Q1 24/25

Aug 6, 2024

Summary

Q1 FY25 revenue rose 21% YoY and PAT rose 18%, while lower CDMO/CMO mix pressured standalone gross margin. CDMO pipeline expanded to 53 projects, with 25%-30% FY25 growth guidance maintained.

Ladies and gentlemen, good day and welcome to the Aarti Pharmalabs Limited Q1 FY 2025 earnings conference call. 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 the star then zero on your touch-tone 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 morning, everybody, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations of Aarti Pharmalabs Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter 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 and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements when 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. Now let me 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. Without any further delay, I request Mr. Rashesh Gogri to start with his opening remarks. Thank you, and over to you, sir. Yeah. Good morning, everybody. I welcome all the analysts and investors to this earnings call on this performance of Aarti Pharmalabs for the quarter and the year ended June 30, 2024. Our results documents were shared with you earlier, and I hope you would have got a chance to go through them. To begin with, let me provide you the business highlights. The company operates three distinct areas within the pharmaceutical industry. One is xanthine derivatives, API and intermediates, and CDMO/CMO. In xanthine derivative segments, we contributed 54% of the turnover in Q1. And despite aggressive competition from China, we have been able to leverage our relationships with our customers and grow our international revenues for the xanthine derivatives. As you may be aware, we are one of the largest Indian pharmaceutical manufacturer of xanthine derivatives. Given our leadership and position and favorable outlook for the demand from the large corporations, we are seeing strong potential for this segment. The API and intermediate business contributed 44% of the turnover in Q1. Out of this turnover, the regulated market contributed 55%, and rest of the world market contributed 35%, and the balance 10% was from the non-regulated market. This split is in line with our strategy to focus on regulated business, which offers higher profitability and stable demand. Given our strong focus in R&D and process innovation, we are able to provide necessary regulatory and IT support to our global customers, and this gives us a competitive edge over our competitors. The third segment, CDMO/CMO, has contributed 2.4% of the turnover in this quarter. We are presently working with 18 customers on 53 projects, of which 27 projects are on the commercial stage at the customer's end, and 26 are under different stages of development at customer's end. This highlights our presence in late-phase projects. The sales contribution of CDMO/CMO in this quarter is comparatively lower on account of long lead orders, which we have delivery scheduled later in this year. These QOQ fluctuations are part of the business as the products are typically multi-stage. We are thoroughly optimistic that we should be able to grow this segment by 25%-30% YOY in FY 2025. The new R&D center dedicated to CDMO/CMO is gaining good traction and has strong pipeline, harnessing advanced technologies and modern equipment. It's successfully catering to a substantial surge in the number of customer projects. Let me now share key financial highlights. Consolidated financials, I am pleased to announce that in Q1 FY 2025, the consolidated top line was INR 555 crores, which was 21% higher YOY. For the Q1 FY 2025, the consolidated EBITDA from the operations was INR 96.4 crores as compared to INR 84.9 crores in the corresponding quarter of previous year, and that is an increase of 14% YOY. The consolidated PAT for the quarter was INR 55.3 crores, 18% higher YOY. I will now share the progress and updates on the key expansion projects. Given the demand from several large corporations, we have announced the capacity expansion of xanthine in the last quarter, and we are in the process of acquiring adjacent land for the brownfield expansion of the project. We expect to complete this project in the beginning of FY 2026 and thereby achieve a total production capacity of 9,000 metric ton per annum. The Atali project, primarily focusing on CDMO, CMO and intermediate manufacturing, is advancing as planned, and we expect to commission the site by Q4 FY 2025. The semi-commercial block production at our USFDA intermediate unit at Vapi is in final stages of completion and is expected to fully operationalize in Q2 FY 2025 as this last time. This expansion will address the gap of small to medium batch sizes in the current system. In line with our plan of offering gram scale to ton scale level batch sizes, ultimately aiding our CDMO/CMO business. Lastly, setting up of a new solar power plant at Akola, Maharashtra is progressing well and estimated to get commissioned in the current quarter. This project is estimated to generate one-third of our power requirement in Maharashtra, and it will reduce our manufacturing cost. We remain optimistic about the future and maintain our guidance to achieve EBITDA growth of approximately 10%-12% in FY 2025. Long-term goal of