Q3 25/26

Feb 7, 2025

Summary

Q3 delivered record profit, with consolidated revenue up 20% and EBITDA up 34% YoY. Growth spans all three segments; management expects FY25 EBITDA growth to exceed prior guidance and sees significant CDMO/CMO potential, alongside capacity additions and temporary Vapi shipment delays.

Ladies and gentlemen, good day and welcome to the Aarti Pharmalabs Limited Q3 and nine months FY 2025 earnings conference call hosted by Valorem Advisors. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during this conference call, please signal for an operator by pressing star and then zero on your touchtone telephones. Please note that this conference call is being recorded. I now hand the conference over to Ms. Nupur Jain Kunia from Valorem Advisors. Thank you and over to you, ma'am. Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Nupur Jain Kunia from Valorem Advisors. On behalf of Aarti Pharmalabs Limited, I would like to thank you all for participating in the company's earnings call for the third quarter and nine months of financial year 2025. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Rashesh Gogri, Chairman, Mrs. Hetal Gogri Gala, Vice Chairperson and Managing Director, Mr. Piyush Lakhani, Chief Financial Officer of the company. Without any further delay, I request Mr. Rashesh Gogri to start with his opening remarks. Thank you, and over to you, sir. Good evening, everyone, and welcome to Aarti Pharmalabs' earnings call for the third quarter of financial year 2025. It is a pleasure for us to speak to you today and share an overview of our recent business progress and financial highlights. I am extremely pleased to announce a record-breaking quarterly performance. In this quarter, we have achieved the highest-ever quarterly profit in the company's history on a standalone as well as consolidated basis. The performance demonstrates our execution capabilities and effectiveness of our strategic initiatives. It is a testament to the progress that we have made in the growth and we have been striving for. Here are the highlights of consolidated financials for Q3 FY 2025. The consolidated top line was INR 538 crores, which was 20% increase on YOY basis. The EBITDA was INR 129 crore as compared to INR 96 crore on the corresponding period of the previous year, and it was an increase of 34% YOY. The profit after tax for the Q3 FY 2025 was INR 74 crore as compared to INR 53 crore a year back, indicating a surge of 40% YOY. Let me present a few business highlights. The company operates three separate segments in pharmaceutical industry. That is xanthine derivatives, API and intermediates, and CDMO/CMO business. Notably, all the three segments have done reasonably well this quarter. The xanthine derivative recorded highest ever quarterly volume sales, and it contributed to 44% of the turnover in Q3. The competition from China continues to be a headwind. In fact, the prices for the spot market have further declined by over $1 per kg. Despite this, long-term customer relationships and world-scale capacity helped us thrive in this market. Similar to last quarter, our xanthine facilities have operated almost at full capacity in this Q3. The API and intermediate business delivered the best quarterly revenue performance and contributed to 43% of the turnover in Q3. The sub-segment wise breakup is 48% regulated market, 40% ROW market, and 12% non-reg market, which is aligned with our long-term focus towards regulated markets. The third business segment, CDMO/CMO, has contributed 13% of the turnover in this quarter. We are presently working with 21 customers, adding 2 customers in this quarter. The number of active projects is now 56. Of which, 28 projects are in the commercial stages and 28 projects are at different stages of development, both at customer ends. Given our strong manufacturing capability and global tailwind in CDMO business, we are confident of delivering significant growth in medium to long term. Let me also apprise you about the temporary shutdown of our Vapi plant in first week of January. The unit had stopped operation because of notices from the State Pollution Control Board, and the necessary steps were taken, and unit was successfully restarted in about 2 weeks. With no long-term impact, we anticipate that this closure may push some of the CDMO/CMO sales, which was originally scheduled in Q4, by one quarter. Let me share the progress updates on key growth initiatives. Our brownfield expansion for the increase of xanthine derivative capacity from 5,000 metric ton to 9,000 metric ton per annum is progressing as planned. As per our plan, we will be filing for the regulatory approvals and the US DMF and CEP for the pharmaceutical market from our Tarapur Unit 3 plant in this current quarter. The Greenfield project of Atali, Gujarat for CDMO, CMO and intermediate manufacturing is progressing with minor delays, and we expect phase one of this Atali to be commissioned in Q1 with a ramp-up expected towards the end of FY 2026. The phase one will have about 450 KL reactor capacity and has been specially designed to facilitate pilot to commercial scale-up in the same block. As communicated previously, our solar energy project of 21 megawatt DC at Akola, Maharashtra was commissioned in Q2 FY 2025 and is operating as expected. Moreover, we have signed up with another captive solar energy project of 9 megawatt DC for our units in Gujarat. The second project is likely to get commissioned in Q2 FY 2026. Once operational, both these projects combined are estimated to generate more than half of our total electricity requirement. This highlights our continuous commitment to cost optimization as well as sustainability. Lastly, we will be starting two solid multi-fuel boilers capable of using bio briquettes as a possible fuel at two of our plants in Maharashtra in Q4 FY 2025, the current running quarter. These are expected to completely fulfill the steam requirement of these respective plants using this kind of fuel. This initiative will not only result in fuel cost reduction, but also lowering our carbon footprint. Thank you. In conclusion, we are hopeful to continue the growth momentum and remain focused towards driving revenue growth, optimizing cost, and enhancing operational efficiency. Given our current trajectory, we are optimistic that we may exceed our previously provided guidance of 10%-12% of EBITDA growth for FY 2025. The business prospects look bright, and we will discuss the long-term outlook in Q4 FY 2025 conference call. Thank you for your continued trust and support, and we are committed to delivering strong results and creating long-term value for our investors. The moderator may now open the forum for Q&A. Thank you. Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may enter star followed by one on their touchtone telephones. If you wish to remove yourself from the queue, you may enter star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Prakash Kapadia from Spark PMS. Please go ahead. Yeah. Thanks. A couple of questions from my end. Xanthine contributes around 45% of our revenues and caffeine prices have seen a 4%-5% correction in the last three months. In the opening remarks, you alluded, there is some more downfall in the prices. So, what would you expect in the coming months? If you could highlight some sensitivity profile as to what impact can it have on falling realizations for this segment, because that's a large segment for us. Secondly, in the CDMO segment, we are seeing number of products which are in the commercial stages, increasing to around 28 from around 19 last year. Yet, we've not seen any major growth in revenues from the CDMO segment. On an annual basis, what could the contribution of CDMO be like? I guess this would be a higher margin business for us. So as this contribution increases, what could the margin trajectory be for the company as we scale up the CDMO business? Those are my two questions. Yeah. The xanthine, overall, the caffeine prices, as I mentioned, have softened a little bit overall for the spot market. However, there is a different profile of customers where we are offering different kind of price proposals and due to which we are able to now focus, as mentioned, we will be filing the US DMF and CEP from our Tarapur unit three plant. So we are trying to change the profile of the customer and making it more regulatory-oriented customers. With that, we will be able to focus on customers who can pay higher price to us. So that way, we are trying to ensure that we are not selling more spot volumes for our customers. Secondly, the lower prices are compensated by higher quantity production also. Overall, we have seen from last year to this year a growth in overall production of our xanthine portfolio. With that, we are able to grow our overall absolute pie of the contribution in gross profit for this segment. For your question on CDMO, you rightly mentioned that we have increased the number of projects from 19 to 28 on the commercial side. Overall, I think the number of customers have also increased to 21 customers with 56 current running projects that we have. As mentioned, we see good opportunities in future for this. Of course, this current year also as earlier we had guided that we will be increasing our top line from last year. We are hopeful that we will still be increasing, because till now we have only done around INR 78 crores of sales of this CDMO segment, but we will be exceeding last year's number, which was INR 170 crores. That will happen in the current quarter. We hope that next year we will be able to do significantly better sales of the CDMO products. Okay. With this scale, what could the margin trajectory be like? Because I'm guessing, CDMO would be a higher margin business as compared to xanthine. Xanthine, if you could give some more insights into the changes which you talked about supplying to regulated markets, what does it take to get more visibility from these kind of customers who are willing to pay us more and what could be that reduced volatility look in terms of sensitivity to our margins or this can affect margins in the xanthine segment also. If regulated markets don't buy more from us, what could be the contribution of customers from regulated markets? If you could give some color, that would be helpful. Yeah. Basically, for xanthine, currently, we may be in spot market for 30%-40% of our total volume currently and with increase in the capacity, our capacity will go up from 5,000 to 9,000 tons. So we are hopeful that we will still maintain spot price number to that restricted level of 30%-40% only, so that our better price customer base will grow with the higher capacity. That is what is the anticipation. Currently with the DMF and CEP filing that we are doing from second location which is currently used for the spot market. So we will try and get these customers to validate us and as soon as our capacities are up and running, we'll be able to commercially supply these customers in future. Okay. The CDMO margin- Mr. Kapadia, could you return to the question queue, please? Sure. Thank you. Participants, it is a request. Please limit your questions to two questions per participant. The next question is from the line of Rahul Jain from Credence Wealth. Please go ahead. Thanks for the opportunity and congratulations, Rasesh and the team for a wonderful set of numbers. Just to have a follow-up on CDMO part. You mentioned that your fourth quarter you plan to execute for the full last full year numbers. That is quite heartening to know. At the same time, you have pushed some sales to quarter one of next year. How do we look at growth for CDMO in FY 2026, given there will be some spillover of the current year to the next year? Overall, what kind of growth numbers should we look at for FY 2026 for CDMO, Rasesh? As we mentioned, we will be doing the entire budgeting exercise and all guidance revision also because normally we end up giving a yearly and a three yearly guidance. On the next con call next quarter, we will be able to guide you in more details. But we will see significant growth in this segment and we would like to let you know that the 2025 number will be better than 2024 numbers. Currently we have just done INR 75 crore, INR 77 crore and then to better it, we have to do more than INR 100 