Yeah.
Mm-hmm. Okay. As some of these markets open up, it is obvious to, you know, assume that you will target some of these higher realization markets.
Definitely. Definitely. Yeah.
Understood. Cipro in the European market, how different is pricing over there?
It is, for example, to give you an example, in ROW market, we are doing around $23-$24, and in Europe, we are saying at $35-$36. Almost 50% more. Because the low-commodity, low-value price, low-value product, right? Overheads are also high.
Understood. Understood. Okay, fair point. Adhish, in terms of CapEx, so, you know, both these projects almost get done by the end of this year. How are you thinking about capital expenditure in FY 2025 and beyond? Just some color around where that potentially will be.
Yeah. One is there is any spillover from this two greenfield projects which can happen, that will be not too much, though. There is a Metformin expansion which we are planning, which might kick off next year. Plus, in one of the greenfield projects which is coming up, we have land parcel to bring up one more production facility. All the supplementary amenities will be there. ETP, everything will be already there. There's a production block will come for one more product which is under R&D and piloting. That is again a, I would say that is a means a group of products which correlates with piloting, I think.
But it's a brownfield expansion?
I think the thing is the production battery, production plant will be greenfield, but then it won't require any means plot development cost or ETP cost or other utility or department costs, warehouse costs. The plant will be absolutely new.
Mm-hmm. What will be absolute, you know, rupees crores CapEx in 2025?
It goes well. It probably won't cross. As of now, we don't see beyond INR 150 crore.
For both the projects put together?
Yes, for next year. For next year, yes.
Understood. Just the last question on before this CapEx, you know, these new facilities come through. As you look at the current facilities and the utilization, et cetera, you know, what sort of utilization are we at on the existing, you know, block that we have, on the existing facilities that we have?
Yeah. The existing one, we are slightly up by a% or so as compared to June quarter. But it is still somewhere around 74, between 74% and 75%.
What can we peak at, Adhish?
you can say that 90% is easily achievable, and in some products we can go 95% as well. [audio distortion]
Understood. What is the hurdle for us to reach this 90% potential?
Look, right now.
75 for a while, Adhish.
Yeah, yeah.
So why?
The thing is, the reason it is 75 for a while, because we keep on expanding, we are constantly doing incremental within expansions. Each time the new utilization is calculated based on the newer capacity.
Hmm, correct.
Yeah. That is the reason why it is going hand in hand. But once the greenfield CapEx, the greenfield projects goes online, then finally it will see a little bit of dip, because suddenly lot of capacity will be introduced. You will see a dip in the utilization, but it will be because of that.
Understood. No, so my question was on the existing ones, on the existing capacity or the existing gross block. If you were to think about how do we reach at 90% utilization in this? Is it going to be usual linear growth that will bring us to that? Is there something-
Yes, yes. [crosstalk] For few of the products, we have already reached 90. For few of the products and for few of them, it is below. The composite is coming to 74-75. As the product is becoming more and more known and it is more regularly known, we are getting more and more. The more and more market is getting open for few products. In certain products, we have already reached that, but in certain products it is lower.
Understood. Just the last question, I'm sorry about this on harping this point, but this European market, you said that there is a market, you know, which is not available because of the FDA issues for us. Just if you can quantify, you know, how much our utilization can improve if and when this market opens up?
I see, it is all about registration period, but I would say within couple of years, one plant will definitely become full. We might have to do expansion in the adjacent. We do have some space to put up additional production line, production plant. We might have to do that as well. Once it comes through, we will immediately start that expansion.
Understood. Okay, Adhish. Thank you so much.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants, anyone who wishes to ask questions may please press star and one. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Hi, Adhish. Good afternoon. You are able to hear me?
Yes, please.
Okay. My first question is, what is the CapEx that, you know, we are likely to capitalize in FY 2024? In last call you had mentioned that in FY 2025, you know, we should be able to do 35%-40% capacity utilization for the CapEx that we have capitalized. Are we on track?
Sorry, Dhwanil , can you repeat the question?
Yeah. I'm saying that what is the total CapEx that is going to be capitalized in FY 2024?
FY 2024, probably around, I'm giving a very, very rough estimate. Probably it can plus minus INR 200 crore or something like that.
Okay. Okay. That will give us additional revenue potential of INR 500 crore-INR 600 crore, right? That's right understanding.
Yes.
Okay. Okay. I think in last call you had mentioned that in FY 2025, whatever CapEx gets completed in FY 2024 second half, we should be able to get to 35%-40% utilization.
Give me one second. I mean, to answer your last question, give me one second. Let me just recheck. Actually, yeah, it will be like if both the project, everything is put in place, probably around we can go to the level of INR 250 also, means in terms of capitalization for the number.
Okay. Okay.
Okay. So you, yeah.
Yeah, my question was, can we utilize that capacity to 35%-40% as we were expecting, you know, in last quarter? You think that because of the environment that has changed, we would expect lower utilization next year?
Yeah, that much we do expect to utilize by FY 2025. 1/3, probably, we should be able to use.
Okay. Okay. My second question is, you know, again on margins. I think we were expecting around 14%-15% margin by the exit of FY 2024, and you indicated that probably we'll end up 1.5% lower than what we are expecting because of the inventory changes, you know. I mean, I was under the impression that, you know, Q2 was the quarter where most of the low, high-cost inventory will get accounted for.
Yes.
Looks like that something will spill over again in Q3.
