Q2 24/25

Oct 28, 2024

Summary

H1 FY25 revenue rose 13% to INR 1,014 crore, with EBITDA up 13% to INR 197 crore. FY25 EBITDA growth guidance was reaffirmed, while CDMO timing and Chinese price pressure remain key uncertainties.

Ladies and gentlemen, good day and welcome to the Aarti Pharmalabs Limited Q2 and H1 FY 2025 earnings conference call hosted by Valorem Advisors. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you and over to you, sir. Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. On behalf of Aarti Pharmalabs, I would like to thank you all for participating in the company's earnings conference call for the second quarter and first half of financial year 2025. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings conference 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 and 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 conference 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 today, Mr. Ashish Gogri, Chairman, Mrs. Hetal Gogri Gala, Vice Chairperson and Managing Director, Mr. Piyush Lakhani, Chief Financial Officer. Without any further delay, I request Mr. Ashish Gogri to start with his opening remarks. Thank you, and over to you, sir. Good evening, everyone, and thank you for joining us on our post-result earning call for the quarter and the half year ended September 30, 2024. Our results have been uploaded on our website and I hope you would have got chance to go through them. Let me provide you with the business highlights. The company operates in three distinct areas within the pharmaceutical industry. The first is xanthine derivatives, API intermediates, and CDMO/CMO business. The xanthine derivative segment contributed 45% of the turnover in Q2, and this market is still witnessing strong competition from China. However, our long-term partnership with the global giants and our position as a dominant Indian player helps us maintain strong position in this segment globally. For Q2, our xanthine derivatives facilities have operated almost at the full capacity. The API and intermediate business contributed 51% of the turnover in Q2. This sub-segment breakup of this segment is 43% regulated market, 46% ROW market, and 10% non-regulated market. The third segment, CDMO/CMO, has contributed 3% of the turnover in the quarter. We are presently working with 19 customers on 55 projects, out of which 28 projects are in the commercial stage at the customer's end, and 27 are at the different stages of development at the customer's end. This highlights our presence in late-phase projects. Typically, the orders in these segments are multi-stage products for which lead time is very long. CDMO/CMO segment does not have a uniform sales across every quarter because of these lead times. There are few high-value orders of which the delivery is scheduled later in this year. It is likely that the revenue realization of this order in hand might get extended beyond current financial year. However, in medium to long term, we have no doubts about long-term prospects of this CDMO/CMO business. Given our strong R&D focus and robust scale-up and manufacturing capacity abilities, we should be able to deliver strong growth in this segment. Let me now share the key financial highlights. Consolidated financials for H1 FY 2025. I am pleased to announce that in H1 FY 2025, consolidated top line was INR 1,014 crore, which was 13% higher YOY basis. For the H1 FY 2025, the consolidated EBITDA from the operations was INR 197 crore as compared to INR 174 crore in corresponding period of the previous year. That is an increase of 13% YOY. The consolidated PAT for the H1 FY 2025 was INR 110 crore, 11% higher year on year. I will now share the progress update on the key expansion projects. We have announced the capacity expansion of xanthine derivatives in Q4 of last financial year to achieve a total capacity of 9,000 metric tons per annum. Till now we have been majorly focusing on non-pharma application of xanthine derivatives. Going forward, we plan to target the pharmaceutical market also, for which we shall file for the regulatory approval for U.S. and Europe market in this year. The expansion of semi-commercial production of WSFD intermediate unit at Vapi has been completed and currently undergoing the trial production. With this expansion, we have reached a gap of small and medium batch size and will be able to offer gram scale to ton scale batch size in CDMO/CMO business. The solar energy project at Akola in Maharashtra has been commissioned successfully towards the end of Q2 FY 2025, and we foresee the project to deliver good savings in terms of our energy cost in the second half of this financial year. The greenfield project at Atali for CDMO/CMO and intermediate manufacturing is progressing well, and we expect the commissioning of the site to happen by Q4 FY 2025. Overall, we are optimistic about the future prospect, and we maintain our guidance to achieve the EBITDA growth of roughly 10%-12% in FY 2025, and long-term goal of about 16% annual growth in next three years. I will now request moderator to open the forum