crore. That is what we are anticipating that in current quarter we will be able to do significantly more than what we have done in first three quarters. Yeah. As sales. From the API side, last year our quarterly run rate was around INR 150 crores and this year that run rate has jumped to INR 170, then INR 190 and now INR 203 crores in this current quarter. Typically as we speak today at INR 200 crores, what kind of utilization we are working at on the API and is there any bunching of any of the orders in one quarter or do we feel that with this INR 200 crores the run rate could further increase going ahead and how do you look at the growth for FY 2026? Basically Atali expansion ramp up will happen somewhere in probably the second of the next year. Yeah. See the Atali plant we will be utilizing for CDMO, CMO program as well as the intermediate manufacturing. Overall, the numbers of API have been increasing and we are seeing that we will operate at these kind of numbers or higher numbers in future. Our overall utilization would be around 75% of our capacity. However, we are going to add one more line in our new block, so that will also get debottlenecked. With that we will add another 10% additional capacity. With that, we will get growth there as well. Of course, in Atali we have completely new site where we will have more than 58 reactors with 450 KL. That itself will give us lot of boost. But primarily that will come to intermediate and CDMO, CMO business and not to API because API we will only manufacture on the risk mitigation basis there. Yeah. And so Aarti could contribute to what kind of revenues from the next year onwards in FY 2026? Do you have a six months revenue from Aarti? No, no. Aarti will take two years plus to ramp up. We are anticipating those numbers, I think we will clearly clarify next call. We are just in the process of quantifying the same. Yeah. But then typically, in a pharma space for it to become commercial, we will have to put rigor on the regulatory audits and everything. So that will happen in FY 2026 primarily. Sure. I have some more questions. I will come back. Yeah. Thank you. The next question is from the line of Meet Katrodiya from Niveshaay. Please go ahead. Yeah, sure. Thank you so much for the opportunity. I have one question on the part of CDMO and CMO. So we have an active project around 56. So I want to know the molecule side, like any molecule can contribute significant, or like INR 100, INR 200 crores going forward from a single molecule or every molecule is like INR 40 per molecule. What is the opportunity size for the CDMO going forward? In the CDMO, CMO, we have 56 ongoing projects, out of which these 28 are commercial and few projects have this kind of possibility in future. And of course, they are in the launch phase and once they get launched, then the significant volumes can get triggered. So we are quite hopeful that we will have those volumes, and that is why the entire new manufacturing at Atali was being set up by us, is being set up by us to meet the customers' enhanced requirement in this segment. Okay. I read somewhere that we are targeting INR 500 crore for in CDMO. By which we are hopeful that CDMO will touch INR 200 crore. I do not want to give you any futuristic number without vetting. I think we will give the guidance next quarter. Got it. Thank you. Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead. Hi. Good afternoon, sir, and congratulations for a very strong set of numbers. Sir, my first question is, I think we were aiming for 20% kind of a growth on CDMO this year and whatever leakages that will happen now because of the plant shutdown. Are we still aiming at those 15%-20% kind of a growth? Maybe, INR 130 crore-INR 150 crore kind of a number from Q4 or are we looking at a more like almost same number as last year? Number will exceed last year's number. That is what I mentioned. To what level we will see how we are able to push the product out of how the dispatches happen from India. It's a speculative number, but we will definitely exceed last year's number. Got it, sir. And sir, from your commentary, currently we are at INR 200 crore odd run rate on API and with 75% kind of a utilization, and you are saying that you are putting one more reactor. With the current capacity, API can reach INR 1,000 crore plus number. Is that a safe assumption to make? Since we will be utilizing Atali largely for intermediates and CDMO beyond one year, how should we think about growth? Are we looking for any greenfield expansion over there? How should we think about that? Yeah. Basically, this segment can give INR 800 crore to INR 1,000 crore depending on the product mix and what we are able to produce at that site. So that kind of capacities are available. Further, we have land there to expand further, and we can actually put up additional 300-400 KL capacity there as well. So there is always a possibility to further increase capacity at the same site and which can be done in a one-year time. As we plan for that, normally what happens is that once we occupy around 80% of our capacity, then we do one round of expansion, and then we want to make sure that we are at 75% kind of utilization, and then we have always spare capacity available to plan newer validations and take up newer projects and stuff like that. So that's how we are planning the expansion. We have space for that and which can last us for another 2, 3 years at the same site. 3 years, yeah. Okay. On Xanthine, sir, I think we are doing this CapEx. In terms of ramp-up, how should we think about. I think we are doing that in 2 phases. When the first phase will get completed, and I think you mentioned in the last call that it will not take very long time to kind of build up the capacity given the demand environment in our contracts. How should we think about growth on the Xanthine side and feeding off of the new capacity in phase 1 in terms of timeline? Yeah. In the first half, we will be able to do first phase of the Xanthine, and then second phase will happen in the second half of next financial year, whereby we will reach this 9,000 metric ton capacity for Xanthine. In the subsequent year, we are hopeful that in FY 2027 we will be able to achieve 90% of the capacity utilization of this overall capacity that we are going to put up. Basically, in the next financial year and the year after that, we will achieve the 90%. Perfect, sir. I have more questions. I will come back in a bit. Thank you. Thank you. The next question is from the line of Rupesh Tatiya from Intelsense Capital. Please go ahead. Hello, sir. Thank you for the opportunity, and congratulations on a good set of numbers. Most of my questions have been answered. One question, sir, on API margin profile. It looks to me that our APIs are slightly differentiated and the margin seems like 20%. If it's my guess, it's like 20%-plus kind of margin. Is that a fair assumption? Do you see any risk to the margin? I mean, currency depreciation, maybe import prices going up. Do you see any risk to the API margin? Yeah. Basically, we are doing almost 50% of our sales happens to the export market, and that is across segments. Also, our APIs basically are targeted towards regulated and semi-regulated markets, so where the change from us to some other supplier becomes not very easy. We are in this niche product portfolio, which are anti-cancer and steroids, which are not offered by many. All these factors put together allow us to operate at a reasonable margin in this segment as opposed to the other API pure-play manufacturers. We are backward integrated also. In case of this, most of the APIs, almost 70% of our portfolio is backward integrated, where we have our own intermediate manufacturing happening internally. Regulated-wise, we are insulated from any China-related issues and stuff like that. That's how we have a robust model for API business, and we are hopeful that we will be able to grow this with newer anti-cancer and general block products that we have, which are going to get launched in next year. We are quite hopeful of this to grow. Okay, sir. And other question, sir, is I think we supply to these toll manufacturers in Europe who eventually supply to innovators. I think one of the accounts has scaled up very well to, I think, $25 million. Do you see that account, let's say, scaling to $50 million in two, three years, and then maybe some other toll manufacturer going to $25 million in two, three years? Existing accounts scaling up and new account coming up to level of $25 million in two, three years. Directionally, sir. I don't want the guidance, directionally. No, I think those numbers that you have needs some verification because those numbers are not correct numbers that you have mentioned. We have several projects at several stage of development, and we have invested almost a significant amount in new facilities. You please understand what kind of growth prospect that we are seeing, that we are investing almost INR 3,400 crore for a new project. It's an exciting business area where we have successfully delivered and customers have come back to give us more projects. We work with direct innovators as well, and we work with the partners of the innovators. But of course, innovators would know what our value is with their partners also. In a way, it is a very close-knit supply chain and once the innovators understand our value, we can of course move up because we have internal capabilities of doing API as well in-house. We are doing few of API products projects also with some of the innovators, some mid-size innovators. Okay. Final question is on this Adani INR 335 crore case. We have moved on to the question queue. Okay. Thank you. The next question is from the line of Ankur Bhadekar from ULJK Financial Services. Please go ahead. Hi, sir. Thanks for the opportunity. A couple of questions from my side. The first question is regarding the Vapi plant, which was shut down due to pollution issues. I just wanted to understand the quantum of impact on the numbers going forward, say, in Q4. If you could just give some light on that part. Yeah. Basically, there is no material impact. The impact is going to be lower than 5% of the turnover and 2% of the profit. That's why we have not given the number on stock exchange. It's going to be a minor impact. Only what is going to happen is that this is going to delay certain shipments, production, and everything. We don't see significant impact overall company-wide. But there is an impact. However, I would like to reassure that we have convinced the authorities that everything was fully compliant then. And now we have successfully been able to get this revocation within record time, because otherwise they take too much time for revocation as well. That shows that overall we focus on compliance and make sure that we are very careful on these kind of situations in future as well. My second question was, in the CDMO segment, how much growth has come from the commercial molecules and how much is from the development phase molecules? If you could give any ballpark number. Yeah, basically commercial, it will be difficult because overall growth will come from commercial only. The smaller projects, whatever that we are running, may not contribute significantly because they are in early phases and the quantity required would be smaller value. That's why mostly the growth is coming from the projects which are getting commercialized. Yeah. Right. So lastly, currently your gross margins on a- Can I just close the question queue? Yeah, sure. Thank you. The next question is from the line of Aryan Bansal from Hillview Global. Please go ahead. Hello, sir. Congrats for the good set of numbers. I wanted to know how we are differentiating our CDMO offering from other CDMO companies in India, particularly for innovators? Basically, we are late phase and strong manufacturing-backed organization. What we are good at doing basically is providing manufacturing services and partner with the innovators for long-term supply security of their advanced intermediates as well as the KSM, RSM, APIs long term. That is the differentiation that we have. We have strong chemistry skill sets and engineering skill sets, which allow us to operate different kind of difficult to do reactions and difficult to do solvent recoveries, difficult to do catalyst recoveries and stuff like that. Then we have a manufacturing setup which has good volume availability so that we are able to scale up quickly as against some other suppliers which may not have these kind of volumes to offer to them. Also, we can do backward integrated work also. We can do four, five, six stages in-house. We are able to give a proposal to innovators that we will try to do maximum steps in India only and having least dependency on China. These are the differentiating factors that we would have over others. Okay, sir. Can you tell me that how much of our CDMO business is from innovators? The entire number is going to innovators only. Okay, sir. Directly or indirectly. Yeah. Hello? Thank you, sir. Okay. Thank you, sir. Got it. Thank you. The next question is from the line of Deep Gandhi from ithought PMS. Please go ahead. Yeah, good afternoon, sir. Congratulations for very good numbers. My first question is on the Xanthine side. If I look at the 9 months data, the export business has grown at almost 15%. This is despite you mentioning that there was a price reduction in Q3 by $1-$2, and you are already operating at full utilization. You can correct me if I am wrong, but is it fair to assume that the export business is mostly long-term contract business for you and that is why you are able to grow the revenue despite the price correction which you are seeing in the market? Is that a fair assumption? See, we have long-term partnership with our large customers and that is allowing us stable business. We are able to grow our volume with our offerings that we have with them. Also, we did increase, in last year, our capacity was 4,000 tons, which we increased to 5,000 tons. So basically there was an increase there also. So that 20%-25% increase has happened. So which allows us to operate at that level and further in first half also, further we will enhance this capacity. So with that, we are slowly doing the debottlenecking and having more products and offering to customers which are more regulatory-focused in future. So with our CEP filing and US DMF filing, we will be able to penetrate in those markets from our Tarapur Unit 3 plant as well in future. Sure. Yeah. And sir, two more questions. Second is actually on the API side. If I just see the revenue breakup for 9 months FY 2025 and compare it with 9 months FY 2024, so most of the growth which is coming is from the ROW markets and the regulated market share is actually reducing. So if you can broadly explain us how are the margins difference in both the markets and is there some kind of risk that because you are focusing more on the top line, there might be some margin compression because of this change in the revenue structure going ahead? Yeah, I think largely the regulated market business is steady. There could be one quarter where the business, we may have shipments in ROW and one quarter we may have. But the price points in both the markets are similar only. The regulated and ROW market. Because ROW market is largely Brazil and Russia and China, where the prices are in fact sometimes better than the U.S. and European prices. So in a way, to differentiate between both may not be a good idea. I think non-reg should be the lowest, and that is what we are focusing on, is trying to put everything to the regulated market itself. We have had good launches in last couple of years and we have a good pipeline of products which will get commercialized in next two to three years in future. And we have built up capacity to cater to the customers for these products. Sure, sir. Just one last quick bookkeeping question. Sorry, can you repeat the question? It is just a bookkeeping question, if you can. It will not take more than a minute. Sir, you had mentioned in the past that the asset term from Aarti Pharmalabs will be around 1.25 times initially from INR 400 crore CapEx. But I think to the previous participant, you mentioned on a INR 400 crore CapEx, INR 900 crores revenue. Are you budgeting increased asset term from the Aarti Pharmalabs project now? No, that was for the Tarapur Unit IV asset, that up to what level we can do on API side. I think those numbers have been mixed up. But we will be at that 1x plus asset turn on Atali. So 1 to 1.25 asset turn in Atali. One thing. We occupy significant capacity. Okay. Thank you. The next question is from the line of Ajay Surya from Nevshire. Please go ahead. Thank you for the opportunity. Sir, my question is on API intermediates. Sir, our share of revenue, I look around then from FY 2023, it has gone from 37% to now in nine months, 46% for API and intermediates. Sir, I wanted to understand from our Atali CapEx being completed and post one to two years of commercialization, as a company, how do we see the share of this segment going forward? Do we see the share to increase to maybe 60 odd percentage where we can have maybe incremental margin as well? I just wanted to know your thoughts on that. Yeah, basically as you know, we are operating in three business segments, API intermediate segment, xanthine segment as well as CDMO/CMO segment. We are seeing, as mentioned in xanthine segment also, we are increasing the capacity almost by 1.8 times of what is current capacity is available. In API intermediate also, API, we have current facility where we are further expanding. In intermediate and CDMO/CMO use common facility where I have fungibility of changing the product mix overall. Overall, we see good growth in everything and this percentage revenue mix will ultimately depend on how much we are able to crack project in CDMO/CMO. Of course, xanthine derivative will remain steady in terms of absolute percentage it would be. But as API intermediate and CDMO/CMO grow, overall, the xanthine number as a percentage point will reduce. The profit margin profile of API intermediate, CDMO/CMO, of course CDMO/CMO being little bit higher, but not very different, five percentage point difference between both. Since we are doing multi-stages in CDMO/CMO as well as API intermediates, so that's how these percentage differences may not mean too much. Overall, we will see a good growth in future, the way in which we have invested in the newer facilities and as they come on stream and as the patent expiry happens in future of this generic product that we have in our portfolio, we see good potential going forward. Got it, sir. My next question is on CDMO. Sir, you mentioned that for this year as well, we are expecting to exceed the numbers for FY 2024. I wanted to understand with the spillover and all this, how do we see the growth in FY 2026 with our capacities and all, the inquiries and the significant traction we are seeing from customers with the product pipeline also getting more commercial. On the CDMO, how do we see the growth for FY 2026? Yeah, we are in the process of making budget. I think once we firm it up and once we have the next con call with the complete set of this year, one day we will be able to. We see good significant growth possibilities and good traction in this business segment. We have also a sizable order book on this business segment already for next financial year. Okay. One last quick question. I am sorry, sir. Please return to the question queue. It is just a. Please return, sir. We have many questions waiting. Thank you. Okay. The next question is from the line of Nitesh Dutt from Burman Capital. Please go ahead. Hi. Sir, thanks for the opportunity. We have delivered around 24% EBITDA margin at standalone level, which is 200-300 basis points higher compared to previous two quarters, even though CDMO contribution was at 13% or so. What drove the margin expansion? It primarily seems to be from increased contribution of API. Is the 24% pace sustainable for future quarters now? Yeah, I think overall, this quarter, we had significant CDMO, CMO sales. As you know, in the previous two quarters, those numbers were not as much. Our solar energy project also got activated, and we did some savings there also. We had overall INR 7 crore dividend income, which got accrued in this quarter. All these factors put together, we got a record quarter results in this quarter. We are hopeful that we are able to replicate this kind of performance in future quarters as well. Of course, we can't have a certain linearity. There will be ups and downs. But overall, I think we will see a growth going. That, whatever the earlier guidance of 15% over three years. We are working on those lines, and we are hopeful that all our strategies are working well, as I mentioned in my opening remarks. With that, we will have good growth possibilities. Got it. Sir, second question is on API front. We are seeing really good growth. In the first 9 months, we are seeing 27% growth on year-over-year basis. Just want to understand what is driving this from a demand side. Also, you mentioned that you can potentially increase capacities in Tarapur, and you have a good pipeline of products. It will be helpful if you just give some flavor around what kind of pipeline do you have, what visibility, et cetera, do you see, and how do you see API business specifically ramping up over next couple of years or 2 to 3 years? Typically, what has happened is the expansion that we did in Tarapur API site, where we added a block 5, currently is running at full capacity, and that is the reason why we are able to see this kind of a growth. Also, as Rasesh mentioned earlier, we are adding one more finish line in that particular block to be able to cater to additional product line. The last block that we added, we wanted to have a large volume product from our existing product portfolio to be shifted to run as a more or less kind of a dedicated Got it. production. That has given us some benefit, definitely. Overall, in API and intermediates, there is a very exciting product pipeline, which is getting genericized in next couple of years and up to we are targeting various products up to 2030 genericization. Both. You see, what we do is we are present in key intermediates, which is like N minus 2, where we are supplier to all the regulated API and formulation manufacturers of India. Then we are also present in some of those APIs as well. We are looking at a good growth opportunity there. As the product becomes generic, we will be well present for the launch. Typically, since we are backward integrated, in fact, we start from maybe N minus 4, N minus 5, in some cases even further back end. We are a very good choice for our customers for their regulatory support and to reduce the dependency from China. That is where we have positioned ourselves, and we feel that we will be able to grow steadily in API and intermediate space. Got it. Thanks. I will get back in the queue. Thank you. The next question is from the line of Davesh from Finchest Capital. Please go ahead. Congratulations on a good set of numbers, sir. My first question is on the API front. Which molecules are getting the most revenue in the API front, sir? We have not yet given that information because we manufacture 50 molecules and we have 100 intermediates in our portfolio. Okay The spread is very good, and it is very difficult to comment on. Yes. We have some antihypertensive and steroid products, which are large products in our portfolio currently. Okay. Sir, my second question is on Ganesh Polychem. Sir, in your previous call, you have mentioned that this subsidiary will be transferred to Aarti Industries. What is the update on it, sir? No, we have not mentioned about the subsidiary getting shifted to Aarti USA. What we did mention was that there was some trading activity business which was ongoing with Aarti Industries and Aarti USA Incorporation. Aarti USA Incorporation was earlier jointly doing pharma and chemical business in erstwhile Aarti Industries, where Aarti Industries was the 100% owner of Aarti USA. But when we split the business, Aarti USA Incorporation ownership, we took in Aarti Pharmalabs because we had some licenses and businesses investment from that entity. Aarti Industries till now had been using Aarti USA Incorporation. But now they have incorporated one subsidiary in USA, so the entire trading business will get shifted there. So instead of using Aarti USA Incorporation, which was a stock exchange arrangement from next financial year, mostly Aarti Industries will use their own 100% subsidiary to do the distribution in USA. Okay, sir. Thank you. That was helpful. The subsidiary name is Aarti USA, not Ganesh. Yeah. Ganesh is a joint operation company, 50-50 joint venture between Aarti Pharmalabs and the Bandodkar family, and which operates a manufacturing facility at Dombivli and Rabi. So that is a different entity that we have. Okay, sir. Thank you. That was helpful. Thank you. The next question is from the line of Shubham Jain from NV Alpha Fund. Please go ahead. Hi. I just wanted a clarification on the CDMO capacity that we've put. We've done a CapEx of about INR 350 crores, correct? Yeah. What is the revenue that we can get out of this? Is it 1.2x asset turn on the whole INR 350 crores or only on the plant and machinery? Yeah. No. Basically, in longer term, we will be able to get that kind of number from that. But in future also, we will add more blocks. Current investment that we have done there includes the infrastructure investment that we have done there, and which is in excess of INR 125, that kind of a number, which includes the admin, QC, pollution control, pollution, warehouse, and roads, all that stuff. But manufacturing blocks, as we add more and more, there the asset turn could be in that proportion, that 1.25. But we will add more blocks there. Basically, this is just the first block. We have capacity to add more than 10 blocks there. So in future, we will have more investment, and these kind of blocks will be done at much significantly lower investment and much quicker also. We will be able to put a block within a year there. Got it. The 450 KL currently can do a revenue of about INR 200, INR 300 crores? Yes. Okay. It is a one-time asset turn right now, but given we will do brownfield for 10 more blocks, it can be much better. Yes. It also depends on the product profile and how many stages where we are doing. This is possible. Yeah. Got it. On the API front, like you mentioned that this seems to be a steady sort of run rate that we hope to achieve going forward. Just wanted to understand what are the top three, four therapies that we are doing. How much of this delta from last year to this year is driven by volume versus pricing, given we have inched up our regulated market share in the business. Currently, we have three large categories: antihypertensive, steroids, and anticancer that we operate in. Of course, antihypertensive is the large business area that we have, which has grown. We had a few successful launches in that segment, one significant successful launch in that segment, which has given us a lot of growth. We also operate in CNS therapeutic areas. These are large four therapeutic segments that Aarti Pharmalabs operates on. Overall, these are mostly lifestyle kind of APIs, and that is why we are able to have sustained market on these products. Also, overall top line and the prices always fall. You have to make it up because in the generic market, I have never seen prices go up, even in rupee terms. Except the product becomes extremely genericized and you are at the rock bottom and then you have to pass on the raw material. But in our set of products, I think there is constant R&D and savings that you have to do, and that is what we end up doing in our products to remain a significant player in these products. That is a constant innovation and cost-saving exercise that we end up doing every couple of years in each of the products. Understood. And what kind of pipeline do we have for- Mr. Jain, please return to the queue. Sure, thanks. Thank you. The next question is from the line of Neha Karodia from Abacus. Please go ahead. Yeah. Hi. Good evening, everyone, and thanks for the opportunity. I wanted to understand regarding the consolidated minus standalone EBITDA, which basically comes from the additional subsidiary business and maybe the Ganesh Polychem. I just wanted to understand the kind of growth that we have seen in the current quarter versus last quarter. So that additional EBITDA this quarter is about INR 14 crore versus INR 9 crore. I just wanted to understand that more in a granular manner. Piyush, can you reply? Can you repeat the question? So you are saying that the console EBITDA compared to standalone is higher by INR 14 crore. Is that the question? Yeah. 129 and 115. Not higher, but that's INR 14 crore. Yeah. That's INR 9 crore for last quarters. Yeah. So basically, it has come from Ganesh. So Ganesh has contributed about. So Ganesh, we consolidated 50% of their EBITDA, and their EBITDA was about 20. This quarter was in excess of INR 25 crore. Total. Yeah, Neha Karodia, we will get back to you with the numbers. INR 13 crores. Yes. Basically, most of it, 15% of the EBITDA share that we have got from Ganesh Polychem comes to INR 13 crores. That basically explains the increase in the EBITDA on console basis as compared to the standalone basis. Understood. Going forward, do we see it as a sustainable number? How should we look at this number? Yes. Ganesh Polychem has traditionally been operating at INR 15 crore-INR 20 crore EBITDA every quarter. I think largely that number should continue on a 100% basis. Then depending on how, as we are consolidating, we can add 50% of that in our EBITDA. That number will be around INR 8 crore-INR 10 crore every quarter. Understood, sir. Also regarding the- Can you return to the queue? No, let her ask one question. Yeah. Yeah. Just wanted to understand on the CDMO part. Since we have shifted some orders, got shifted to next year. Do we expect to see a higher growth for FY 2026? Let's say we are guiding for about 25%-30% growth for FY 2025 initially. Do we expect 25% or similar kind of growth in FY 2026 from CDMO business? See, the order shifting, you know that 25% may become 15% over and above last year in this year. Practically around INR 10 crore-INR 12 crore order may get shifted. That is what we are trying. But you know, in last minute, the number can go a little bit up or down. Overall, I think that number is not going to be significantly driving next year's number. But next year's number, independent of this shifted number also, is going to be a significantly higher number in the CDMO/CMO segment. Because of the way in which the pipeline is shaping up and the kind of pipeline that we have, the number will look much better. Okay, understood. Thank you so much. Thank you. The next question is from the line of Kumar Saurabh from Scientific Investing. Please go ahead. Hi, thanks for the opportunity. My first question is around xanthine and I joined late, sorry if the question is repetitive. In terms of realization, do you think we have bottomed out? That is one. We are coming up with the expansion. How confident we are that the new capacity will be consumed? How the client contracts work in the xanthine side? Xanthine business, the contracts are on annual basis. However, as a part of continuity, we have certain customers who we are discussing about increasing their share with us, purchasing share with us. We are very confident that a significant part of increased volume will go to contractual and the high margin business of pharma where we are applying for U.S. DMF and European CEP, and we are targeting to cater that market, which once we acquire will be a very steady state business. We would want to reduce and keep our spot business to current numbers of 30%-40% only. Okay. Realizations, have we seen the worst or how do you see the trend? Yeah. We see that now with the current cycle, the kind of pricing that we are seeing have bottomed out and the margins have bottomed out, basically. Any raw material reduction will trigger a reduction in prices. Otherwise, we see that we are operating on the spot market, not at a very thick margin. That's great to hear. The second question is, you have a lot of patents. You have applied for a lot of patents. Also as a part of the INR 600 crore CapEx, I think the INR 40 crore is going in R&D. Can you give some qualitative insights in terms of where the business, where we are investing in terms of R&D, what kind of chemistry or molecule, and how it is going to commercially impact our sales and margin numbers? Yeah. Basically we have filed 58 patents. We are having three R&D centers. Currently, three R&D centers are operating for different businesses. One R&D center is exclusively for the innovators, then we have one R&D center which is focused towards the API business. The third R&D center does largely scale-up and also the product raw material saving Idea generation from that R&D center. These three R&D centers, as you rightly mentioned, we are almost spending close to 2%-3% of our revenue, 3% of our revenue and getting. Not 3%, I think last year it was 6% of R&D spend overall. These basically support all the three businesses. As you already know that we have a pipeline of products in our API line also. So 12 new APIs are under development, and they also require constant R&D. As I also mentioned that every second year, we also do a cost reduction exercise, which also requires R&D. Basically, the API and intermediate business and CDMO/CMO requires constant research and development. Great. Thanks, and wish you all the best, sir. Thank you. Thank you. The next question is from the line of Yash Chandorkar from Vivog Commercial Limited. Please go ahead. Hello. Am I audible? Yes, sir. Please go ahead. Yes. My all questions are answered, but just want to know, are we increasing our given guidance for this year, and how do we expect quarter 4 results? Yeah, basically, as I already mentioned on the call that we will be able to meet our guidance and exceed our guidance number that we have mentioned earlier. I think Q4, we are fairly optimistic. Of course, this was a record quarter. We will see how it goes. Future guidance we will give next quarter. Once we have the budgeting and overall strategic review of overall businesses, then we will be able to guide you in future. Okay. Thank you. Thank you. Thank you. The next question is from the line of Vilen Doshi, an individual investor. Please go ahead. Sir, thanks for the opportunity and excellent set of numbers. I think most of my questions has been answered. On xanthine also, I think as you have reiterated that margins have bottomed out, so irrespective of the price deduction, the margins will remain intact. Is that understanding correct? I would like to say that the spot business prices have bottomed out. Of course, we are not operating 100% on spot business. That is what we have. Overall, we are fairly optimistic that we will be able to grow the absolute number with the expanded capacity that we have. Even if there is competition, Aarti Pharmalabs is positioned in such a way that it has a global size, it has this mitigation strategy which does not depend on China at all. All these factors are put together, I think. Also you might have heard that 10% additional duty was put by U.S. on Chinese goods, and that will get implemented on caffeine as well. With that, I think we are fairly hopeful that we will be able to expand our absolute number with the higher capacity that we have upcoming in next financial year. That is great to hear and just a little bit longer from 3-5 year perspective with U.S. BIOSECURE Act, right, and we are hearing from a lot of companies that there are a lot of inquiries and the things are heading in the direction where after 3-5 years, for most of these companies, things will look much better, depending how they execute. Are you also seeing the similar direction? Yeah, I think both in terms of overall traction towards India and CDMO, CMO has increased and overall, I think the capabilities that Indians have built also recently is significantly more. A lot of focus has come to this business area with the capabilities and the newer capacities getting added. With that, I think there will be a lot of traction with the BIOSECURE Act also and also the 10% additional duty on Chinese goods. I think overall, India will get definitely benefited by all these factors in future. Thanks a lot, sir. Thank you. Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor over to the management for any closing comments. I would like to thank all the participants for joining the call. Thank you. Thank you. On behalf of Aarti Pharmalabs Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines.