Ladies and gentlemen, good day and welcome to Aarti Pharmalabs Limited Q2 and H1 FY 2027 earning conference call hosted by PhillipCapital Private Company Group. 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. Om Sanghavi from PhillipCapital Private Company Group. Thank you, and over to you, Om.
Thank you. A very good afternoon, everyone. On behalf of PhillipCapital Private Company Group, I welcome you to the Q2 and H1 FY 2027 earnings conference call for Aarti Pharmalabs Limited. Joining us today from the management are Mr. Rashesh Gogri, the Managing Director; Mr. Piyush Lakhani, Chief Financial Officer; and Mrs. Hetal Gogri, Executive Director. I would like to hand over the call to Mr. Rashesh sir for the opening remark. Over to you, sir.
Good evening, and thank you for joining us today to discuss Aarti Pharmalabs second quarter and half-year results for financial year 2027. The investor presentation relating to today's results have been filed with the exchanges and is available on our website for your reference. We continue to make healthy progress in all our business segments and are executing well on our growth strategy. With clear focus on near-term opportunities, we aim to further solidify our standing as a preferred partner in the global pharmaceutical supply chain.
Moving on to our standalone financial for Q2 FY 2026. Aarti Pharmalabs maintained strong momentum, delivering its highest-ever quarterly revenue of INR 613 crore as compared to INR 417 crore, which is 47% increase year-over-year basis. The EBITDA was INR 136 crore as compared to INR 74 crore in the corresponding previous period of the previous year, and that is an increase of 84% year-over-year.
The profit after tax for the Q2 financial year 2027 was INR 66 crore as compared to INR 24 crore a year back, which was 2.75 x the increase on last year's low base. The EBITDA margins have remained healthy at 22.2% as compared to 17.7% in the same quarter last year. Now, I would like to tell you about the specific of the businesses in Q2 FY 2027. The xanthine derivatives and allied products segment contributed to 50% of the turnover. The volume split between the beverages and others was 62% and 38%, respectively. In terms of the geographical split, the export sales contributed to 59%, and the rest was 41% with local sales. Due to geopolitical turmoil, the raw material costs have stayed elevated, and we are passing on the raw material increase to our customers. The API and intermediate business clocked 30% of the turnover.
The sub-segment-wise breakup is 57% for the regulated market, 33% for the ROW market and 10% for the non-regulated market. Benefiting from the recent capacity expansion undertaken in the steroidal API, we have recorded healthy sales in this quarter. The third segment, CDMO/CMO, has contributed to 13% of the revenue in this quarter, and we are presently working with 23 customers. The number of active projects now is 59, out of which 39 projects are in commercial stages and 20 are under different stages of development, both at customers' end. We remain on track to achieve our target of 40%-50% revenue growth over last year on this business segment. The balance 6% turnover was other sales, which includes trading sales, export incentives, and solvent and other lab sales. Let me share a brief update about our ongoing projects.
The groundbreaking of the Atali dedicated block, that is block number two, has been done, and we target to commercialize this block in the H2 FY 2028. The ramp-up of xanthine expanded capacity is progressing, and we plan to achieve the full capacity by the end of FY 2027, and we will achieve the utilization sequentially in the next year. The capacity expansion of the steroid block of API plant was completed and it has started contributing to the production and the revenue. I would like to share a few words about the strategic outlook. Building over 25 years' technical expertise and heavy investments over the last three, four years, Aarti Pharmalabs has established a solid foundation to transition into robust multi-pillar global pharmaceutical partner. The mature xanthine derivative segment, where we hold a dominant market position, continues to serve as a cash cow.
The company is also geared up to accelerate growth led by its high-growth CDMO/CMO pillar, followed by API and intermediate segment. We are working on all fronts for growing these segments. Ultimately, with the capacity addition still underway in the medium term, Aarti Pharmalabs is well-positioned to deepen its global partnerships and drive substantial long-term value creation. I now request the moderator to open the forum for Q&A. Thank you.
Thank you so much, sir. Ladies and gentlemen, we will now begin with the Q&A session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Also, in order to ensure that the management will be able to address all the questions from the participants, we request you to kindly limit your question to two questions only per participant. If you have a follow-up question, please rejoin the queue. First question comes from the line of Hemant Mada with Unifi Capital. Please go ahead.
Yeah. Thanks for the opportunity. Sachin, give status on both the projects, the xanthine one as well as the Atali phase I. How has the utilization been? Because we still see capital working progress on balance sheet of INR 300 crore plus. So how should one read it, the capitalization of the assets and how both the assets are operational?
Yeah. As I explained to you on the earlier call, the xanthine expansion was two phase. First was to get the finished product out, and that has been fully, as I mentioned on the call speech also, that we plan to ramp up the production to full production capacity by end of this year. And I think the same will continue on the intermediate production also. So that also will get fully operational by end of this year. So by end of this year, we will see full capitalization of the xanthine project. The Atali phase I is complete, and I think in the Q3 we will do the capitalization. So we have taken the trial batches of Atali phase IB. Trials are actually underway in this week, and we will have full capitalization then on that block as well.
Okay. So in terms of the CDMO visibility with both the first phase A plus B, both commercializing and the number of projects increasing as per your disclosures, what sort of visibility currently we have to be able to utilize Atali at the full capacity in the second half?
Yeah. So basically, the Atali phase IA and phase IB are serving different purposes. The 1B is a smaller line which can take care of early work for the newer projects, whereas the IA, which was commercialized, was a commercial line. So it was like a more scale-up line kind of thing, which got commissioned now, in the phases of commissioning now. So it won't have too much difference or too much bearing on overall capacity addition that we will have in Atali by doing the phase IB. Okay. But overall, we see that we will be able to completely utilize this Atali asset in this financial year, second half of this financial year.
Sure. On the xanthine front, compared to Q1, Q2, the top line is broadly same. How should one look at it? Is the volumes have been broadly same and the pricing has been the same, or there has been volume increase and price decrease? There has been some change in the mix also in terms of the domestic sales proportion is much higher compared to the export sales proportion. How should one read it in terms of overall volumes pricing for xanthine in Q2 compared to Q1? In terms of Q3, Q4, there should be a significant jump in volumes is what we should assume?
Yeah, I think xanthine has xanthine plus allied chemistry that we do. We had little bit of lower xanthine sales due to the shipments being held up due to shipment issues, but more sales on allied products. Otherwise, we would have ideally had higher sales in this quarter. It was restricted due to these dispatch constraints. I think that will get solved in the current quarter, hopefully. With that, as you say, the sales numbers overall has to increase.
Sure. Sir, in terms of API business, we have had some consolidation last few quarters. There was some price erosion issue and some capacity constraint as well. We have had decent improvement compared to last quarter. How should one read it in terms of API business, API number of products, et cetera, that has improved, or is that intermediate capacity space because of the Atali being operational, there is some space available in Vapi, you are utilizing that to improve your intermediate production. How should one read between API and intermediate, and can this run rate sustain or improve going into second half?
Yeah, I think API and intermediate sales segment is largely driven by API only because we continue to occupy actually the intermediate space by CDMO largely. We are not doing too much aggressive sales of intermediates. In API, with the debottlenecking of steroids, I think block, we have been able to get the regular sales back into the fold, which was constrained in the Q1. Now Q2 onwards, we anticipate greater sales of steroid products with the expanded capacity continuing.
Sure. With the capitalization happening for all assets in second half, should we assume meaningful jump in operating expenses? Obviously, depreciation and finance cost will go up. On the operating expenses side, you would have capitalized something. The entire cost structures should go up in second half. That is fair way to assume?
Yeah. See, the finance cost would basically remain at almost similar levels because most of the CapEx kind of financing we have arranged for. Depreciation is likely to go up as we capitalize, yes. So depreciation cost will go up.
Other operating expenses-
Thank you. I am sorry to interrupt you, Mr. Hemant, but please rejoin the queue for more questions.
Sure. Thank you.
Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants, we kindly request you to limit your questions to two questions only per participant. If you have a follow-up question, please rejoin the queue. Our next question comes from the line of Sudarshan Padmanabhan with Ashika Investment Managers. Please go ahead.
Thank you for taking my question, and Samrat, congrats on the great set of numbers. I have two questions from my side. One is, if I look at the mix in this quarter, the mix has primarily been more favorable towards the contract manufacturing business. The gross margins have taken a hit. Would it be primarily because of the raw materials, and how much of the price increase has basically been passed? How do we see the third and fourth quarter as we pass the raw material costs further?
No, I think over Q1, I think Q2, the CDMO sales was almost double than Q1.
In terms of the passthrough, I think in the xanthine and allied chemistry, we have been normally doing the pass on, also in API we have got some price increases. So with the raw material cost increasing and the cost being passed on, I think that is why you see the little bit of number erosion on the EBITDA side by a couple of percentage points. I think that is what it is.
More or less by the third and fourth quarter, we should be catching it up in terms of passing on the increase of prices. Would that be right?
Yeah, we are already passing it on. Third, fourth quarter, we will have higher sales of CDMO. So overall, EBITDA percentage number can improve in the third and fourth quarter.
Sure. My second question is on the balance sheet side. I am just looking at the commentary. We have added two commercial molecules compared to the last quarter on the CDMO side. When I look at the balance sheet, we are seeing inventories as well as working capital moving up. Would it be the right assumption to say, given the fact that CDMO is scaling up, that we would have primarily prepared the inventory and this working capital is primarily to fuel the kind of growth that we are expected to see in the second half?
Overall working capital cycle remains close to 165 days or 167 days for us. What has happened is that since the sales turnover has gone, sales has gone up, of course, the need of working capital will also go up. I think the CDMO business is also where the sales normally is more lopsided towards H2. I think in H1, we see the inventory built up. All these three factors combined, I think, have resulted in higher working capital. But I think as we see the growth that we are targeting 40%-50% growth of the CDMO business this year, and next year also it will further grow. So I think, unfortunately, we will have to live with the higher inventory, overall within our system.
One final question before I join back the queue is, given that there is capacity coming in, you mentioned about depreciation and financial cost. Below the gross margins, would we have absorbed a fair amount of cost for the expanded capacity, or should we see higher cost both on the employees and OpEx, with respect to the expanded capacity?
I think in H2, it will increase the overall apportionment because the 1B block of Atali is also will get capitalized, and I think the fully caffeine also, the early intermediates also will get capitalized. So all that getting capitalized, I think the expenses will also start recurring on the P&L side.
Sure. But operating leverage will basically absorb some amount of cost, so the margins might not be very different. Probably it could be better, I mean, at the EBITDA level.
Yeah, I think one percentage point here or there, I think we should be there.
Sure. Thanks a lot. I will join back the queue.
Thank you. Next question comes from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Congratulations for a good set of numbers. Sir, on the xanthine side, if you look at the past two quarters, we are already at INR 1,200 crore plus kind of annual run rate without even fully utilizing the capacity or not even nearing the full capacity. So given how the current prices are, at full capacity, should we be expecting INR 1,500 crore-INR 1,600 crore kind of revenue from xanthine?
Yeah, if the prices remain high, we expect this to go up to INR 1,400-INR 1,500 crore.
Okay.
If the raw material prices will come down, then the top line will come down because we have pass through on. Yeah.
Okay. And sir, on the Atali expansion, so we will be capitalizing the CWIP that we have, which I suppose will largely be from the Atali CapEx only in Q3. So despite the operating expenses of that plant coming in Q3, Q4 with higher CDMO revenue, given we have done almost INR 120 crore kind of revenue in the first half of this financial year, for us to grow to 40%-50% as we have guided, we will be doing close to INR 280-INR 300 crore kind of revenue in the second half. So with that CDMO revenue, which is at higher margins, we should still expect our margins to be higher than 20%-23% that we have reported in this quarter, as you had said in your previous question?
Yeah. See, margin percentage is a factor of global raw material pricing, plus how much more we are doing CDMO business. If the raw material prices due to this war impact and everything remains high, that will have a lower downward pressure on the margins, and CDMO will scale upward. We have to see how both mixes remain in the second half, and that will define the percentage margin. But in the absolute number, I think gross margins will keep on increasing, as we do more quality business going forward.
Sure. Just last question-
Thank you. I am sorry to interrupt, but team have to rejoin the queue. Next question comes from the line of Dhwanil Desai with Turtle Capital. Please go ahead.
Hi. Good afternoon, everyone, and congratulations for a very good set of numbers. Sir, first question is, on the API side, I think we have reached the run rate of INR 180 crore and if I remember correctly, we have capacity to serve up to INR 1,000 crore kind of a revenue. As now we are again ramping up once the headwinds are behind on the API side, do we see kind of going to INR 200 crore run rate by end of this year and then eventually INR 250 odd crore? A question tied to that, will we need more capacity to serve API demand thereafter?
Yeah. Just to give you that API plus intermediate segment is what INR 180 crore is. Currently on the API manufacturing side that we have in Tarapur, there is a debottlenecking happening on the anti-cancer side, the block number three that we have, we are trying to debottleneck. Once we have that debottlenecked, we will have the capacity to manufacture more APIs. Depending on the product mix, we can achieve higher top line also from the current level. On the intermediate fronts that we manufacture and sell to the market, of course, it is dependent on the capacity that we have and how much we are occupying in the CDMO. In balance, we have a buffer product that we keep on producing. Overall, I think it is a fair idea that this INR 180 crore-INR 200 crore could be the base for second half every quarter.
Then I think we will have to see how the next year.
Yeah. We are also in process of validating few new products which would be the base for the future.
Yeah.
In this quarter and the next quarter, we will do that.
Got it. Very clear. Second question on the CDMO.
Thank you, sir. You have asked already two questions.
Sir, I already asked one question only. This is the second one.
Yeah. Take it. Take one question.
Yeah. Sir, second question on CDMO. I think we talked about 40%-50% growth, and we are already in H2. How should we look at going into FY 2028? The reason I am asking is that some of the molecules that we are supplying to will get commercialized, will get launched in this year or next year. Approval also will come from obeticholic acid. With all those three or four molecules that we have, do we expect that 40%, 50% kind of a growth next year? With all these molecules put together, do we have a visibility to reach 700, 800 odd crore once the Block 2 also comes into play?
See, as I mentioned, our target remains 100 million or INR 1,000 crore, whichever comes first. How we achieve it is dependent on how the customers get approval. We work on almost 59 projects and there are several projects which have good potential, and it is a CDMO/CMO value chain where you can have ups and downs. But with the kind of seeding that we have done, we are fairly confident that we will achieve that number. When we will achieve is one year here or there. We will stick to that number.
Okay. Got it. Thank you.
Thank you. Next question come from the line of Kushal Goenka with Mangal Keshav. Please go ahead.
Yeah. Hi, sir. Congratulations on a good set of numbers. My question comes back to one of the previous participant who mentioned about the working capital. Now I understand that you mentioned about the inventories, but if you see the trade receivables also, that has also substantially increased and because of that, the cash flow from operations are just INR 30 crore as compared to around, I guess, INR 270 crore of EBITDA that we did. Because of this, I guess short-term borrowings have also increased to around INR 650 crore, INR 660 crore. Just wanted your thoughts on this, that with the debtors day increasing and how do you report on the same?
Yeah. So basically, the debtors would increase in terms of the sales also. So sales also has increased compared to the H1 of last year. If you see the cash conversion cycle, which is what we track, is around 150, 160 days, and that is what we basically think that is the baseline for our business.
Okay. Thank you so much, sir.
Thank you. Our next question comes from the line of Rahul Jain with Credence Wealth. Please go ahead.
Hello, am I audible?
Yes.
Hello. Yeah. Thanks for the opportunity. Sir, congratulations on a very good set of numbers. My first question is with regards to this CWIP of about INR 300 crore. In the second half, apart from the utility capitalization of the INR 300 crore, which you said you will do it in quarter three, any further CapEx and capitalization to be done in the second half?
There will be some smaller projects also. But total capitalization will not exceed this 300 number. It will be lower only because some projects will fall to next year also.
Q1.
Q1 of next year. We do not anticipate beyond this, any capitalization.
Sure. And the CapEx amount in this second half?
Overall, we have targeted total CapEx of around INR 350 crore-INR 400 crore for the year.
My second question is with regards to your guidance, sir. You have been, in general, being conservative and maintain that EBITDA and revenue growth of around 15%-18% for many quarters now. But given what we have done in first half, both in terms of revenue and EBITDA, we are well ahead of that number. Also given the Atali expansion coming through, xanthine ramp-up in next year, plus having visibility on CDMO with the large number of projects. Sir, do we feel there is ample scope to upgrade this guidance of 15%-18%? Not just for this year, this year looks quite certain it will be much higher, but even for FY 2028 over and above FY 2027 numbers?
Yeah. Overall, see, we are giving three-year guidance. We don't want to give a pointed guidance for this financial year and half yearly or quarterly volatility, we don't want to comment on this. Overall, one thing is what I want to reassure you is that the strategy is working and, overall, all the three businesses that we run are poised to do the growth in future. I think we are on track for all our guidance number. I think one year can be higher, one year. Last year we had little bit of lower numbers. Of course, this year looks promising going forward.
Just one more small bit, sir. In terms of API, you are mentioning your presentation as well as your remarks that the headwinds are subsiding. With regards to the environment, if you can share some more details, with regards to the API segment, what exactly is happening? Demand is coming back or prices are much better now? If you can share some insights on that.
In Q1, as Rashesh mentioned earlier, we had one of the major block shutdown, which got over, and that is the reason why Q2. Some of the projects we are trying and converting it to further more regulated markets. We are very much focused on regulated business. Some of the products are getting matured even further to go for the newer approval with our customers in regulated market, and that is giving us a little higher margin compared to the ROW and other markets. Going forward in API, we are very much focusing on R&D and targeting newer validations going forward and we will be working towards it. We will see that if we are able to capture as a first source with our customers for a newer project, we would want to improve our margin in that scenario.
Sure. Thank you so much, and wish you all the best.
Thank you.
Thank you. Next question comes from the line of Kaushal Sharma with Equinox Capital Venture Private Limited. Please go ahead.
Yeah, hi, sir. Very good evening. Am I audible?
Yes.
Yeah. Just one question on your CDMO side, sir. Of the 39 commercial stage and 20 development stage CDMO projects, what are the key therapeutic areas and type of molecules you are working on, and how are these products split across each therapy? Could you guide on this?
Yeah. Basically, we have products which are going for antihypertensive, for-
Anti-cancer
pain management, anti-cancer, or CNS. So varied range of products that we do in our basket. They are not concentrated only on the anti-cancer side or any such side.
And sir, are you working on any peptide and all because we have R&D, so do we have any plans with that?
Yeah. We are trying to set up the peptide lab. That is what we did mention earlier, that we will set up. I think by the end of this financial year, we will have an operational peptide labs with all the equipments. We have already started recruiting the teams which have experience of peptide. And we hope that for the next calendar, we will start getting customer business in next financial year on the peptide and oligonucleotide side.
So in the development stage that we have 20 development stage of CDMO projects, so do we have any peptide-based project in that?
Not any major project. I think, we have one or two liquid-phase Is, but not any major solid-phase I.
But in future, we are expecting that some development would happen in this.
Yeah, I think peptide and oligonucleotide are these two areas where we feel that there is lot of opportunity, I think, and which we can capture. Of course, these are highly complex chemistry, which require very precision in purification and conjugation. All that, we will have to get the experience on doing this. Of course, we are hiring experienced chemists and scientists to work on that. We will see how it goes. I think next year will be the year where we will do a start. We will pitch to the customers and see how it goes. Then I will be able to give you a firm commentary that how we are progressing on this.
Got it. Thank you very much for answering my question. Wonderful.
Thank you. Next question comes from the line of Dhruv Sitlani with Vyomara Capital. Please go ahead.
Thanks for the opportunity, and congratulations on a great set of numbers. Sir, my first question is, how much of the growth in API for this quarter was driven by pricing versus volume growth?
It was largely volume driven. The current growth was largely volume driven.
Okay. Sir, on the API and intermediate business, what sort of growth do we expect over the next three to four years? Will this largely be, again, volume or new product-led growth?
I think both. It will be new product-led as well as the volume growth. In earlier calls also, I have mentioned that we will have 10%-15% growth every year on this business, or we probably, in certain years, we can have higher growth also.
Okay, sir. Thanks for the color. On the API, sir, competition is primarily Chinese competitor or other API company within India?
Both.
Both.
Both.
Okay. Thank you.
Thank you. Our next question comes from the line of Aaryan Mehta with Shravas Capital. Please go ahead.
Hi. Congrats on the great set. Earlier you mentioned that there was some spillover of the xanthine sales due to shipment issues. Can you quantify how much that was?
That would be around 5% of this quarter's xanthine number sales.
Okay, so 5% sort of spillover. Also, our guidance for this year of CDMO, let's say, of 40%-50% growth, I think we will need around INR 280 crore-INR 300 crore more. There is also our LDL lowering molecule, which is ramping up. So how confident are we on meeting the guidance of that 40%-50% growth?
As I mentioned, we are maintaining the guidance, so we will get to that number.
Sure. Thank you.
Thank you. Our next question comes from the line of Hemant with Unifi Capital. Please go ahead.
Yeah. Thank you, and congratulations on the good set of numbers. Sir, in August, you had said that the realization per kg would decline in Q2 for xanthine. But on a Q-on-Q basis, the revenue of xanthine is almost flat. Could you break it up between the price fall and how much did the volume grow, sir?
No, actually, what has happened is that xanthine, and then we have the allied chemistry, which we do along with xanthine, which is classified under xanthine chemistry. There was a bump in that chemistry apart from the. Xanthine numbers actually have little bit fallen. Whereas the allied chemistry that we have gone, in that, the top line has increased. Overall, I think, on the xanthine side, we have some fall in the average realization. We need to check the exact number, but around some fall on the realization.
Okay. On the volume side, sir?
Yeah, volume side, I think we have-
As mentioned earlier, there was a 5% material which got stuck. Because of that, there will be some fall on xanthine and the allied products, the volume and the turnover was higher also.
Yes.
Got it. Is Q2 the peak in debt, or will it rise further, sir, with the remaining CapEx? Can you guide on that?
On the xanthine, we will further improve our top line.
Yeah.
My question is on the debt as well. Debt went above INR 150 crore in H1.
Yes.
Just INR 250 crore of FY 2027 CapEx still to come.
Yeah.
Do you see this would be the peak or you would still need more debt to do your CapEx?
No, we will need more debt.
Okay. That would be just for this INR 250 crore of-
Thank you, sir. You may please rejoin the queue for more questions.
Sure. Yeah. Thanks.
Thank you. Next question comes from the line of Ashish with Leo Capital. Please go ahead.
Congratulations on the good set of numbers, sir. For the xanthine business, how much of our growth was driven by value and volume growth on a year-on-year basis for this quarter? How does xanthine prices compare versus last year and last quarter?
The xanthine prices, on an average, our realization is up 10%-15% over last year. Realization. I think overall in this entire year, we will have probably close to 15%-20% jump over last year's volume.
Yeah, last year was 6,000 tons.
Yeah, last year we did close to INR 6,000.
INR 5,000. I think last year was
Yeah. We will have 15% jump on the volume this year over last year.
Got it. And pricing wise, what was the pricing, sir, on xanthine?
15% higher this year. Average.
What sort of utilizations are we operating at on the expanded capacities on the xanthine business, which we added in Q2? By when do we expect full utilization?
No, we have not planned for full utilization. Over the next two years, we will gradually reach to 90% utilization. Our capacity nameplate will be 9,600. So we will operate around 8,800 or at the highest level in next two years. Next year, we should anticipate 7,500 up to 8,000, in that range.
Currently, what is the-
Thank you.
Yeah, near 7,000.
Near 7,000. Okay. Thank you, sir.
Our next question comes from the line of Ankit Gupta with Bamboo Capital. Please go ahead.
Yeah, thanks for the opportunity again. The first question is on the CDMO side. We have been targeting INR 1,000 crore of revenue, as you have indicated in earlier calls, whether it is FY 2028, FY 2029 or FY 2030, we will see. Two part to the question. Given the current pipeline that we have and the current set of capacity, including the dedicated block that is supposed to come in the second half of next financial year. Is our pipeline and the visibility for INR 1,000 crore revenue there, plus the CapEx with this new dedicated block also coming in, we have enough capacity to reach that number of INR 1,000 crore?
Yeah, I think we should have enough capacity to reach INR 1,000 crore with the new dedicated capacity coming in. But I think, as I mentioned earlier, we will not restrict our capacity with that. If we have more visibility of the newer projects or the demand of the current projects is also increasing, we will have to put up additional capacities, because the current dedicated block capacity is only planned for few projects. But if we have more projects having more visibility, then we will have to put more manufacturing assets.
This year, anyway, we are doing INR 400 crore CapEx. Next year, we have plans for the new dedicated block which is coming in. A part of it will spill over from this financial year to next financial year. Apart from that also, we are looking to add capacities. Plus, you have been indicating that we will put up more dedicated blocks. As of now, we have some indications on putting up new capacities for next financial years, as well as new dedicated blocks.
No, I think still we are figuring it out. I think next year we will decide how much more needed and where to put it.
Okay.
Yeah.
Okay. And sir, on the xanthine, once we reach the full capacity utilization by next financial year, hopefully. We would be looking to expand capacity, or we are not looking to put in any more CapEx on the xanthine side?
No, I think we will have second largest capacity in the world, and I think we will be happy to maintain this position, I think, for next few years and then see how it goes.
Okay.
Yeah. Because we have gone up from 5,000 to 9,000+ capacity.
Yeah. And sir, on pricing side, there will be two part to the pricing. One will be the impact of the crude, and second will be the impact of Chinese government authorities withdrawing the rebate that they were giving to the companies on the exports. So, let's say even if the crude prices come down, do you think the prices that we are seeing on the xanthine side will be sustaining or it will come down? What is your view on the pricing given how the current scenario is?
In xanthine, there are three segments. In the spot segment, the prices will have pressure. I think the pharma and the beverages section, anyway, we will have more stability on the price.
Okay. So you think at least on those sides, the existing prices can sustain going forward also?
Existing margin, absolute margin will sustain at least for next financial year. Then we will have to see how the next year goes.
Sure. Okay. Thank you. Thank you very much.
Thank you. Next question come from the line of Kirtan Donga with Himalaya Capital. Please go ahead.
Hello. Thank you for the opportunity. My first question was, for the Atali Block 1, what sort of asset turns do we expect for the multipurpose block?
See, multipurpose block as such, Atali total capitalization was done, which has a greenfield project. So where the block had one value, and then there was all the central utility, warehouse, the land development, and everything. So there, the asset to ton will not be very high. But I think the newer blocks, we have given the guidance that it will have 1.2- 1.4 kind of a ton on asset side.
Sir, any some numbers, if possible.
I mentioned to you the number, no?
No, that was for the new block.
Assume that current block is also of the same cost and same size, it will have this kind of a ton.
Okay. And the second question was, do we largely expect Atali to be used for CDMO business or do we also expect the generic API business to come from here?
No, there won't be any API business. Some intermediate business plus CDMO.
It will be CDMO only.
Yeah. CDMO plus intermediate.
Okay. Thank you.
Thank you. Our next question comes from the line of Piyush Bangar with Vijit Global Securities Private Limited. Please go ahead.
Yeah. Thank you for the opportunity. My question is related to the peptides and oligonucleotides business. As you said that the lab will be operational by the end of FY 2027, and the numbers will be reflecting from FY 2028 onwards. So what kind of numbers do we anticipate, like in terms of percentage of total revenue in FY 2028 and ahead?
It is too early to give any number or any guidance. We are just setting it up. I think this question next year would be a good question for you to ask. Currently, I cannot comment with any greater visibility on this.
Okay. Thank you. Thank you very much.
Thank you. Next question comes from the line of Tushar Raghatate with Omega Portfolio Advisors. Please go ahead.
Yeah. Thank you for the opportunity. My question is on the API. Historically, last three years, our API percentage contribution was near to 40%. In the last three quarters, it has reduced down to 30%. I could see that you have filed a DMF in the prostate cancer drug. What sort of opportunity do you see in that cancer drug? And, sir, your five-year view on the DMF pipeline, which we plan to file. The next question is on the CDMO. The peptides and oligonucleotide kind of research what we are doing, I just want to understand your the next five years, this is for small molecule, any plan, any aspiration for entering into large molecules and other different types of modality?
Yeah. I think on the first thing, we have a strong pipeline of 61 APIs that we have. Out of which next financial year, we will have several patent expiries expected. Those products will be launched with our partners in their markets where they have partnered with us. That will have some sales happening in that region. We still have to quantify who is getting the market share and how overall the dosage guys with whom we have sold are able to capture, and that will define the growth for us. Second thing is on the current existing products also that we have, we are trying to get newer and newer customers as a AVD program, alternate vendor development, and that's where also we will gain market share.
Coming to your CDMO question on the peptides and oligonucleotides, I think that is a large molecule which we are trying to develop. Apart from that, we are also trying to develop the linkers also as a modality. I think these few modalities, small molecules, peptides, oligonucleotides, as well as the linkers, ADC linkers. All this will be what we will offer currently to our innovator customers.
Okay. Just on the API front and what is the right to win for the DMF filing which you plan going forward. Is there any strategy that you are only filing for where there is less of a competition? What are your view on the pipeline for the next five years?
No, we have strong pipeline, but of onco products. I think largely driven by the onco products and where we have several projects with dosage makers and the U.S. market consumers. So we have to see who is getting the market share, and that will define how the segment will grow. I think I have given the guidance number on what our aspiration is. We will have to see what number comes on the growth on API side.
Fair enough, sir. That was helpful. Thank you.
Thank you. Next question comes from the line of Ameya Deosthali with ValueEquityIN. Please go ahead.
Hi.
Yeah
Looking at recent filings, whether it be on onco or antidepressant on DMF and CEP, what are the targeted therapeutic areas that we expect you want to focus on over the next two-three years, which we can see large mix over the next two years?
Yeah, I think anti-diabetic range of products.
Thinner
Blood thinners, antihypertensives, these are the modalities. Apart from steroid, which goes for the inhalation, I think we have good projects that are getting commercialized there. And of course, oncology, we have several projects that will get commercialized. So all these are the growth areas that will be for us from the API side for next few years.
Okay. My second question, in the peptide R&D, I was just looking at the renovated website. You have given full disclosure on SPPS, LPPS and the types of peptides that you are starting work on as you said. Do we see R&D spends accelerating over the next one or two years? How do we see Aarti Pharmalabs as a company kind of hiring the top R&D talent required for such an intense chemistry like peptides?
Yeah. As you rightly mentioned, as a company, we will invest more in the research, and we will have more R&D expense happening going forward. I think attracting talent is a very important function of the management, that how we are able to attract talent. We were glad that we could attract good talent over FY 2026, 2027, and last year also. We have the new CSO who has joined since last nine months, and then we also had a new API R&D head who joined us. We are also further recruiting on the R&D side for the team. I think with the renewed focus on peptides and complex chemistry, we are very sure that we'll have good talent in our team to deliver what the strategy that we have defined.
Okay. Let's just squeeze the last question on xanthine. Do we have a breakup on what is the spot market sale versus, as you said, the pharmaceutical or the other grade sale?
We don't give that actually.
Yeah, we are not giving that breakup currently.
Okay. Thanks for mentioning. All the best. Yeah.
Thank you. Next question comes from the line of Rupesh Tatiya with Long Equity Partners. Please go ahead.
Yeah. Thank you for the opportunity, sir, and congratulations on good set of numbers. First question, sir, is on API segment. I was looking at some numbers, and I think we did, let's say, INR 920 crore sales in API in FY 2025, which came down to INR 650. And in first half, this is around INR 345 round figures. I think we were aspiring that FY 2027 API sales will be closer to FY 2025. Do you still aspire to get there in this year?
No, I think the API sales on FY 2025 was 43% of total sales, and which last year became close to 36%. In the current financial year, we are at close to 30% of the API on the total front. Yeah. So that's where we are. And I think overall numbers are increasing, and I think our R&D number is increasing faster, so overall pie is increasing. And last year we had a dip overall on the API side. So we first have to regain to the previous year number, which we of course will cross this year and then move forward.
So, will we get to previous year high this year and then, let's say, 15%-20% growth next year?
We'll have to see how this year goes. That is our target that we'll get to the new number, new high number.
Okay. That is one. The second question, sir, is on slide 12, where we're looking at, let's say, INR 1,000 crore revenue in CDMO in two-three years. So now there are two ways to think about it, right? One way is that in, let's say, FY 2025, FY 2026, and H1 FY 2027, last, let's say, 18 months, six molecules have gone into commercialization. From 33, it has gone to 39. So either the potential of these six molecules is really large that they can be INR 500 crore-INR 600 crore, and then we can go to INR 1,000 crore. That is one way I can imagine INR 1,000 crore. Or other way is that your Under development pipeline has to go from 20 to, let's say, 100, at least 70-80. Because the under development pipeline has actually not moved at all for the last three-four years.
Can you just address both of these aspects for these six commercial molecules?
I will explain you how we are keeping the pipeline. The pipeline, actually, you are seeing the constant number. Actually, it is a moving number. I think the pipeline has new additions and also the deletion. The projects which fail in the clinical phases go out also. This is the current pipeline. This is not a cumulative number, which is only one way increasing. The number keeps on churning. I think overall, that's why you are saying that the number is remaining high. But from the 21 under, there will be certain which will go out, and that will not get commercialized. And then we will add more commercial molecules. We have more certainty on the 39 projects that we have than the 21 projects that we have on the under development side.
On the 39 projects also, we have certain projects that have just been transferred last year, and they are campaign products. There was a big increase in projects that moved from China to us as a China Plus One strategy, where we were added as additional source. These projects are not very large, but the number of projects have increased. These projects have a cycle of approval and have a campaign cycle. All those factors are little bit complex than the simple justification that you derive to get. However, we have few good projects which will drive bulk of the sales numbers. This 80/20 rule of number of projects, 20% project driving 80% revenue still applies in this as well. Yeah.
Just to summarize, sir, if end markets perform well, which is not in our control, with the existing combination of commercial projects and under development projects, INR 800 crore-INR 1,000 crore revenue visibility is there even with the existing set of molecules. That's a fair inference.
The 10 to 12 projects that we have out of the 60 projects, the 20% projects will drive INR 700 crore-INR 800 crore of the revenue out of the INR 1,000 crore potential that we have overall.
Okay. Yeah. Thank you. Thank you for answering my question.
Thank you.
Thank you.
Thank you.
As there are no further questions from the participant, I now hand the conference over to the management for the closing remarks. Thank you, and over to you.
I would like to thank everyone who participated in our conference. Thank you. Happy Diwali.
Thank you so much, sir. Ladies and gentlemen, on behalf of Aarti Pharmalabs Limited and PhillipCapital India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.