What happened was, when we started the quarter, the first two months were really good. In fact, our gross margins implemented almost by another 150 basis points. Then on, I am talking about the API and second business.
Mm-hmm.
It went down and closed to only around 0.3 or something like that. The thing is, in the month of September, there was some price cut. Because there was a price cut, now, that was a new price cut, which was not there before. If that price cut did not happen, then with all the high-cost inventory would have been already contained in this quarter itself. Nothing would have left. Because there was another price cut in September month, that is the reason I think it might push further.
Okay. Okay. Are we still holding on to 10% top-line growth guidance that we had given?
It would be slightly challenging, but slightly challenging because the way the rates have corrected means, as I said, in September month, almost -17% rate reduction was there. September quarter, September of the second month.
Okay.
We'll definitely try to achieve anywhere between 5-10 for the entire year.
One of the things that has been slightly challenging, you know, from market perspective, is the international market, right? The export market for last 2-3 quarters has been pretty subdued. Are you seeing any revival or you think this kind of trend continuing for a few more quarters?
Yeah. The export market is a new factor, means which we did not account for when we gave a guidance of around 10%. That has impacted the guidance. The September quarter, right now, still all these because of geopolitical tensions, things look little dicey. If it improves, then we think that it will definitely pick up because it cannot go, you know, so low as compared to previous years. Because we are adding new customers, we are adding new geographies, so it has to go up. I think it is more of a temporary thing, and if geopolitical situation improves faster, then the recovery will be much faster in the export market.
Is this the reason why export market is subdued in lot of other segment is because of the hangover of the inventory? I think, you know, and anything our-
Mainly what happens, you know, again.
Mm-hmm.
The interest costs have also gone up quite high in last one year, last six months, especially.
Mm-hmm.
Across the globe. Earlier, those people, you know, carrying inventory was not an issue because the interest costs were much lower. Now they also feel the pinch of carrying their inventory.
Okay.
Probably even that is impacting demand in near term. It won't be for longer period, but it is just to normalize the inventory.
Okay. Overall, channel inventory is coming down because of that, right? That's what you're saying.
That is just estimate. I mean, I can't verify it, but that is how it looks like.
Okay. Okay. Okay, got it. Thanks. Thanks, Adhish.
Okay, thank you.
Thank you. To ask questions, participants, you may press star and one now. The next question is from the line of Harsh from Marcellus. Please go ahead.
Yeah. Hi, sir. Am I audible?
Yes.
Sir, from what I understand, we're planning to manufacture methylamine-based product at Sarigam.
Harsh, your voice has gone down. Hello?
Hello, am I audible now?
Yes, yes.
Yes. From what I understand, sir, in terms of new revenue growth drivers, we are entering into methylamine-based products. Could you give us some indication as to what will be our right to win in this product segment?
Yeah. The thing is, there is lot of captive consumption for this because we are quite big in Metformin. More than 50% demand would be our from the entire product.
So-
And, uh-
Okay. Yeah.
Yeah. The thing is, we can sell to other players as well, and plus there are two more products coming out from this chain, wherein another few other group companies are also purchasing, procuring from outside. We do have a demand visibility, and that is why we are pretty confident that selling the product won't be a challenge. The main thing would be to set up the quality of the product right and achieve the costing, cost of production.
What is the total capacity that you are coming up with, and what will be our internal consumption rate, sir?
As of now, we might come up with 60+ TPD of capacity.
Okay. Sir, to an earlier participant's question, you said that we'll be reaching 35% approximately utilization in FY 2025.
Mm.
That was for this capacity, right?
Yes.
What is the constraint? I mean, why not, why can't we reach, let's say, 60%, 70%, 80% utilization in the first year itself? What is the constraint here? Just trying to understand.
No, the thing is, the setting of process would be the major constraint. Once the process settles properly, probably we might revise that estimate.
Are we planning to enter into this market in a much bigger manner because this is [audio distortion] INR 2,000 crore-INR 3,000 crore market?
There is room for expansion for little bit, but we will evaluate that further, whether it makes business sense or not, whether the margins are great, what is the competitive landscape at that point of time, and then we'll take a call.
Okay. Okay, sir, thank you. This was very helpful.
Thank you.
Thank you. We'll take the next question from the line of Bismith Nayak from RW Advisors. Please go ahead.
Thanks for the opportunity. One clarification, sir. The existing INR 650 crore hundred that we have on consolidated revenue, that is based on 75% utilization, correct?
Yes, correct.
Yeah. Whatever new capacity will come through, which will be available for us to ramp up at the beginning of FY 2025, potential of that would be INR 1,000 crore, right?
Approximately, longer term, yes. And 33% of that INR 1,000 crore will be, can be done in FY 2025.
1/3 of that, yes.1/3 of capacity utilization.
So-
Yeah.
Probably initially we might have more captive consumption.
Yeah
For the Sarigam plant. We will update that guidance as and when the picture becomes more clear on that.
Understood.
Backward integration with regards to specialty chem that we will do from the new CapEx, what could be the gross margin benefit, sir, over long term?
Gross margin benefit. The EBITDA level margins definitely for existing products was upward, upwards of 20%, so higher than company level margins.
Understood. Thank you. That's all from my side.
Okay. Thank you.
Thank you. Participants who wishes to ask questions may please press star and one. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Over to you.
With this, I would like to thank everyone for joining us today on this earnings call. We appreciate your interest in Aarti Drugs Limited. If you have any further queries, please contact HNA our investor relations advisors. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Aarti Drugs Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines.