Q2 25/26

Nov 11, 2025

Summary

Q2 consolidated revenue and EBITDA declined YoY, with API mix pressure and forex loss weighing on earnings. FY26 standalone EBITDA growth guidance is 8%-12%, while CDMO/CMO growth is expected to exceed 30%-40%.

Ladies and gentlemen, good day and welcome to Aarti Pharmalabs Q2 and H1 FY26 earnings conference call hosted by Emkay Global Financial Services Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need any 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. Shashank Krishnakumar from Emkay Global Financial Services Limited. Thank you, and over to you, sir. Hi, thank you. Good evening, everyone. Thank you for joining us on the Q2 and H1 FY26 earnings conference call of Aarti Pharmalabs hosted by Emkay Global. I would like to welcome the management and thank them for giving us this opportunity to host. We have with us today Mr. Rashesh Gogri, the chairman, Mrs. Hetal Gogri Gala, the vice chairperson and managing director, and Mr. Piyush Lakhani, the chief financial officer. Before we begin this call, I would like to point out that some statements made in this call may be forward-looking in nature, and these must be viewed in conjunction with the risks that the business faces. I shall now hand over the call to Mr. Piyush Lakhani for his opening remarks. Thank you, and over to you, sir. Thank you, Shashank. Welcome, everyone. Good evening. Rashesh will be joining us in a few moments, so allow me to read out the opening speech. Welcome to Aarti Pharmalabs earnings call for the second quarter of the financial year 2025-2026. Thank you for taking out time to join us today. I will be walking you through the Q2 FY26 performance and highlighting key developments across our businesses. Let me start with an overview of our standalone financials for Q2 FY26. The top line for the quarter was INR 417 crore, which was INR 377 crore a year back, which is an increase of 11% YOY. The EBITDA stood at INR 75 crore as compared to INR 85 crore in the corresponding period of the previous year. The profit after tax for the Q2 FY26 was INR 31 crore as compared to INR 48 crore a year back. In this quarter, PAT had an impact of Forex loss of around INR 7.4 crore. I will talk about this in consolidated financials for the Q2 FY26. The top line stood at INR 418 crore as against INR 458 crore in Q2 of FY25. The EBITDA for the quarter, that is quarter 2 FY26, stood at INR 75 crore as compared to INR 94 crore in the Q2 of last year. The profit after tax for the quarter was INR 28 crore as compared to INR 55 crore a year back. Now let me present a few business highlights. Aarti Pharmalabs operate across three key verticals: xanthine derivatives, API and intermediates, and CDMO/CMO services. The xanthine derivatives segment contributed 51% of our turnover in Q2. The volume split was 71% beverage customers and 29% others. In terms of geographical split, the export sales was 59% and the remaining 41% was local sales. Coming to API and intermediates, this business stood at 39% of the turnover. The sub-segment-wise breakup is 55% regulated market, 31% rest of the world, and 14% non-regulated market. The API business saw high margin pressure. Moreover, the API sales mix in this quarter was skewed towards lower margin APIs. The third segment, CDMO/CMO, has contributed 10% to the revenue for this quarter. We are presently working with 21 customers. The number of active projects is now 59, of which 39 projects are in commercial stage and 20 are under different stages of development, both at customers' end. We are on track to achieve and exceed the earlier estimated sales target, which is 30%-40% growth YOY. Let me now discuss update on the projects. We inaugurated the Atali plant in September and have started operations. Currently, we are in the process of taking trial batches of a few products for customer qualifications. More products are planned in upcoming months. We expect this facility to be fully operational in 2-3 quarters, thus contributing meaningfully to the revenue from FY27. Xanthine expansion is ongoing as planned. We are now operating around 500 metric tons per month. The incremental capacity will get operationalized in phases, and we expect to reach 9,000 metric tons per annum installed capacity by end of this financial year. Looking forward, looking ahead for the full year, we revise our EBITDA growth guidance to 8%-12% growth YOY in FY26. Our long-term business strategy is to target growth while maintaining financial discipline. We are confident that long-term customer relationships and strong technical capabilities will continue serving as pillars of our progress. The moderator may now open the forum for a Q&A session. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Rahul Jain from Ckredence Wealth. Please go ahead. Hello, am I audible? Yeah, you are audible. Yeah, sure. Thank you so much. Thanks for the opportunity, sir. Sir, a couple of things. First, on the gross margin. Both gross margins and EBITDA margins have fallen sharply quarter-on-quarter as well as year-on-year. I am talking about standalone margins only. The gross margins are down by roughly around 5% year-on-year, comparable last year, September 2024 quarter. I understand that you have given reason in your presentation as well as your inaugural speech with regards to issues on the API and intermediate business. But when we look at the segment-wise sales, also Xanthine is better compared to last year. In fact, overall API sales are much lower than last year and CDMO sales are higher than last year. How do we understand this margin fall? If you could share some more details about and what is the sustainable gross margin we should look ahead for? Yeah, Rahul. So basically, if you see, we have still maintained our CDMO/CMO top line guidance. Actually we have stated today that we are going to exceed it. Now we have two quarters left. So in these two quarters, we have to deliver the product and exceed our guidance. For that, we have had to use our facilities to produce these products for these projects, which are in the intermediate stage. So they have taken up some capacity, which has resulted in largely the little bit lower impact on the overall EBITDA number. But that impact will get rounded up in the coming couple of quarters, basically. As you know that we have fungible plants which are being used for the CDMO business as well as the intermediate business. That is where the capacity gets utilized depending on the priorities and the profitabilities of the project. Of course, CDMO projects get priority over sometimes the intermediate business. So that is one reason for the overall slowness that you have seen. Of course, second reason that we have stated that last year we had a couple of products which were launched in last year. So we had huge sales of these products with good margins. Which of course, in a second year of genericization, there are more players who have entered the market. Of course, the margins always come under pressure. So till now we have never had such large launch of these kind of products in past, which could hamper our overall margin percentage. But that has happened in last year we had good launch. This year, of course, this is the second year, so that is where the impact has come. So overall that is what grossly summarizes the overall changes in the number that you are seeing in the results. Also this quarter we had, of course, non-EBITDA based, I think foreign exchange loss was also one of the component which of course, had an impact. I think overall- Sorry, go ahead sir. Sorry. Yeah. You were saying, sir. No, sir, you were saying something overall. Yeah, overall I think the EBITDA number, overall EBITDA margins, we normally like to give overall guidance on growth only, absolute numbers. Because percentage point depends on which market I am pushing which product, and it can vary little bit up and down. So I am not too much worried about the overall percentage EBITDA over top line. Sure. Thank you. Yeah. And sir, with regards to the overall API business flow, when we look at the full year this year, last year we had done around INR 770 crore sales. In the previous call, you had guided for growth on that sales for the full year. As we speak today, did it come and with your comments in- Yeah, basically in this quarter we had a lot of intermediate manufacturing which suck up the overall capacities for CDMO. Which will get freed up in these coming quarters. Which will result in higher API overall number going forward. Yeah, Rahul. I hope that answers your question, Mr. Vinay. Rahul. I think he has dropped, so we can take someone else. Yes. Next question is from Ahmad Madha from Unifi Capital. Please go ahead. Yeah, thanks for the opportunity. My first question is on the Xanthine business. What was the current capacity production in current quarter, which is Q2 of 2026, and compared to that, what was the production last year? A parallel question to this is with the new brownfield expansion, while expanding the capacity, will the volumes be impacted for Q3 and Q4, or you think the volumes will expand from the current quarter's numbers? We are not sharing the absolute production numbers. We are just giving the overall Xanthine numbers quarter-wise. We are not giving the pointed numbers every quarter. I wouldn't like to share the data for confidentiality reasons. However, we are operating at a higher level now, and with the debottlenecking that I was clear, I had guided that the capacity will get debottlenecked. Actually, our expansions that we have done is we are taking care that we are not impacting the current running capacity, even though they are brownfield expansion. Actually, we are getting capacity released and we are doing higher and higher capacity than the earlier months. Okay. Second question was on the CDMO business. We have seen some changes in the commercial projects in first half of 2026 from the under development project. Does that give you any contractual visibility for next year? It seems management is confident about the current year's guidance. Can you give some sense of new projects and how do you see the visibility for FY 2027? Actually, I think the number of projects which are getting into the commercialized space is a good thing, and we have actually shifted almost seven, eight products there, and which have resulted in basically launches or approvals which have come in these last couple of quarters. Which is really encouraging. Now that variability of whether that project will pass the approval of FDA and EDQM and other agencies is away, and we are likely to see good potential sales of this product. What happens is that once you are into this approved list from the phase II, phase III, and you are plugged in as a source long term, visibility gets created. Of course, first couple of years, there will be little bit of uncertainty related to launch and how much market share or how much big the brand becomes. But once the brand sales stabilizes, then we have really good visibility going ahead of these kind of projects that we do. Okay. Just on the API business, there was, first, Raul asking questions earlier on. We have seen some weakness in first half of 2026 compared to last year. We had a very strong last year. Can you give some outlook for the API business in second half of 2026, considering Atali CapEx is already on, so will you be able to utilize that, or how do you see the trajectory of API business in second half? I think we had two, three very good products, couple on hypertensive side and I think one on the respiratory side. Do you see those products again coming back with high volumes or with the growth will be driven by new launches? I think we have a portfolio. See, API business category sales comprises of API and intermediate business both together. As I have explained earlier, we are selling commercial APIs, largely APIs that we are general APIs, lifestyle APIs. We are also