for 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 one on the touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Dhaval Shah from EDIC Capital. Please go ahead. Yeah. Hello, am I audible? Yes. Yeah. Hello, sir. Great set of numbers and very positive commentary on the future outlook. Two questions from my side. First on the API intermediates division. Can you share your thoughts with respect to the outlook on the API industry? Your numbers suggest the business environment seems to be improving, and we are able to combat the Chinese competition also quite strongly. Secondly, the CDMO business, as you mentioned in your initial commentary, that the revenue recognition might get spillover to FY 2026. Taking lead from last quarter's call regarding a 25% growth on FY 2024 base. How would you revise your guidance for the current year on the CDMO front? These are my two questions. Thank you. Yeah, thank you. API and intermediate business as such, we have had a good financial year this year, and I think we are seeing new products and partnerships of our customers with whom our API is linked for the final formulation will be commercialized for the coming period. With that, we see despite rising pressure overall growth in the overall business for us. In case of CDMO, CMO, as I mentioned that these results quarterly will vary from one quarter to the other quarter and due to long lead time and long gestation, certain products have lead time of almost seven, eight months and it can get up and down by couple of months here and there and, due to which, we may have a deadline of one year which can get spilled over and stuff like that. But overall, I think, we should look at this business as a strong business for us. We have a great pipeline and as you would have seen, we have 55 product projects with which Yes 19 customers are. And we are hopeful to add many more in the second half of this year. And, with that, our conviction is very good for this business growth. I think overall the number that we had earlier mentioned about the 25% growth, we are pushing our team to get that growth. But however, this shift by one or two months can change that number by 5%-7% also, on the lower side. Yeah. Just reconfirming, the CDMO number last year was two, right? Last year was INR 167 crore. INR 167 crore. Okay. Yeah. Okay. Fine. Okay. And sir, this lead time is because of some more steps being given to us in terms of the entire Exactly. What has happened in certain projects, we have been doing the RSM production also and the GMP production also. There are five, seven stages, and then there are multiple products ultimately culminating into two or three GMP steps. Basically, we end up doing almost seven, eight stages in single stream. That's why. Okay. However, overall for us, it's a great value addition to do multiple stages. It gives us lot of control. For the customer, they don't have to go to different suppliers to get their KSM and get their GMP material. Overall, it's a very positive side for the company because our engagement with the customer is not only for the GMP but also for the KSM. Okay. Got it. Yeah. Last question on the APIs, you mentioned the customer's product has been commercialized in the market, and that's where we are seeing this volume growth coming in. Is my understanding correct? Yeah. We have had in the general APIs as well as the steroid APIs, several approvals that have come through in this year and for which we are seeing strong potential, a strong growth. Our number for regulated and semi-regulated markets have improved significantly over last year. Overall numbers, we are not as much bothered because the non-reg market overall profitability is anyway lower. The idea is to increase more engagement with the customers on the regulated side and semi-regulated side. We also had a Brazilian inspection authority, ANVISA inspection, which was cleared by the company with zero observation. Yeah. That is also, we have more than product approval completed, 11 product approved for the Brazilian market. Wonderful. Great to hear that. Great, sir. Thank you very much and wish you everyone a happy Diwali. Thank you. Thank you. The next question is from the line of Manil Desai from Turtle Capital. Please go ahead. Hi, good afternoon, Rashesh sir. My first question is, sir, on the gross margin side. I think despite lower contribution from CDMO, our gross margin on standalone has improved significantly on QoQ basis. Is it largely because of the higher API contribution or anything else that we need to read into this number? Yeah, I think, overall on the standalone basis, I think for the first half and also for the current quarter, I think we have improved our gross- 21, 23 yeah, 21% has become 23% EBITDA margin. EBITDA margin. EBITDA margin. Yeah. So at gross level, it has come to 55. At a gross level, it has come to 65%. I think it is because of the better product mix and overall more regulated focus that we have had in this current quarter. Okay, got it. Sir, second question on xanthine. If you can talk a bit about how things are shaping up in the market in terms of demand, supply, any changes in the pricing, competitive intensity, since we have large CapEx coming up on that. How are we progressing in terms of customers for the upcoming capacity that we have on the xanthine side. Yeah. In xanthine, as you know, we have announced INR 9,000 million CapEx, and I think it is going to be in two phases. I think the first phase will get operationalized much faster, and then second phase. There are two facilities which we are upgrading for achieving this capacity. I think in a two phase, we will have more capacities faster, in the medium. More capacities will come from the current level, and then further it will enhance to the 750 tons per month capacity. Overall, I think the market is divided. I think if you consider there are three distinct segments of the market. The spot market is quite brutal, but whereas the pharmaceutical market as well as the large consumers market where all the suppliers have a long-term understanding remains intact. That's what we have mentioned on my opening remarks also that we are quite confident of our participation more and more towards this market. We are confident of protecting our overall margins for the caffeine business. As I have already mentioned that we have operated the plant at near full capacity for this current quarter. Okay, got it, sir. One more question, I'll come back in the queue. Is that, in general, what we are hearing from lot of CDMO players is that due to this Biosecure Act a lot of traction in terms of the business development and project awards. For us, are we seeing any significant changes in terms of either the order value or the kind of number of molecules that a customer is willing to now work with us on that? Any qualitative color on that because of this change in that environment. Yeah. Essentially, I think, first if you take up the entire CDMO, CMO, the way in which the business progresses is that first it's the engagement with the customer, then it follows with the customer visit, then RFP process, then there will be audit process, and then there will be an initial ordering, and then you will get commercial. These are, I think, five, six stages, the way in which the entire CDMO, CMO business progresses. I think we have seen more engagement with the customers. We have seen more visits. We have seen more RFPs coming to us because of the engagement. I think all these things have started flowing, and I think it will culminate into more better projects getting added for us in future. From existing customers as well as new customers. Yeah. Okay. That's very helpful. I'll come back in the queue. Thank you. Thank you. Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead. Yeah, thanks for the opportunity. Sir, my question was on the CDMO side Sir, may I request you to use your handset, please, sir. I am on handset only. Am I audible now? Yes, sir. Please go ahead. Yeah. My first question was on the CDMO, CMO side. Sir, as you were saying that we have started doing more steps for often more reaction steps starting from KSM kind of steps. Does it mean that our margins in the CMO, CDMO segments will increase further given the more reaction steps involved in the products now? Basically you can think of us like we are like service company. Not all products. Hello. Hello. Yeah. What I was saying is- Yes Yeah. Yeah. Basically, I think the margins will improve as we do more and more stages, and as we move more nearer to the final API manufacturing for the CDMO/CMO segment. I think the margins, key starting material to regulatory starting material to GMP to API, keep on increasing as the number of steps also increase and also the complexity and the regulatory requirement increases overall. But of course, the margin profile is dependent on the occupancy and the number of stages that we do. There could be some project which is in KSM, where we end up doing multiple stages, where the margins can be higher, but it can be lower for the GMP also, if it is only one or two stages. But overall, I think given our understanding of regulatory requirements and also our US FDA compliance facilities with the cGMP compliance, I think we have stated to do more GMP steps also in API as well in future for the end consumers. Sure. And sir, on the Atali side, when is Atali expected to start operations, given we need to do validation batches and get approvals from regulatory authorities like U.S. FDA. When can we expect Atali to start contributing to our growth on API and CMO/CDMO side? Yeah, I think any greenfield site like Atali, I think we will have to give a year for it to stabilize. 2025, 2026 would be a year of getting all the facilities started. It will be not a single day we can start everything. It will be a phased manner. We have to transfer the projects from other sites as they grow in the size, and all that process also takes time. So overall, I think 12 to 18 months once we start, I think next year and then a half year after that, we will see Atali site getting fully operationalized and utilized. Thank you. From today it can be 24 months. Thank you. Mr. Ankit Gupta, may we request that you return to the question queue for follow-up questions, please. The next question is from the line of Deep Gandhi from iThought PMS. Please go ahead. Yeah, thank you for the opportunity. My first question was a follow-up to the previous participant's answer. Can you give us some quantification about how much of our xanthine revenue comes from the spot market and how much comes from the long-term? For the xanthine? Yeah. We are not giving the split currently. Okay. My next question is about the CDMO. We had guided for around 25%-30% growth. It might not happen this year. But even for, say, next year, the current products where we have already started shipments, are those products sufficient to achieve those targets, or are you also expecting some new products shipment to start for the numbers to be achieved? Yeah, I think next year, we will have current few overflow projects, plus newer projects also, for which we already have visibility because I think CDMO/CMO market, there is always a 9-12 months visibility that we have for the projects, how they are going to shape up, if there are bigger projects. Sure. We have great conviction that we will grow this segment going forward. Sure. Sir, next question is on the API side. If you can broadly explain us what are our top three therapies in the API, the revenue contribution from those therapies, and also a related question, what would be our revenue contribution from the top three customers in API segment? Yeah, I think we have antihypertensive steroids, corticosteroids, and CNS products. I think these three categories are top three categories in which we operate, and I think top three customer, we may not have too much concentration of the customer. I think top three customer would constitute to around 20%? Yeah. Of the API. Yes. 20%, 25% of the even less probably. Yeah. We will have to get back to you with those numbers. But I think customer concentration is not much. Okay, sure sir. Thanks. I will join the dots with you. Thank you. Thank you. The next question is from the line of Harshal from Rashi Fincorp. Please go ahead. Yeah. Hello. Yeah. I just wanted to ask you, this CDMO/CMO business, will it stabilize annually? Can we see revenue growth in the future? Yeah. I have told the guidance, which was earlier as mentioned, it was 25% plus. It can roll over to next year, and we have already seen towards that it can come back lower than the earlier number because of certain projects getting forward to next year, according to the current situation. But we are, I think, fairly confident about the stronger growth next year and years to come for this segment. Okay. Thank you. That is it from me. Thank you. The next question is from the line of Tushar Vasuja from Yogya Capital. Please go ahead. Hello, am I audible? Yes. Thank you for the opportunity, sir. I have a couple of questions. The first one is that you mentioned that you are expanding your xanthine capacity from 5,000 tons per annum to 9,000 tons per annum. What will be the peak revenue potential once you hit the 9,000 mark? I think with the 9,000 metric ton capacity, I think we can reach $100 million-$125 million in revenue for this segment. Okay, sir. Sir, what's the current asset turn for xanthine? Current asset turn, we are not providing this information generally. But asset turn will improve because this being a brownfield project, overall, we see improvement in overall asset turn. Okay, sir. And sir, on previous calls you mentioned that this entire CapEx will cost around INR 150 crores. So does this include the land cost or not? Yeah. We are taking smaller land parcels, basically which are being brownfield. These are land parcels which are near our current site, so adjacent parcels. So I think overall land component in this may not be more than, I think, INR 10 crores overall. So this INR 150 crores we are saying Is inclusive. exclusive of land. Inclusive of land. Okay, sir. A bit of a broader question in terms of xanthine. What is the entire capacity in the world right now, and how much of it is in China? I think total world capacity operational would be around 40,000-50,000. I think around 50,000 plus or minus 10,000 tons currently. 40,000 to 50,000 tons. Out of which, I think that China would have 70% of the capacity operational. 70%, 75% capacity operational. We have 15% capacity here, 12% to 15%. Then I think balance is in Europe, another 8%, 10%. Okay, sir. Sir, out of the 70%, 75% Chinese capacity, how much do you reckon gets exported? What is the internal consumption of China for this? I think internal consumption numbers we may not have, but I think out of which, my gut feeling is around 70% should get exported, 70%, 75% of the 75%. So 50%, 50%, 55% of the total capacity from China global gets exported. Okay. Sir, last question. How much have the prices reduced for xanthine and its raw materials since the peak, and how far away are they from the lowest they have ever been? How many years you want me to go back? Because I have seen xanthine for the last 20 years. Of course, the lowest prices that I have seen, it went down to $6 in past. Okay. Yeah. Currently, of course, they are much better than their post numbers. Just say the last three, two years. In the last three, four years, the prices have been much higher. They have been more than double of that number. Yes. Sure, sir. Yeah. Thank you. Thank you. Before we take the next question, a reminder to all participants, you may press star and one to ask a question. The next question is from the line of Nitesh Dutt from Burman Capital. Please go ahead. Hi. Sir, thanks for the opportunity. First question. In H1 we are at INR 190 crore EBITDA. So to achieve the 10%-12% growth guidance, we would need to have roughly INR 230 crore EBITDA in H2. Just checking if we are on track for that guidance, especially considering that CDMO, CMO, some part of it might get pushed out in the next year. Yeah. We are on track. That is why we reaffirmed our growth numbers in my speech. Got it. Second question. CapEx for H2 and FY 2026. Also related to it, when do you expect the incremental xanthine capacity to get operational? I think incremental xanthine capacity will get operational by end of next fiscal. We will have, I think, the entire project should complete by Q3 of next financial year. Of course, it may take another six, eight months or two, three quarters for us to completely operationalize. I think the project is divided in two phases, and I think this final phase will get over by Q3, and then we will have two, three quarters for operating the capacity to a significant level. I think overall, we have invested if- In H1, we have invested INR 170 crores in tangible assets, and I think in H2, we might spend an additional INR 250 crores. Yeah, INR 250 plus crores. For next year also, we will have another first up, we will do another investment, INR 150 crores spent. H1 of FY 2026, another INR 150. Is that right? Yes. Understood. Thanks. I will come back. No change in the overall plan of spending INR 500 crores-600 crores. Correct. Thanks. Thank you. The next question is from the line of Manil Desai from Turtle Capital. Please go ahead. Sir, thanks for the opportunity again. Sir, one question on CapEx. Once we are done with this Atali and xanthine expansion, how will we let our CapEx and would we first prefer to stabilize and ramp up the capacity before doing next leg of CapEx? Or how will it change it? Yeah. As you know, company operates in 3 segments, so API and intermediate. Out of which the API side is at Tarapur. In Tarapur, we have space for brownfield expansion for the API capacity. I think we see in future good demand of anti-cancer products as well as the API. We are already on drawing board to further debottleneck these capacities and put up some capacity there. Whereas Atali will largely concentrate on a mix of intermediate as well as the CDMO/CMO. In this segment, it is a large project with 80 acres space. I think we are just starting phase 1. I think that project will have multiple phases. With the phase 1, we will have 60 reactors operationalized with 450+ KL capacity. I think there we have scope to do every year, 1 or 2 blocks of 250, 300 KL, going forward, depending on the need of the customer and how we are ramping up our CDMO/CMO business. In case of xanthine, I think we will be fully operationalizing the 9,000, I think, and further, which we don't foresee any immediate action for next few years. We will keep on considering reviewing our strategy of caffeine, and then if there need be, we could think about any future expansion. But currently, I don't feel there would be any need for that particular segment. Okay. Got it, sir. One more question, sir. Slightly unsure or longer term question, but this 15% target on EBITDA growth for next 3 years. Sir, if I look at segment-wise, every segment is ready to grow much faster than that. I don't know about the API part, but I think xanthine and CDMO. CDMO is a much better margin segment, and you are focusing more on API on the regulated. Okay. I am unable to get this, how we will not surpass the number that we are projecting, 15%, and not able to add up the math. Yeah, I think next few years, I think 2, 3, 4 years, the numbers we want to be a bit cautious on whatever we give the outlook. I think this is an outlook that we are pretty sure that we should be able to achieve with the current business plan that we have and surpass it in future. As you rightly mentioned, if we add up the number, the number can look bigger, but we don't want to overcommit and underachieve. Understood, sir. Thanks. That is it from my end. Thank you. The next question is from the line of Advait, who is an investor. Please go ahead. Hi. Is my voice audible? Yes, sir. Please go ahead. Sir, just one question from my side. When I was looking at the inventory days, at the absolute value of inventory, it has significantly increased, which to an extent has also weighed on your working capital. Is this something that is characteristic for this industry or is this specific to this quarter? You just highlight that will be helpful. Thank you. Yeah, I think as we earlier mentioned that the CDMO/CMO certain projects which have long gestation, and I think it is result of that we have a significant inventory because we have a sizable order which will get dispatched in one quarter, so that inventory can come down in that quarter. That is the reason that we have this inventory built up. But I think looking at overall characteristic of CDMO/CMO business in future also and our appetite of doing multi-stage synthesis, I think we will have this inventory fluctuating to higher number and lower number. Once we have every quarter stabilized number, I think then we will stabilize some inventory. But the numbers will remain high looking at our overall appetite for this multi-stage. This is where we do the regulatory starting material also, cGMP also, and sometimes we will end up doing API also. With that, we will have that situation. And our own APIs as well. And our own API also. Manufacturers intermediates in-house. Yeah. Thank you. Just one last question. If you could just give us a view of the gross margin profile by segment, that will just be helpful. Thank you. That is it for my side. I think that information currently we are not sharing. Not sharing. Yeah. Okay, thanks. Thank you. The next question is from the line of Neha from Abacus. Please go ahead. Yeah, hi. Thanks for the opportunity. Am I audible? Yes. Yeah. On the xanthine part, I wanted to understand how the average realization have changed versus last quarter in the spot market and the contract market. I think we are not giving absolute numbers of these. But I think overall, the spot market has come down as we compared to last year. I think both the markets, spot market has come down more than the contracted market. And I think we have also reduced our raw material cost. So I think that's how we are able to protect our margins in this segment. So that is what I can tell about the xanthine. We are not dwelling over absolute numbers of either of the segments. We are continuously working on cost improvements that will also come, like with bio-based or better efficient boiler and with solar power plant, we will have the cost reduced in coming quarters. That will also help. Okay. And in terms of volume growth, if you can speak about for the current quarter for xanthine. Yeah, I think volume growth current quarter, I think we had little bit of muted deliveries for one customer. But barring that, I think overall the production did happen at rated capacity. And I think that will continue to happen as we have announced the future expansion. I think currently we are fully utilizing our capacity, and I think there could be one month of higher inventory, but I think overall, we are quite confident of pushing the entire production out in the market of xanthine. Okay. Also on the CDMO front, so in H1 FY 2025, we have almost done about INR 50 crore for the CDMO, and although we have reduced our overall guidance for CDMO business from 25%+ to let's say about 20%. So in that case, about INR 150 crore can come in H2 FY 2025. Is that understanding correct? Yeah. So we are not dwelling on absolute number here. You can get to those numbers yourself. But I think we will have significant deliveries happening in H2. Anyway, from whatever our earlier guidance and today's discussion that we had, I think those kind of numbers are possible. Okay. And sir, when you mention about the lead time being higher, does it mean that since there are various steps involved, in a particular step it took more time and that's why that has pushed the overall timeline for the project? So there have been instances where there was extension because of these kind of projects. There have been some projects which have been little bit pushed down. I think it is two such issues which have overall impacted the numbers on the CDMO/CMO side. Okay. And sir, certain projects being pushed down as in like they are being pulled- They are being delayed by one or two quarters by the customer because of overall their inventory management and whatever the for the commercially running products, basically. Okay. Understood. Thank you. Thank you. The next question is from the line of Rupesh Datia from Intelsense Capital. Please go ahead. Hello, sir. Thank you for the opportunity. Am I audible? Yes. Yes, please. Okay, sir. Sir, I understand you don't want to give gross margin by segment, but can you maybe rank them between one to three, which is the highest gross margin, which is the lowest gross margin between our three divisions? Yeah. Highest would be CDMO/CMO, then API, and then xanthine. Overall gross margin this time was 67. 65%. 65% gross margin. They range between 40 to I think 65. 35 to 65? No, not 35. No, across all the segments. Yeah. Yeah. 35%-65%. Including would be 35%. Yeah. Yes. Okay. Okay, sir. Other question in CDMO is all of our CDMO projects are with innovators? I mean, innovative products, basically products which are under patent or under development. Or is there some generic CDMO also there? No. We are working with 19 customers, and the projects that we do, almost 90% of them are with the innovators. So we have, I think, one or two generic- Very small. very small value. Our innovator. Sorry? I did not get that, ma'am. Sorry. Yeah. We have largely innovator work that we do. Can you tell me how many of them are phase III and how many are commercial, some rough idea? We have 28 of them which have been commercial projects, and 27 are developmental projects. We are working on 65 projects with 19 customers. Sir, then my question is, with 28 projects, our commercial revenue is actually very small. Is it like we are a second-source supplier in the innovative product for these? No. They are- commercial products? If you would see in last couple of years, we have built up the pipeline. With this pipeline, the innovator doesn't make the product every year. They have alternate year production and stuff like that. First year, they will take initial validation work, and then they will give certain quantity, and then the third campaign, they will give us more quantity. We are in that progress of the cycle of management of the supplier by the innovators. Once we are fully onboarded, I think we expect a more stable revenue from these each and every projects that we have. Maybe the other way to ask this is- Sir, the way Now- Yeah. Let me just add, the way in which we classify is that 28 projects are commercially. The project products have been launched commercially by the customers in the market. Whereas 27 projects are in various phases, phase I, II, III, of the clinical phase. So in the 28 projects that we are doing, we have certain projects where we have just entered. We have certain projects where we have supplied validation quantities. We have certain projects where we have done only one-time supply, and certain projects we have supplied in one year, one year there was break, and now it's the third time that customer would buy. So there are several such examples of how this business operates. The other way to ask this question, sir, is out of these 28 commercial molecules or projects, in how many we are the single-source supplier? No, we may not be single source in any of them. Okay. Innovators are quite. They have a supply chain strategy, and they never have single source. Maybe some final question is, in this commercial plus development box, can you give some idea about the total revenue potential of end customers in these projects? Is it like $1 billion combined, each project is like $50 million? Or is there some molecules which can go on and become very, very large? Yeah. With the current visibility that we have and the numbers that we have from the customers, I think there is potential of these projects becoming quite large also in few cases. Absolute number can vary, but I think a range could be $25 million to $50 million also possible. If the product gets matured, and we are able to satisfy the customer's need and service the customer in a proper way, those kind of potential projects are also there in our pipeline. Okay. Sir. Thank you for answering my questions. That was very helpful. Thank you. The next question is from the line of Deep Gandhi from iThought PMS. Please go ahead. Yes, sir. Thanks for the follow-up opportunity. My question is again on the xanthine. You mentioned that once you reach the full utilization for 9,000 tons, the potential revenue could be around INR 1,000 crores or $125 million. Sir, currently, when you are at, say, full utilization with 5,000 tons capacity, you are already doing INR 800 crores. If I, say, assume even 20% drop in realizations from here, the revenue should be around INR 1,200 crores. I am not able to understand this mismatch. If you can explain, are you expecting even higher drop in realizations than 20% or what is the mismatch here? Yeah, I think those numbers are all speculative numbers. I think the number range I would like to widen from $100 million to $150 million. Anything can happen with the 9,000 metric tons. Okay. Instead of $125 million, I think it can go higher also. Okay. Sure. Thank you. Thank you. The next question is from the line of Nitesh Dutt with Burman Capital. Please go ahead. Hi. My question is, in FY 2026, our xanthine capacity expansion would not be coming on stream. Similarly, Atali would not be fully ramped up. For FY 2026, which segment will do the heavy lifting in terms of volume growth? Or do you expect your product mix pricing and a little bit of CDMO or CMO to drive the growth? Related to it, do you expect that FY 2027 will be doing the bulk of heavy lifting in terms of achieving your 15% CAGR guidance, or FY 2026 can also see a similar kind of growth? Yeah. I think FY 2027 would be the year where I think bulk of the capacity will get operationalized. I think FY 2026, definitely, I think as you said, product mix, but of course in phase 1 of our xanthine will get operationalized in the second half of next year, and which will be utilized. Then by the end of the year, we will have full operationalization of the xanthine. Atali, we expect to fill it with the intermediate operations for the generic industry also to start with, so that we can utilize the capacity. I think as you rightly mentioned, more contribution and meaningful margins can be driven only in the 2027 for these two expansions that we have done. Got it. Any quantitative guidance you would have or any idea about FY 2026 numbers similar to how you have separated it for FY 2025? I think we would give that guidance in Q4 call probably once we have the budget and everything with that. Currently, of course, we have broader numbers. I think API segment with the capacities getting utilized, I think there we expect the growth to come because the facility, I think the expansion was done couple of years back, and those capacities are getting occupied, and then we are also debottlenecking one or two lines to enhance the capacity. So that facility can do some increase in overall production. Got it. Got it. Thanks for the response. Thank you. The next question is from the line of Tushar Vasuja from Yogya Capital. Please go ahead. Thank you for the follow-up opportunity, sir. Sir, you said that you focus more on the pharma side of xanthine now. How are the realizations in margin for pharmaceutical xanthine as compared to beverage? Similar or better. In pharma side, I think we will focus on the regulated markets, and I think the overall pricing that we expect from the segment being regulated will be better. Okay, sir. As you said that you will apply for regulatory approvals in the coming quarters, what is the current distribution for beverages and pharma, and how will it change once you get the approvals? See, currently we have been focusing more on beverages and spot market, but now the pharma market, eventually we expect once we ramp up the capacity, I think 20%-25% of our overall capacity, we want to push to the pharma segment, 20% in the regulated space and 10% in non-regulated space. With that, I think overall it will stabilize the margin profile also. Okay, sir. What will be the timeline for you to get all the required approvals? No, that is why basically we are doing the brownfield expansion at the current site. As we mentioned on the call during my speech that we will file later in the current fiscal only the US FDA DMF as well as the cGMP, CEP application. I think we expect both approvals and the triggering happen in next year. Okay, sir. Thank you. Thank you. Thank you. Our next question is from the line of Advait, who's an investor. Please go ahead. Thank you for the follow-up. Just one thing is if you could just give a perspective about what's happening from a pricing perspective versus last quarter and same quarter last year as far as xanthine is concerned, because I think in the last phone call you had mentioned about there being pricing pressure given the supply. If you could just give us a perspective on that will be helpful. I think as we have mentioned that the spot market has deteriorated because of the excess Chinese capacity. Unregulated players in China have been dumping the product in the market. Whereas overall, I think large contracts are also under pressure, but margins are intact because they definitely follow the raw material cost model and the way in which the pricing happens is largely cost plus. Of course, it's a negotiated number, but still, I think there is some logic there. The strategy that we have is that how do we go away more from spot and move towards more long-term market and regulated market, which can give us stable margins, and we don't have to fight on the spot side. Okay. Thank you, sir. Just one last question from my side. Primarily within the xanthine segment, do you cater to the local Indian customers or it's primarily exports? That's the other thing. Yeah, we will cater to all customers. I think in India also there is regulated market customers. There are a lot of paracetamol caffeine combination formulation being manufactured in India and getting exported worldwide in Europe as well as the U.S. market. We will definitely target all regulated markets. There are marquee customers also in India and globally, large multinationals who also have OTC presence across the world, and they also require regulated DMFs and CEPs and stuff like that. We will be catering to all those markets. That catering can start in the current half only because it's of course a couple of quarter qualifications and other approvals. By that time, our capacities will also come on board. We will be able to start supplies as soon as we have the capacity. Got it. Presently the exports, are they more than 50% as far as xanthine is concerned, specific to xanthine segment or- Yeah. Okay. Yeah. Above 50%. Yeah. More than 50% is export. Perfect. Thank you, sir. Thank you so much for your time for answering the questions. Thanks. Thank you. Ladies and gentlemen, that was the last question for today. As there are no further questions, I would now like to hand the conference over to the management for closing remarks. Yeah. I would like to thank all of you for joining our call, and Happy Diwali. Thank you. Thank you. On behalf of Aarti Pharmalabs Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.