around 15% 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 their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment for the question queue to assemble. The first question is from the line of Rahul Jain from Credence Wealth. Please go ahead. Hello. Thanks for the opportunity. First question is with regards to CDMO/CMO business. Of course, you have mentioned in your initial comments about the drop in the business, and you have maintained your guidance of around 25% plus for CDMO revenue this year. So what we have been hearing and reading is, there is some kind of shift from China to some of the large Indian companies with regards to CDMO/CMO orders coming in. With regards to us, are we seeing any kind of new inquiries or larger inquiries coming, which probably you would not have anticipated a year ago? That is my first question. Yeah. As we have informed to you that earlier we were having close to 40 projects that we were doing, and this quarter that number has swelled to 53 projects. So this showcases that we have traction of new projects coming in our fold. Of course, we are filling large RFPs, large number of RFPs. Out of which these are the projects that we have won with our innovator partners. So we are seeing a large traction towards India, away from China and Aarti Pharmalabs is also able to get more inquiries and projects. And sir, one more thing about this. Typically, what kind of average size of contract for inquiries used to be coming to Aarti Pharmalabs, say, 6 to 12 months ago? And how has it changed recently? Basically, any CDMO/CMO project will require at least 6 to 12 months of cycle before it becomes you start commercial supplies and you understand overall demand. So we have a mix of commercial projects, which are getting shifted, and also late phase projects also coming to us. And overall, the inquiries have increased. If you see the number of additions that we have got this quarter have been significantly good and we anticipate that speed to continue. I was just trying to understand the size of each of these projects. Some of those inquiries, have they changed in last 6, 12 months in terms of the ticket size which you are talking to your customers? Or probably you are talking to much larger customers, and thereby the size of each inquiry or order has changed? Yeah. So we are having projects in the entire spectrum. So we have some projects with specified technologies that we have and certain projects which are getting shifted on the commercial. So the commercial projects have higher ticket sizes. And the newer projects where we are plugged in in the system earlier, also they have smaller tickets. But as the product gets launched, the overall size of the business, depending on the product growth, improves. So we have a mix of both, and overall, it really depends on the product, how big it is. But we have had bigger inquiries, which are $1 million-$2 million-plus range in recent past as well. Sure. Sir, with regards to CapEx, you have mentioned in your initial remarks about the various CapEx phase. If you could break down the amount like xanthine last quarter, you had mentioned that we will freeze the exact number somewhere and share in this call. So what is the amount of CapEx being done for xanthine from 5,000 to 9,000 tons and the other CapEx specifications? Yeah. So we are anticipating close to INR 150 crore CapEx for the xanthine project. This will be spent across two sites that we use for the xanthine project. The other projects that we have, as we have shared earlier, the Atali project has a total outlay of approximately INR 375 crores. The solar project, which is on the verge of completion, is around INR 90 crores. So this year you would spend somewhere around INR 150 on xanthine and INR 375 on Atali. No, no. The xanthine also will get spread over next year. Atali will be spent in this year because we will start Atali facility. Of course, it is a very large facility, so we may phase it. Basically, in couple of months, one by one, the entire facility can also. In a quarter, gradually, the momentum will gain and we can operate the full Atali facility. Sure. Last thing, sir. There is a sharp increase in employee expenses. Anything to read over there? Also with regards to other expenses, like this quarter we had 70, previous quarter it was 86. So anything to read in this? No. Employee expenses have increased in line with the growing business and we also are employing more people because of the expansion at Vapi that is happening. So at Vapi also we are putting one more block. This also includes the commission amount also to the directors. That is in line with the increment that we normally give every year. Other expenses, what was the question? Sir, other expenses which were last year around INR 52 crores, fourth quarter it was INR 85, INR 86 crores, and then this quarter it has come down to INR 70 crores. Is this just a quarterly blip or is there anything to read in these other expenses? No. See, basically, the variable expenses will move in tandem with how the top line is moving. The power cost is something which has gone up because it is going up in Maharashtra mostly every year. This year also it has increased. Compared to quarter one of last year, it will be definitely higher, the power cost. The freight also has been going up and down. Quarter four, the freight cost was much higher, which has slightly come down in this quarter. If you remember, in quarter four of last year, we had done some R&D product impairment also. That's why the other expenses in the last quarter was higher, which has slightly come down. Sure. That's helpful. Thank you so much, sir, and all the best. Thank you. Thank you. Ladies and gentlemen, to ensure that the management is able to answer questions from all participants, please limit your questions to two per participant. If you have a follow-up question, please fall back in the question queue. The next question is from the line of Mahesh Raj from UTI Asset Management. Please go ahead. Yeah. Good morning, everyone. I hope everybody well. Sorry to interrupt, sir. Your volume is very low. Could you speak up a bit louder? Hello. Is it better now? Yes, sir. Please go ahead. Yeah. Good morning, everybody. My question is on, sir, when we look at the numbers, how one should read on a standalone or consolidated basis. If you look at from standalone, it is around INR 394 crores, and on consolidated it is around INR 556 crores. In your presentation, how one should read the segmental breakup. On standalone, the 2.4% of CDMO is of standalone or on a consolidated? Standalone, sir. What about the difference of this INR 150 crore? How does it come? Yeah. We have an associate company and a subsidiary company. These are consolidated in the Aarti Pharmalabs results. Okay. Yeah, sir. Go ahead. Yeah. We have an associate company called Ganesh Polychem Limited. Okay. Also we have 100% owned subsidiary, Aarti USA Inc. which has some trading business, legacy business of the chemical trading business, which is still being undertaken in that entity, which eventually will shift or stop Okay by the end of this year, once Aarti Industries sets up its own subsidiary in U.S.A. So this is a legacy subsidiary which got transferred to Aarti Pharmalabs. Okay. That's why I request you to look at the standalone because in the consolidated result, almost INR 100 crore is the trading sales. Okay. And sir, when we look at Aarti Pharmalabs, how one should understand in terms of gross margins profiling, given we are in three segments. So, I'm not asking the actual numbers, but how one should look at the gross margins of the company and given the differential segments are there. Yeah. I think at the overall level, we have gross margin of around- 50. It would be about 50%-55% overall. 50%, 52%. Yeah. In that region. Okay. And sir, if you can just help us understand how one should read on an API and intermediate segment, how the margin profile there stands. Mid-teens, mid-20s or like? EBITDA margin? No, I am asking on the gross margin basis, sir. Gross margins are- Sorry. I missed out. EBITDA margin. Sorry. No, no. Gross margins are better in API and intermediates than present. Okay. CDMO enjoys the highest gross margins. Okay, sir. Thank you. It is average outing. It depends on number of stage product that I do for that particular quarter. Okay. That also varies. Quarter to quarter. Okay. How things stand on in the xanthine derivatives market? I mean, whether those Chinese aggression has come down or slowed down, or how one should look at going forward. Khetan here, China is as aggressive as ever, and the pricing have been reduced in the spot market. We have a balance of contract and spot. It is challenging for the spot business. China is becoming very aggressive still. Yeah. But still, as you have seen that we have been able to grow our export business overall. This quarter, we have been able to do almost 57% of the xanthine was exported. So the relationship and the connects that we have, we are able to increase the market share. Okay. Sir. Thank you. Thank you. Thank you. The next question is from the line of Vikash Sharda from NT Asset Management. Please go ahead. Hi, good afternoon. I have one question on the pollution control notice, which you disclosed for the Dombivli plant. What were the reasons, and what is the plan for resolution or any financial impact for the year, if you could comment? Yeah. We received a pollution notice from the MPCB at our Dombivli site. In Dombivli site, one of the Dombivli site where we had MPCB come in and issue notice for some gas-related issue. Basically, the natural gas-based boiler startup-related issue, which we had resolved immediately. The issue was resolved within 7 days, and we could get the startup of the facility to 30 days, 30, 35 days for us to get the approval from them to restart. Now the facility has restarted, and we are operating all our facilities now. Because as you would have read, it is something which impacted many companies in the same business area or industrial area. I understand. But the impact was only like 30, 35 days, that 1%, 2% of revenue, so not material. Yeah, not material. Understand. It will be nice if you could disclose the Ganesh Polychem revenues and EBITDA probably separately in each quarterly results. That is also quite significant for you now. Yeah. We will, I think of course in the annual it is getting disclosed. But we will disclose the Ganesh Polychem data also from next time. Perfect. Yep. Thank you very much. Thank you. Thank you. The next question is from the line of Dheeresh from White Oak Capital. Please go ahead. Yes, thank you for the opportunity. You have 27 commercial projects in CDMO/CMO, right? Yes. Sir, on a per project basis, the average value is less than $1 million. It looks low to me. Can you just explain on that a little bit? The commercial projects at the customer end means that we have started supplying to them. As a second alternate source Yeah at lot of places. Yes. So what happens is that it takes some time for slowly building up because we will give them the validation quantity, and then they will move us to the actual market as their product gets launched or the product site transfer happens from one vendor to the other, and that is when they plug in new vendors. So we are in that process. So I wouldn't say that all the products are commercial and at their full potential. Out of which the half of the projects are still at their early stage. So this potential will grow significantly. How would this be split between patented products and generic products? All are patented products only. Whatever we are saying in CDMO/CMO are all patented products only. Okay. Are they a combination of APIs as well as intermediates, or are they largely skewed towards one? Only intermediates. Intermediates are classified as early-stage intermediate and late-stage intermediate. So there will be GMP intermediates and key starting raw materials. So we are present in both the segments. So we also offer GMP intermediates. Yeah. Okay. How would it be split between development projects and commercial projects? So that we have mentioned. So that it is a 50-50. Approximately 50% are on path to become commercial, whereas 50% are still developmental project where initial work is being done at our end and at the customer's end. Basically, between phase I to phase III. Okay. In API and intermediate- Sorry to interrupt, sir. Okay. Could you please fall back in the question? Yes, I will. Thank you. Thank you. The next question is from the line of Pujan Shah from Molecule Ventures. Please go ahead. Hi, sir. Are you audible? Yes. Yes. Okay. Sir, total CapEx, which will be outlined for FY25, would be INR 375 crores plus INR 90 crores, but assuming xanthine derivatives would be around INR 75 crores? The outlay, what we are saying is around INR 500-INR 550 crores would be the CapEx that would be done in this year. INR 500 would be a good number to use. Okay. We have been commissioning the APIs in Q2 FY25. What could be the revenue potential in FY25, and how we have been outlooking in terms of revenue in FY26 as well? Basically, the total volume that will get generated, volume per KL in this manufacturing block that we have put up is only 30-40 KL. But it is going to bridge the early stage for R&D requirements of our customers for the clinical phase development, where they need smaller batch sizes and stuff. Overall, it may not add too much value, but overall it will accelerate the pipeline at our end. Okay. And sir, in the CDMO side, if our contribution is just 11%, that is INR 41 crores on standalone basis. Assuming we are giving a guidance of 25%-30% growth, are we due to Even though we have many molecules on the commercial side, so we have been very conservative on that basis, or because the FY 2024 base is very small. See, FY 2024, we did close to INR 170 crores of CDMO/CMO business, and we have guided for a 25%-30% growth over and above that. So it will not be a QOQ, every quarter you will see one-fourth of that. Certain quarters may have higher sales, and certain quarters may have lower sales. We are also taking up multi-stage products. So multi-stage products takes time. Overall, we have good order book, and that's why we have given this guidance on my call. Sorry to interrupt, sir. But the current participant has been disconnected. We will move on to the next question. It's on the line of Ankit Gupta from Bamboo Capital. Please go ahead. Thanks for the opportunity. Sir, again, a question on the CMO/CDMO side. I was looking at your data for the molecules which are on the commercial stage. Last year in Q1, we had 16 molecules in the commercial stage, and we ended Q4 at 21 molecules. Now in this quarter itself, we have added six more commercial molecules, and we are ending at around 27 molecules in the commercial stage. There has been a significant addition which is happening on the commercial stage molecules as well. Normally, what we have seen in CMO/CDMO is that most of the innovators tie up with CMO/CDMO during the development phase itself, at phase I or even at the discovery stage. However, in our case, we have seen a significant addition in the commercial stage molecules. If you can explain about this. Secondly, on the same segment, in commercial stage molecules, normally in the year 3, year 4 is where we start seeing significant pickup in sales and scales for the many large molecules reach to their peak. So where are we in that phase for our commercial molecules? Out of this 27, when do you see peak sales coming in for many of them? Yeah. As you rightly mentioned, that we have been growing our overall commercial product basket. The number that we are giving here is the number of projects which we have cumulatively, which are active. So we have 27 active projects. We may sell in particular quarter in few of them, and we may sell in certain years also few of them. But these are the active projects where the drug is still active, and we have been approved as a source for the drug product via intermediates or cGMP products. These may be in phase III and above. So that is what we call the products which are going for commercialize, close to 27. Yeah. As you rightly mentioned, that lot of partners are getting selected early phase, but there is always a shift which is happening when the product is getting bigger and bigger, and approvals are coming in, the innovator changes his strategy and then decides who is going to be the reliable supplier for them for the future of the patent life of the product. That is phase III plus stage, and that is where we are trying to get more projects. At that stage also, the initial development which they have done with early phase gets knocked off, and the new vendors get entry. Okay. Normally, I know for this commercial molecule that we have, how many suppliers will be there for the intermediates that we supply to innovators on an average, if you can tell? Normally we have seen, it's normally not more than two, three. Yeah. Not more than two, three suppliers. Okay. And the earlier suppliers would be the ones which had worked with the innovators at the development stage, and now because of the increasing volumes, we have been added as a vendor. Either increasing volume or China plus one, or the current vendor is not qualified to do anything which is very large volume, commercial requirements or commercial grade production. That is where we specialize. Our specialty is how we are able to commercialize the projects which are at phase III and support the innovator for the entire patent life of the product. Given the kind of pace we have seen in Sorry to interrupt, sir. Mr. Ankit, could you please fall back Just a follow-up on this. I will just finish it up. The kind of pace that we have seen in addition of molecules in Q1, do you think this will continue for the near to medium term, given the legislation which has been passed in U.S. recently against China for the CDMO? Yes. The BIOSECURE Act has forced U.S. companies to shift away from China, and that is why other non-Chinese suppliers of these intermediates and the GMP intermediates are seeing more inquiries. We are benefiting from this. Okay. Thank you, Mr. Aldous. Thank you. Thank you. The next question is from the line of Nitesh Das from Burman Capital. Please go ahead. Hi. Thanks for the opportunity. First question on CDMO/CMO. We have been hearing a lot of chatter around BIOSECURE Act that you just mentioned. Are you seeing any specific opportunities opening up for you as well because of this act? Yeah. That is what I mentioned to the previous caller also, that in six months we have added nine commercial projects from 16 to 27, and we have a strong pipeline of early phase projects also. So overall now we have total projects also, 53 projects are currently live with various customers, which are 18 customers. We have added two more customers and also added more projects from our existing customers. So we are getting more and more traction from our current customers, which have seen the advantage of placing these projects with us because of our previous supplies to these customers. Got it. Second question on xanthine. This quarter, I believe we have done a revenue of INR 210 crore versus INR 180 odd crore in the last five to six quarters. This despite the pricing pressure, et cetera, you mentioned from China. So what has led to this jump in revenues? Any volume uptick we are seeing or one-off prices in this quarter? Overall, we have seen in xanthine and allied segments, so we have seen more volume that we have been able to do and xanthine is not alone caffeine, so there are other products also which are part of this segment that the way in which we are reporting. So overall, we are seeing good growth overall for the current quarter. And we are pretty confident that we will continue doing similar or better going forward. Okay. Just last question on gross margins. I think there is some compression there. This quarter we are at 48%, I am talking about standalone, versus 54% last quarter and your guidance of 50% to 52%. So the 48% number this quarter, is it because of lower contribution of CDMO/CMO or any raw material pricing pressure that you are seeing? And should it get back to 50% levels by next quarter? Yeah. So that is definitely the CDMO/CMO segment revenue is less this quarter and of course it will get picked up in subsequent quarters of this year and which will rationalize overall percentage. But as you know that the industry is becoming more and more competitive, so overall there is of course pricing pressure as well on the API segment also. Understood. Thank you. I will get back. Thank you. The next question is from the line of Dhwani Desai from Turtle Capital. Please go ahead. Hi. Good morning, everyone. My first question is on xanthine. I think Hetal ma'am mentioned that Chinese aggression continues in that segment. I think in last call we had a view that the prices have almost bottomed out. So are the prices falling from last quarter basis also? And also this competition or aggression is only on the caffeine side or the other products in the xanthine basket as well? Yeah. What has happened is that overall, the prices are falling from last quarter, and of course, the raw materials are also falling from earlier quarters. So we are seeing overall cost of goods also coming down so that we are able to maintain our overall margins in this segment. Yeah. Apart from xanthine, the other prices have come down. Yeah. Other prices are also coming down a little bit. It is more of an adjustment for the RM price falling, right? It is not the price war kind of a situation. Yeah. It is more of a raw material correction. Okay. Second question, sir, on the CDMO side. I think we ended last year with almost 11.5% contribution. This year and next year, we have guided for a very strong growth. So, at the overall revenue mix, the proportion will get higher. So last year, on a standalone, we ended with 50% gross margin. As CDMO proportion grows to, let's say, 20%+, we should move up in the gross margin trajectory. Is that a right assumption to make? If so, will it be 53%-54% kind of a range, or can you guide something on that? No, it depends on number of stages that we are doing in this CDMO, CMO projects. The gross margin is function of number of stages. Suppose I have a seven-stage product, then my gross margin goes up to 70% also because everything I am doing in-house. Whereas there could be a two-stage product where my margin is less. So depends on the number of products that are in which kind of segment and how many stages we are doing. Typically, we end up doing three, four stages in the CDMO, CMO space. But we have few projects where we have much more longer stages, which we have been processing currently and which will have a positive impact on the overall gross contribution also and gross margins. But overall gross margins, we can't give a real guidance. Overall, we can give the guidance on the growth because overall occupancy of our facility is a function of how many stages we are doing. As we occupy more and more of our facility, the gross margins will go up for the particular product. Okay. On the same theme- Sorry to interrupt, sir. Yeah, I'll come back. Thank you. Okay. The next question is a follow-up question from Mahesh Kumar from UTI Asset Management. Please go ahead. Yeah, thank you. Sir, when we look at the CDMO business, how would have been our capacity utilization in last couple of years and how once we are coming up with the Atali project, how you see the capacity utilization, and the asset and when should take off on it? Yeah, see, currently we are using the facility for CDMO, CMO, and intermediates and API combined. So overall, I think our occupancy is 85%. Atali, we are going to add almost 400 to 500 KL of capacity, reactor volume capacity, and which will significantly increase our capacity almost by 25%-30% from the current level. This is going to be phase one of Atali, and of course, we can build multiple. Every year we envisage to build similar block or at least 250 to 300 KL capacities in Atali. So we are well poised to match the capacity and keep certain free capacity so that we can meet the demand and surge of demand of our CDMO, CMO customers as well as API and intermediate customers. Okay. Thank you. Thank you. The next question is from the line of Dinesh from Vitol Capital. Please go ahead. Thank you again. Just following up from the earlier question. The current reactor capacity in combined, excluding xanthine, is about 200 KL, right? No. 2,000 KL. Sorry. It is not 2,000 or 200. We will get you the real number offline. Currently we are adding close to 450 to 500 KL in Atali, which will be around 25% addition. We have- 25% addition. Okay. Sorry, 1,000 KL. Okay. Right now it was combined for API and CDMO. With the new block, you will carve out CDMO capacity separately or still be fungible across both? It will be fungible between intermediates and CDMO, CMO because both the businesses require multipurpose assets. This multiple, for example, currently our Vapi site has a hydrogenation block which was commercialized earlier in this year, so in last year. We do not propose to put up a hydrogenation block in Atali because here we have got sufficient capacity to do the hydrogenation. Depending on the requirement of the project, we will move the product stages around both the facilities. Okay. Understood. One last question. You are explaining that we have moved from 16 to 27 commercial projects and we are doing mainly patented products, only intermediates. Can you just give a qualitative understanding of, are they in the early stages of their commercial launch or are in their lifecycle management from a patent early stages? Some are in early stage. Okay of commercial, but there are few in life cycle phase also. But more than 50%-60% is in early stage. By revenue? Out of the 27, yeah. Okay. Understood. Okay, thank you. Thank you. The next question is on the line of Pranav Shikari from Namit. Please go ahead. Hello, sir. Yes. Yes, sir. My question is regarding on the margin front. We had around 21% margin in last quarter, and this time we have dipped to 17%. Any guidance on why there is so much of falls in the margins and any guidance on hitting the peak margins again? Piyush, you want to take this question? Yeah. I did not get the name, but this particular question has already been answered. Basically, if you look at quarter-on-quarter, you will see some up and down because the CDMO/CMO business, which basically contributes, which is the highest margin business for us. That basically goes up and down on quarter-on-quarter basis. As you have seen, in the last quarter it was 18%, its contribution to the overall revenue of the quarter, which has come down to 2% in this quarter. So that has been the major reason. No. Another major reason is also if you are looking at consolidated number, I think better view to look at the gross margin for Aarti Pharmalabs would be standalone. So in the standalone, our margins are more consistent. If you see 21%-23%, it will move around with the CDMO up and down in terms of EBITDA margin. So I think that will be a better number for tracking than the console, because console has some trading activity also, which eventually will get stopped by the end of this year. Okay, sir. Thank you, sir. Thank you. The next question is from the line of Harsh Nagda from Vivid Financial Services. Please go ahead. Hello, good morning. Yes. I just wanted to ask about the xanthine prices trend last year and this year, and what are we anticipating the trend moving forward? Yeah. Xanthine has many molecules. I think we won't be able to share, but overall the pricing has come down by around 15%-20% over last year. Okay. In the spot market. Okay. Yeah. What are we expecting the trend to move on forward? Yeah, we expect the prices to stabilize at this level as long as the raw material prices are stable or go up only. We don't anticipate it to come down unless the raw material prices fall further. Okay. Thank you. Thank you. Thank you. The next question is from the line of Jay Shah, an individual investor. Please go ahead. Hello. Can you hear me? Yes. Hi. Congratulations. I had a broader question on the business front. Like you just said that because of the U.S. BIOSECURE Act and even China plus one, you are seeing a lot of inquiries. But at the same time, we are kind of congested on the capacity utilization, at least in terms of the near future. What kind of conversations are then keeping the customers engaged? Because you will not be immediately able to at least start the CDMO phase for them. How are they showing confidence in us? Apart from our chemistry skills and our lineage because of Aarti Group. How is it that customers are willing to wait that six or nine months till Atali is ready? Yeah. As we have mentioned that our facilities are fungible across intermediate as well as the CDMO, CMO. We have flexibility to buy those intermediates and substitute the capacity for CDMO, CMO and give the customer the capacity availability. That is one thing. Another thing is that these projects, whatever that increase that we are seeing, of course, will take six to eight months or a year to get mature, and by that time, we will also have our facility. Early phase, as we mentioned, we have now this smaller reactor up to from 50 liter to 2 KL. We have already added one block in our Vapi site, which got commissioned in this quarter. With that, we will be able to meet their validation requirements or early phase requirements to qualify our product for future. We have that capacities in place. We don't see any concern on the capacity front for the CDMO/CMO business for now. Okay. That's it from my end. Thank you so much, and all the best for the future. Thank you. Thank you. The next question is from the line of Amit Luri, an individual investor. Please go ahead. Thanks for the opportunity. My question was regarding the trading business, which we have discussed right now. Can you please throw some light on what is actually the annual turnover of the so-called company and the profit margin currently, quarterly as well as annually, and what impact it will have going forward, as you said, that the same business will not going to continue from next year. See, we have a subsidiary called Aarti USA Inc, which was constituted prior when it was a combined business of Aarti Industries and Aarti Pharmalabs. Essentially we were catering the customers in U.S. require generally door delivered products. All the door delivered products were catered for both the businesses using this company. Then in pharma, we have certain registrations and investments from this entity as well. This entity was retained in Aarti Pharmalabs as a subsidiary, and Aarti Industries was supposed to create a new company in U.S.A. to handle their door delivered business in U.S.A. That will happen by end of this quarter, hopefully. A large portion of turnover, around 80-90% of the last year, nearly close to INR 200 crore, I think INR 190-200 crore of this turnover. This year also, this quarter, we have done a large turnover in this segment, so that will get shifted. Of course, the margin profile is only 1-2% in this business. It will not have an impact on profitability or EBITDA of the company. Only the top line, which we have been just helping Aarti Industries meet the customer requirement will get shifted. Okay. Thank you. That's all from my side. Thank you. Thank you. Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to the management for their closing comments. I would like to thank all the participants on this call who attended this call. Thank you very much. On behalf of Aarti Pharmalabs Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you.