doing the steroidal APIs, and we are also doing anti-cancer-based APIs. We have been focusing more on lifestyle and anti-cancer APIs of late, and we have done lot of R&D as well as the filings for the new projects. These will get launched. Every year, we will have few launches, this kind of project. As these launches, double-edged sword. When you launch a product, you get a bump. If the second year is not as large as that year and other products don't support, then you see a little bit of dip. If you see last year, we saw a good jump earlier year on the API business. This year's earlier projections were there that the customers would buy, but of course, there is a lot of competition, and I think people have stocked up with, and the prices have also come little bit under cloud for these few products, couple of products that have launched. I think, of course, our regular products, we have been generalized for many such products. We will have to await for the new launches, and we have new launches and new products which will get factored. We will improve on our first half performance in second half for the API business. Sure. I have two more questions. I will join back in the queue. Yeah. Thank you very much. Next question is from Ankit Gupta from Bamboo Capital. Please go ahead. Thanks for the opportunity. My first question was on the Atali project. I think that started in the first week of September. Since it is a large project, CapEx of around INR 450 crore, how should we see its cost, either on the employee cost or the expenses and finance cost and depreciation hitting our quarterly numbers in coming two quarters? Hopefully, the ramp-up starts from Q4, so it should start getting visible. Yeah. Basically, Atali project has close to 440 KL of capacity which will get added, and out of which, we have almost commercialized capacities of almost 340 KL. And we have actually had trial batches of the projects, some of the CDMO project also, which eventually we wanted to strengthen our site's manufacturing ability for future. So that activity has already been started. We had audits as well. So we are taking all the necessary steps to qualify the facility for future. And also we will transfer more and more intermediates also at the current site to fill up the capacity. So I think Q4, of course, we will do that. Then next year also, couple of quarters, we will still have to do this activity, and then the ramp-up will come. So that's what will happen. Of course, the expenses for that particular part of the block that we have commercialized, we'll have to start expensing it out and it will start hitting the P&L also. So I think in next quarter results, you will have a fair bit of clarity about the number. Of course, we know the estimate, but we will give you more clarity then. Gotcha. So Atali, we should see substantial increase in contribution happening only from Q3 of next year is after all the validations plus qualifications are done, is that the right understanding? Or we should start seeing jump from- Next year Q1 itself? No, the jump will be overall this year to next year. There will be a jump overall in the intermediate business plus the CDMO/CMO business, which this site is going to support. Okay. Yeah. So that's what will happen. As you have seen from last year to this year, we have anyway given a much higher forecast. Our current Vapi site was excessively used for the CDMO projects, which we want now Atali also to be utilized, and both the sites can then support the intermediate as well as the CDMO business. Sure. Secondly, on your guidance of exceeding 30%-40% growth which is expected for this year. We have seen the number of commercial projects also going up, from like quarter-on-quarter, we are seeing a jump in that. Some of our innovator partners have also got approval during the last quarter. Given how things are on the CMO/CDMO side, how should we overall, you have been talking about targeting INR 1,000 crore revenue in the coming two to three years. Given how things stand currently, and with Atali also coming in, for FY 2027 on the CMO/CDMO side, should we see a substantial jump in numbers even compared to the growth that we are seeing this year? Yeah. Ankit, see, CDMO/CMO business is a long-term business. One year here or there, but ultimately the numbers we will achieve and the numbers that we have targeted, we have mentioned earlier in our calls. Right. It is always the launches and the strategy what innovators does. We have few very large projects that we are doing with the innovators, and it clearly depends on their strategy, how they are positioning and how they are planning to ramp up overall. Because all the innovators during the start of the project and approval, anticipated approval, they bulk up the launch quantities. The first, second year, sometimes, we have to be little bit cautious. I do not want to give any commitment. But I think longer term, we see growth and there is a pathway really to achieve that number with the existing running projects that we have. Of course, anything additional, projects that we get will also support us overall. Got you. The last question on the API segment. Earlier in the previous calls, we used to talk about API achieving growth of around at least 10% this year also. But given how things are currently in the first half, you think it is possible to achieve that kind of growth for full year or achieving last year's number itself becomes a tall task this year? Yeah, I think we are going to see what happens on those. But I think growth will be little bit more challenging looks like because the last year's launches on which we had earlier promises, the customers are little bit slow with higher inventory. Of course, they have the market position, but it is just the inventory correction. Last year they bought one and a half years inventory, and now they are saying that, "Okay, you wait." The competition has also entered. Yeah. That fluff has to settle. We have partnership with the customers who had early launches of these kind of products. We will continue Right to have that advantage. It is just a blip on couple of projects. Of course, but we have more range of products. There is a product mix effect also in certain products like steroids and stuff. The product mix is really changing, and newer products are getting more traction. For example, the newer salts of steroids are getting more traction. We are also forming a strategy to commercialize and manufacture these products in much optimized way. That will also happen in this year. Some validation batches have also taken up some capacity for that. Once we get over this, I think, again, we will be back to the growth phase. And sir, we had some very interesting launches on the API side in the oncology segment in 2027 and 2028. With that happening, should we be back on our path to INR 1,000 crore in API segment, let us say in FY 2028? Yeah. Actually, we are looking at debottlenecking our anti-cancer block as well in the second half of the later part of this year, early next year, which will be enabling us to further look at meeting the targets of these launches. These are very good products that we anticipate good growth. Sure. That will happen in 2027 and 2028, right? 2027 launches- Yeah are there. Yeah. Okay. Thank you, sir. Much shorter. Thank you very much. Next question is from Vinayak Mohata of BugleRock Capital. Please go ahead. Hello. Yeah. Am I audible? Yes. Y- Yeah. Hi. Good evening, sir. I just had a couple of questions around the CDMO side. In your presentation, you have talked about some emerging work happening on the mid-size peptides. Could you elaborate a little onto that? Are you working on this from scratch with an innovator, or how is it? Added to this, from the products that have increased on the commercial project segment to 39, are these all products which have come up from under development projects and they are ready for commercialization? Or these are fresh commercialization opportunities that you have picked up? Yeah. I think on the peptide, we are preparing our R&D to have a look at peptides. I think we will start with the liquid peptides, which have little bit lower molecular weight, and then eventually we will go up. Currently, it will take little bit of time for us to do commercial projects on that peptide segment. But we have started discussion with this liquid phase work and we are trying to promote ourselves as one of the partners that the innovator can do partnering with us for this segment. Coming to this CDMO launches and commercialization, we have seen changes of almost seven, eight products have come to the commercial basket from earlier under development. Of course, we had two products which have dropped. This is basically part of the CDMO business, how it works. There will be certain products which will drop, there will be certain products that will move to commercial, then we have to keep on increasing the overall pipeline to get the sustained growth of the business. Understood. And sir, is it fair to assume, from a trajectory standpoint, as in when the share of CDMO will continue to improve, as we have seen in other companies as well, CDMO would be coming at higher gross margins. Thereby, your EBITDA margin from a structural standpoint should be on an uptrend itself. Would that be a fair assumption to have from a longer term perspective, not near term or anything? Yeah. CDMO business has structurally higher margins. How it impacts the overall mix is depending on how other mixes are also growing and how much is the percentage of CDMO vis-à-vis the others. So that, of course, is a math which we will have to see how it goes. Sure. The last question on the Xanthine side, you said that you will be able to ramp up to 9,000 tons by the end of Q4. The first two quarters have come. The capacity will become 9,000 metric ton. Okay, understood. By Q4. In Q1 that we will take some time to increase it. Increase it. Increase the capacity from 5,000 tons to 9,000 tons. In year one, we do not expect to fill it up. There will be a growth, there will be a ramp-up of that. I think in next 2, 3 years, because we are taking up overall from the market share perspective, also almost 25% of the market share, which is very large. Now there to further grow and hold up that is going to be quite a task going forward. Understood. That was my clarification. One last question. On the EBITDA side, you have talked about 8%-12% growth. This is after considering all the costs from the Atali plant that will start hitting the P&L from this quarter onwards, right? This is standalone guidance that we have. Understood. Perfect. Great. Thank you so much. Thank you. Next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead. Hi, good afternoon, sir. My first question is on the CDMO side. If you can talk about what are the efforts that we are doing to increase the funnel. Because at least in FY 2025, the total number of projects were 60 with 21 customers, and I think even at the end of H1 also it remains the same. I understand it's a long gestation thing, and there will be a lot of things in the pipeline, but if you can highlight on what are we doing to increase our funnel for future growth, let's say beyond 2, 3 years. Yeah, good question. In the CDMO/CMO segment, we have started our office in Europe. We have a representative in Europe which is promoting Aarti Pharmalabs CDMO activity in Europe. Now we plan to put one person exclusively for the CDMO BD in North America. With this geographical ground presence, I think they will be able to meet customers and convince them. Of course, we keep on attending all the trade shows, and we are trying to take also overall analytics help to keep a tab on the new launches. See, the segment that we want to get after is the phase II to III, when the phase II approval comes, and then it moves to phase III clinical. We work jointly and with the customers that we have, we are trying to increase our wallet share also with getting additional products. These are the steps that we are taking to increase our overall reach within the CDMO industry. Okay. Got it, sir. Second question on the API side. We talked about last year being the first year of launch and hence better pricing, and this year some pressure on couple of products. When we launch a new product and most of the time for regulated markets, those products are mentioned as a source. In that case, how does the pricing agreement work? Is it on a spot basis or is there a pricing formula? Once you are there as a source, my understanding was that the pricing pressure is significantly less. Is our understanding correct, or if you can throw some light on that. Yeah. In a genericized product, which is genericized five years ago, all this holds true that with the genericized product, changes, unless there is a big delta, doesn't happen. But when the product is launched, I think in particular market, which is a big launch, what happens is that overall the margin, the pharmaceutical manufacturer, they vie for this market share and there is a lot of competition. Whoever wins this gets the lion's share of the market. That happens, and during that, everyone thinks that we will keep significant market share and they keep stock. Then ultimately, if that doesn't happen, then they will have excessive stock which they have to correct. That is the standard thing. First two years of the launch are volatile and after several years, we had this kind of a mega launch of few products which saw this kind of up down. Yeah. Okay. Sir, two clarifications, actually. One, we talked about 8%-12% EBITDA growth. That kind of, in a way, says that H2 will be INR 300 crore or crores EBITDA, even after the Atali cost coming in. Is that a fair understanding? Yes, Dwari. That is the CapEx. Okay. That is what we are basically targeting. Okay Working hard to achieve it. Okay. Then our long-term target of 15%-20% EBITDA growth for next three years, that remains intact, right? No, 15%-20% EBITDA growth is quite steep. I think that is the number that we have not stated. Overall, I think profit growth, PAT growth or PBT growth, we can target good numbers, but I think EBITDA growth cannot be 20%. Yeah. Unless we get very big launches and we are extremely lucky with certain things. Yeah. Okay. Thanks, sir. This was all. Thank you. Next question is from Prakash Kapadia from Kapadia Financial Services. Please go ahead. Yeah. Thanks for the opportunity. Just to get the growth perspective, you have mentioned 8%-12% growth, so that implies a 17% EBITDA growth in H2. For this, given whatever has happened in H1 in the API segment, CDMO has to grow substantially over last year's base. Last year, H2 had a fairly decent base of CDMO. What is going to drive growth in the near term? Is it just CDMO or if we are also normalizing, which will get this EBITDA growth coming in in H2? Directionally, what kind of a CDMO contribution is possible given that the Atali project will commence and be ready by the year-end. Trial productions are obviously on. Next 2-3 years, what kind of a mix should be possible from the CDMO segment? Those are my two questions. Thank you. Actually, the CDMO segment, overall annual guidance we have given. I think today on the call, we have mentioned that 30%-40% growth guidance that we had given earlier, we will be able to exceed that. That means that in the second half of this year, we will have substantial sales of the CDMO, which is going to be over and above, I think, the entire last year's value also. Full year value. That is what is going to happen. We have orders in hand, otherwise we wouldn't have been able to give you such kind of certainty. Right. That is what has been planned, and that has occupied our current manufacturing blocks for this earlier sale. What we are doing is, we are also doing, say, for a few projects, we are doing 8-10 stages in-house. If we have these kind of large orders, the plants get occupied over a period of time or over quarters for this activity, and the invoicing only happens once we sell these goods to the final customer. That's what will accumulate the profit. The way the accounting standard guidelines are there, all this, we can't take it as WIP profit in the running quarter. Secondly, I think overall, we have guided that over last year the growth will happen. And of course, we will see next year, depending on the project that we have, what kind of further growth that we will be able to generate in our CDMO business. I think, as we go to the last quarter or towards that, we will be able to do more guidance on that. But we are sure that we will be able to grow that number in future, long term. Coming to API business, API business will normalize in second quarter. So the first quarter, whatever the slowness was there, I think in the second half of this year, we will ramp it up. Understood. Lastly, sir, you mentioned capacity remains fungible. Just wondering, how easy or difficult it would have been given the kind of CDMO pipeline and the order book which we have to do some of the CDMO sales at the cost of API. Because if API was slightly more margin dilutive and not so lucrative, we could have avoided some of that sales to get certain CDMO also or it was committed and we had to fulfill. Just trying to Yeah, Prakash, the CDMO sales always gets first priority. Okay. Then we look at the intermediate manufacturing. See, the API manufacturing has dedicated manufacturing blocks, and that is where we continuously do the production. It is just a question of intermediate manufacturing, how it shifts, basically. Because we are backward integrated in our intermediates that we manufacture for our API business. So now we are also taking steps to also qualify outside suppliers for these certain intermediates also, so that in such situation we can buy those intermediate and take a call, whichever commercial call, which makes more sense for the company in future. So few products we will create an outsourced model. What has happened is that our current intermediate manufacturing capacity was quite occupied with all this. And now with the Atali coming in and with the validations getting shifted, we will see more space where we can basically do the backward integrated intermediate manufacturing as well, which will see growth also. So that should enable CDMO opportunities or further growth in CDMO if that opportunity comes. Or intermediates will also grow. Understood. Thank you. Thank you. We have a follow-up question from Ahmad Madha from Unifi Capital. Please go ahead. Mr. Ahmad, your line has been unmuted. Please go ahead. Since there is no response from Mr. Ahmad, we will proceed with the next question from Josh from Dalal & Broacha. Please go ahead. Yeah, hi, sir. Thank you for the opportunity. Sir, my first question is on the CDMO front. Since six molecules have moved from the development phase to the commercial phase, and you have upgraded the guidance for the CDMO business this year, does this mean that a lot of that sales also comes in, or is the 30%-40%, exceeding that 30%-40% guidance from the molecule that was approved earlier this year? Yeah, it's basically combination of everything. We have done commercialization with more partners also on the existing products because as I had explained you earlier, each innovator product, there are multiple API suppliers for that innovator and then depending on where we are plugged in as a supply chain supplier for that GMP or early-stage intermediate, it depends on that. We have qualified ourselves with multiple API suppliers for that particular innovator's product as well. All these thing is happening tremendously, which creates opportunities for growth. Okay. But then a much larger part would come in in FY 2027. Is that a fair understanding? No. Of the new molecules. New molecules, as I explained, launch quantities have created the larger growth that we are going to see in this year. Okay. We have to see how the innovators continue for the coming years. Depending on the success of their product, they will do the more forecasting and they will plan next quantities with the supply chain. But you feel that you can grow on this base in FY 2027? Long-term, the products that we are part of are part of the good growable therapeutic area. We are hopeful that these molecules will grow into good size. Okay. Sir, the next question is on the RFPs and the pipeline that we are working on the CDMO front. You mentioned that we are looking at more of phase II, phase III kind of molecules where we can enter in as a second source supplier. How does this pipeline look and what can we expect on the newer additions of any molecules that we can model up? Yeah, basically, we are working on developing our pipeline and we are participating in several RFPs. It is for us to win those RFPs. It is a constant strategic call of the innovator, which way they want to do, whether they want to outsource from India or U.S. or which product they want to outsource. We are participating in more RFPs and we are confident that in future we will get more business. Okay. Which therapeutic areas are we focusing on? We are agnostic. We are doing small molecule, basically CDMO. Okay. Okay, sir. Okay. I take the direction from that. Thank you. Thank you. Next question is from Vikas Sharda from NTAsset. Please go ahead. Yes. Hi, two questions. One is regarding the Forex loss booked in this quarter. So what is it coming from? This is particular to this quarter of what has happened? Secondly, on the Ganesh Polychem, the joint venture. The first quarter had a plant shutdown, but this quarter again they reported a loss. So what is the outlook looking like? Hi, Vikas. Peyush here. On the first question on the Forex loss, it is coming basically, as we all know, because of the sharp depreciation of rupee of almost more than INR 3 in this quarter, September 30 as compared to June 30. This is coming basically on the loan that we have, foreign currency long-term loans that we have. We have $24 million of long-term loans. Basically when I revalue it in rupee terms, the liability increases and that is what has caused mainly the Forex loss. On top of it, we have working capital loans also denominated in the foreign currency, mainly USD. There also because when I revalue it on September 30 as compared to June 30 because of the rupee depreciation, the finance cost goes up. Yeah, basically longer term, we feel that looking at the nature of business and almost 50% export that we have, as a strategy, company has decided to keep these loans Forex open. Because longer term otherwise we will have to hedge it and sell more dollars. By this we are saving the hedging cost. This will happen. I do not remember any quarter where rupee has depreciated so much in one particular quarter. That happens. Now if rupee destabilizes, then my next quarter cost would be lesser. Okay. The interest cost. The second question on the Ganesh Polychem, the plant is getting started? No. So basically in the Ganesh Polychem, the plant got started. Actually earlier quarter there was loss, so this time there is no loss. What has happened in the consolidation, we paid INR 3 crore dividend which had a negative impact. And the loss that we had in Ganesh Polychem prior Q1 and Q2 is much lower. So it is just barely a crore of loss or something like that. Not a big number. Of course, accounting treatment as well as depending on the transfer of ownership of consignments that happens. So CIF, if we are supplying via CIF, those profits we have not been able to get in the books in the current quarter. So it will still take. I think in this quarter it will normalize. Thank you. Next question is from the line of Dr. Neha from Abacus. Please go ahead. Yeah. Hi, good evening everyone and thanks for the opportunity. So my first question is regarding the increase in the overall inventory as of H1 FY 2026. So just wanted to understand, sir, as you mentioned about the CDMO business also, as we took more sales from CDMO in H2, should we see more normalization there and thereby normalization in the overall working capital? Yeah. Yes. Yeah. For the CDMO business, the inventory gets built up over a few months because the manufacturing is spread across many months. It goes up and then it comes down when the sales is booked. Yeah. It happens particularly if we have very large customer order which has got concentrated in this coming quarters. Which has resulted in preparative manufacturing happening across earlier quarter and which has resulted in this increase and also impacting the overall result as well. Understood, sir. In line with that a reduction in the overall debt because half of our increase in debt has come from the short-term debt. It will depend. The idea, basically, we manufacture too many stages. We are fully backward integrated in most of the intermediary that we manufacture, and those also get created or produced across multiple sites. There will be always a basic level of inventory that you will always see on the financials. Yeah. It will have reduction. Yeah. If you see last year, March, it was some INR 550 crore. It has gone up to INR 625 crore. Again, you will see that kind of change. Overall, the working capital, in absolute terms, will remain almost around same level because one my sale happens, then the debtor will increase correspondingly if I do a bigger sale. Got it, sir. That's helpful. Lastly, on Ganesh Polychem, sir, you mentioned about the losses coming down, but how should one look at the Ganesh Polychem business, let's say for H2, in terms of outlook and, let's say, the year ahead in FY 2027? Yeah, I think the business will stabilize. Of course, not at the last year's level, but last year we had bumper year on that, and we actually pushed lot of inventory in the last year, earlier, so that we can prepare for this one quarter shutdown that we had. Actually, there are some expansion where we have also planned the cost reduction process going forward. That also will take another one quarter to get standardized. Once that comes in, I think the profitability again will come back. This second quarter will be soft, but I think next year onwards, again, we'll be back with reasonable profits. Understood, sir. FY 2027, should we expect that there should be a growth in the PAT versus FY 2025 levels? Yeah, at least it will be near FY 2025 level. It will be 80%-100% of FY 2025. Got it, sir. Thanks for the opportunity. Thank you. Thank you. Next question is from Shubham Agarwal, from Burman Capital. Please go ahead. Hi, sir. Thank you for the opportunity. Sir, I just wanted to ask, we have seen a sequential increase of about INR 13 crore from Q1 to Q2 in terms of our operational and employee costs. So how much of this is attributable to the commencement of Atali business, and how much incremental operational cost can we see in the second half of this year? INR 38 crore increase in the operational. See, also one of the Yes. INR 13 crore. What is happening is that Q2 is the weakest power generation because we have solar power, which almost gives us annual saving of INR 30 crore plus. This quarter is the weakest quarter, and Q1 is the strongest quarter of power production. So that impact itself, quarter-on-quarter, is quite a large impact, and almost, I think that impact was close to INR 3 crore, only in the solar generation dip that happened over last quarter to this quarter. Apart from that, we had one-off charges for certain manufacturing facility upgradation, which we did particularly for Xanthine. What we have done is we have to keep ourselves approved with the large customers for both the facility fungibility we had created. For that, we had to spend a lot of money. Which has accounted for, and also in the earlier question, there was a question where, how are you keeping these manufacturing operations running while still doing the expansion. For that, we have to spend money, additional money on this activity to create operation stability. That has also resulted in some increase in the costs. Sir, then net-net, we would have seen INR 5 crore-INR 7 crore of cost from Atali commencement, right? This quarter. Atali, we did not have because it was just operating in the last week, so we have not had any major expense that has come in Atali. Atali will have impact on the current quarter onwards. Okay. Sir, how much impact will that be? We will have to see one quarter, I think, how much impact it comes to. It will have at least 4-5 crore impact every quarter. We still have to get the real numbers because we are just starting and of course, minimum power bills have started coming in. All those, how much we are able to apportion, it is an accounting call ultimately. Understood, sir. My second question is on the depreciation part. Will Q3 be like a full consolidation in terms of depreciation of the newer Atali plant, or will that be Q4? Q4 will be more because we have done only part- Capitalization. capitalization, and I think more capitalization will happen towards the end of the year. Okay. Understood. Sir, if you can also comment on what will be the stabilized run rate of depreciation on a quarterly basis at Q4. We will have to work that number and get back to you. That number we will have to work out. Understood. Because part of the project is still getting capitalized, and there are some projects which are in capital WIP, so we will have to see when those get also operational or capitalized. Understood, sir. Thank you. Thank you. Next question is from Mr. Umang from Avana Investment Management. Please go ahead. Hi. Thank you for the opportunity. My first question was on the xanthine segment. We have seen a decent performance in this segment in this current quarter. One is, can you share some light on how we expect to close on this segment in this particular year? Second is that this growth in this particular segment is largely volume-driven. We have seen some better pricing also where margins maybe have moved to our favor. That is the first question on xanthine. Yeah. Basically, one of the manufacturing plants that supports the xanthine manufacturing that we are classifying as a xanthine manufacturing revenue, had a turnaround in last quarter and which was completed. Now this quarter we had sales which originated out of that asset. Apart from that, of course, as we have mentioned, that we are increasing from 5,000 to 6,000 manufacturing and slowly that increase has happened. So that has resulted in increased production. Also, with the qualification of both the sites that we have done for the large customers, overall buy and the margins have improved. So all these cumulative effects we are seeing on the revenue jump that has happened in the xanthine segment. So what we can understand is that this revenue jump has resulted in a decent margin and the pricing fluctuations are not affecting the margins and this segment should close on a growth for this year. Is that understanding correct? Yeah. I think CDMO and xanthine segment, of course, in the first half also they have grown, and they will continue to grow in the second half. API, of course, as you know. Correct. My second question was there only. Since you mentioned and as per your comments throughout the call, you have some expenses or maybe front-loaded because of this Atali plant coming in. Is there a fair understanding that Q3 or Q4 onwards, the expenses should get normalized and this both API and CDMO growth that we anticipate is more to start growing hand in hand in conjunction. Is that a fair understanding? No, I think it is not. See, everything cannot get normalized because of the Atali coming in. I think Atali ramp-up will happen in next year. So what happens is that it creates a space for us to do more intermediate manufacturing and more CDMO manufacturing in future. See, currently we are operating 600 KL at one Vapi site, and this is 400 KL addition. So it is a big addition that we have done. And then in future, if we feel that we require additional block, we will put one additional block which will be 200-300 KL additional. So we are not going to shy away from that as well. Understood. But the reason I was asking you that by next year onwards, do you see that this API segment should be back on the growth trajectory? Yes. With the new launches we have anticipated on the anti-cancer segment. Of course, it depends on how our partners are going to do, but we are hopeful. Of course, we have done the hard work, now partners have to deliver. They have to capture some market share and get us the API orders. Understood. So the last question. From my understanding, in CDMO segment, we are mainly a second or a third-source supplier. Do we expect in the near term, in the next 1 or 2 years to become a single-source supplier for any of the products that we have in the basket or maybe in the funnel that you anticipate? No. API innovators will never keep a single source. We expect to become preferred source in future, but they always have couple of 2, 3 sources as a supply chain security. Understood. The reason I was asking that, generally, there is always a supplier who gets the majority share of the CDMO services, then it gets lowered to the second and third source. Wanted to understand in that particular context. We are trying to become preferred source. That's what the preferred source. Understood. Yeah, those were my questions. Thank you. Thank you. Next question is from Shubh Mehta from ICICI Securities. Please go ahead. Hello. Good evening, sir. Thank you for the opportunity. You mentioned previously that we have debottlenecked some capacity on the xanthine side. Can you quantify what is the current monthly capacity over there? Also, can you give us size? I think it is not here. We have debottlenecked the capacity in xanthine, right? Yes. Yeah. Basically, as we undertake the expansion of xanthine, on the finish line side, we have done some debottlenecking. That's why we have increased the capacity from 5,000 to 6,000. We are operating at 500 tons per month now, this month. Okay. Yeah. How about the pricing side? Is it directional, like if there is some revival of the vaccine side or is it stable? I think the pricing has bottomed out, basically. Of course, it has not moved beyond bottom significantly, but it has stabilized. Yes. Second question was on clarification towards Ganesh Polychem side. Earlier we used to do 50,000-60,000 run rate per quarter, and post that we had ramped up at ACP. What kind of upgradation do we expect? First, is there supposed to increase our production capacity, and how about margins or profitability? Do we expect some improvement on that side of things? Yeah. See, Ganesh Polychem is present in few segments which are dual-use kind of segments. The resins and the polymer intermediate that they produce have usage in dialysis-based resins, or they have usage in drone technologies also, and now big data. We are positioning ourself to these growth markets and also positioning ourselves with the lowest cost possible. All those exercise we have done in this first half, by taking a larger shutdown in Q1 and then stabilizing and standardizing the production from the newer plants, modified plants in this current quarter. Also we plan to shift our Ambivli site also in future. That will also happen in this year. With all these three events happening, new products focus, cost reduction as well as the shifting, I think this year we had anticipated that this year will be a rough year for us. But I think next year once this is done, we will be back with reasonable numbers. Got it. Okay. Thank you very much, participants. In the interest of time, that was the last question for the day. I would like to hand over the call to management for closing comments. I would like to thank all the participants for joining our call. Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you.