Aarti Drugs Limited (524348) Earnings Call Transcript & Summary

Good afternoon, everyone, and seasons greetings to all of you present on the call to discuss our financial results for Q2 and H1 FY '22. Aarti Drugs delivered a resilient performance despite continuous input cost pressures. Before I take you through the performance highlights, let me remind you that as communicated in the earlier earnings call, the financial performance on a year-on-year basis is not exactly comparable, especially in terms of realizations and margins because of the elevated API prices driven by sudden supply disruptions due to COVID-19-related lockdowns during H1 FY '21. That is last year. I will now take you through segment-wise performance. Stand-alone business performance. Stand-alone revenues for Q2 FY '22 stood at INR 511.6 crores. This contributed approximately 87% to the consolidated revenue. 63% of this revenue came from the domestic market and 37% from the export market. Domestic revenue grew by approximately 4.5%, and exports increased by around 7% on a year-on-year basis. However, contraction in domestic business is predominantly due to higher volume in Q2 FY '21, largely due to the reasons mentioned earlier. API volume growth remained largely flattish on the account of lower-than-anticipated volume growth in antibiotic segment. Within the API segment, the antibiotic therapeutic category contributed around 46%; antiprotozoal around 17%; inflammatory, around 13%; antidiabetic around 11%; antifungal, around 10%; and the rest contributed around 3%. The share of acute therapies remains subdued due to the second wave of COVID-19-induced lockdowns. Now we'll discuss formulation segment performance. For the quarter, revenue for formulation stood at INR 75.7, a growth of 6.4% on a year-on-year basis. Approximately 26% of the formulation revenues came from the exports during this quarter. Now on a consolidated basis for Q2 FY '22, revenue stood at INR 579.7 crores; EBITDA at INR 73.8 crores; and PAT, INR 42.6 crores, respectively. EBITDA margin came at about 12.7%. As mentioned earlier, EBITDA margins are not exactly comparable on the year-on-year basis, though we were expecting much higher than the actual performance in this year as well. For H1 FY '22, revenue from operations stood at INR 1,161.3 crores as against INR 1,124.3 crores, up by 3.3% on a year-on-year basis. EBITDA stood at INR [ 155.1 ] crores. EBITDA margin came in at about 13.4%. PAT stood at INR 91.4 crores. On a consolidated level, supply chain disruptions, due to sudden power outages in China, continued upward trajectory in the key raw material prices, a sudden spike in the coal prices due to demand/supply gap, related freight cost due to shortage of shipping containers and one-off earlier expenses related to the revision in the [ ranges ] keep the EBITDA margins suppressed for the current quarters. However, as a strategy, the company continued to focus on maintaining the leadership position for its top revenue contribution products. The company will continue to follow the same strategy going forward as well. In order to mitigate the impact of higher input costs, the company proactively undertook price hikes from time to time across the therapeutic areas to sustain the EBITDA margins. However, EBITDA margins and profitability did not commensurate with the price -- input price hike growth due to the lag in passing on the prices -- price hikes as many of the events that led to sudden upward moment in the input costs were due to unforeseen events, such as China power outage, gold price hikes or conditions across the globe, et cetera. And hence, there was some lag in passing on this increased cost. We believe that the coal prices, high freight costs are short term in nature and raw material prices are expected to taper off by the end of FY '22. The company is considering further price hikes in the coming days, if the raw material price momentum sustains. As a result, EBITDA margins are expected to come back to the normal levels within the next couple of quarters. Looking beyond the short-term challenges, the company is confident of achieving EBITDA margins in the range of 18% over the next 2 to 3 years driven by the ongoing transition towards lifestyle and chronic therapies, backward integration and operating leverage. The investing cash flow for H1 FY '22 stood at INR 77 crores and is expected to remain in the range of about INR 100 crores to INR 125 crores for the remaining part of FY '22, funded through a mix of internal accruals and debt. The pace of CapEx was impacted to some extent due to incessant rains in Gujarat and Maharashtra State during the quarter and the second COVID wave during the start of this year. The balance sheet continues to remain strong with a comfortable net debt to equity of about 0.5x as of September 2021. The company is well on track of growing the contribution from high-value lifestyle and chronic therapeutic areas and reducing share from acute therapies from the API business segment. Similarly, Specialty Chemicals and Intermediates business is expected to grow at a robust pace, driven by the niche value proposition and multiple industry and geopolitical tailwinds. On a formulation business front, the company has a robust pipeline of products under development with multiple therapeutic areas. The company remains confident about the opportunities across all the businesses. We can now begin the Q&A session. Thank you.

[Operator Instructions] We have the first question from the line of Rashmi Sancheti from InCred Capital.

Just want to have a query on gross margin. How many other [ products ] apart from metformin we are depending from China? And in which all major products we are facing high input costs?

Yes. So to answer this question, our -- out of the total RN purchases, around 55-odd purchases coming from depots, and that is played across the products that way. And recently, also, there are 2 factors why the prices went up. One was because of the power outages, which created shortage in supply; and second was the freight rate, which got increased and hence the RN prices already raised upwards. So the thing is we do have options of procuring these raw materials from alternate sources. But then the thing is once the supply shortage is created, this particular [ rate ], even if you to care from other parts of the world, the prices are still high. So that is the reason why across the board, this I can tell you that of top 23 RN products which we procured, both import and domestic,n are both included. We saw that in the September month, the prices were maximum out of all the 6 months for this year.

But in antibiotic segment, what I understand of all the major products, which contribute significantly to the overall revenue, that is actually integrated, right? So is there something called basic chemicals or something which is using even those products, we are seeing some sort of price pressure?

Yes, yes, we do.

Okay. And what is the [indiscernible] metformin products? Is it something that we have underutilized the capacity because of the high RM cost for this quarter? And how is it?

So right now, we are taking -- we are having good orders of metformin. The capacity utilization has been fairly okay, fairly okay, though not fully utilized, but fairly okay. Your point is quite valid in the sense that because this September quarter, the prices were so volatile, and the situation was also dynamic and fluid that openly taking a lot of orders for our finished goods was a little bit of a challenge because we were not sure that how the RIN prices are going to react in future. So in such scenario, taking orders in bulk is also a challenge. And that is why we also went slow, and perhaps that is also one of the reasons why a lot of volume growth is not seen in this particular quarter.

Only in this quarter or it is across other products also, we have seen the same challenges, and that is why the volume growth was quite low?

This is for across all the products, which was a challenge.

And if you can just guide like you commented that the demand for the antibiotic has come down. Is this because of the challenges and higher input costs? Or what exactly you can show why the demand has come down.

So the overall -- so there are 2 things to it. We also went slow in taking the orders. That is one reason why we might have temporarily lost on a few orders. But overall also, see, there are a few antibiotic products where the demand was very strong as per the numbers published. What needs to be considered here is that for 1.5 years, there was almost -- because of the COVID, people were afraid to go to hospitals. So the people who are about to get operated now, the hospitals are quite full in terms of operations. But then the kind of antibiotics, which are used in those kind of applications are different, and the ones in which we are, fluoroquinolones, are different. And the one -- the application area for our antibiotics is more related to respiratory infection or stomach infection or UTIs, which mostly happen when people are going out and eating outside. Now that has picked up. I mean the situation is much better. And with this complete second vaccination, I think that demand will be back very soon.

Okay. And sir, last question, what is the aftertaste of this quarter in terms of gross margin? What kind of gross margins are we seeing for the entire FY '22?

Yes. The thing is the first 2 quarters, more or less, it remains similar, though we were expecting an increment in this quarter. And frankly speaking, we were seeing -- in the middle of the quarter, we were seeing an improvement. But then again, this -- in terms of the new [indiscernible] factor, again, the gross margin slide down further. So we expect December month to be choppy, but March -- December quarter, but March quarter should ideally -- we should be improving on the gross margins. And once the situation stabilizes means there are no more further hikes in the raw material prices, then the improvement in the gross margin should start coming in.

So from the fourth quarter, can we expect your regular gross margins of around 35% to 37%?

We can definitely target that provided there is no further price cycle, no further changes in the market conditions.

[Operator Instructions] Your next question from the line of Abdulkader Puranwala from Elara Capital.

Sir, you mentioned you have taken a price hike this quarter. Would you be able to quantify the custom of the prices to be taken?

That is difficult to say. That is difficult to say, but if we see at our top 10 products, top 10 products, I can see that if we look at last 5 quarters, that is September '20, 20th quarter until September 21, quarter last 5 quarters. In the top 10, almost for 80% of the products, the prices are maximum in the last 5 quarters as of September '21 quarter. But then the problem was the increase in the raw material prices was even sharper, and that is the reason why the gross contribution shrinked a little.

Sure. And so especially on the inventory. So what is the typical raw material inventory, which we have on at glance, considering now that the raw material prices are up? So are we at the same level this quarter we were a year ago? Or we are trying to conserve and hopeful of the prices coming back? And this [indiscernible] ...

Yes. So yes, actually, the situation is very, very challenging. So more from the prices, we are more worried from the shortages point of view, but we are carrying about somewhere in late 40s in terms of days of RM inventory.

And just a final question, if I may. On the formulation side, export though it is growing, but in the 4 or 5 CC, the domestic is again quite high, I mean, as compared to expose to just 22%. Is there any reason why there is lower traction in core in the last 2 quarters?

For formulation, right?

Yes, sir.

Vishwa, can you answer?

Yes, we sure. So actually, there are 2 reasons. One is in the formulation, we are also slightly dependent on some of our tender orders, which in this particular quarter we had the lower execution of tender orders. And also some of the shipments because of logistical issues, export consignment shipments have been lower. And due to that, export execution was low. And domestic business has been steady and growing, and that's why the percentage on the domestic is higher. However, with more and more registrations coming in and more product list expanding and also markets expanding, we are quite confident over the next couple of quarters, export business will be contributing much higher, the percentage in our overall sales.

And just a final, if I may. So what would be the current capacity utilization on the API and formulation side?

So for the API side, it will be -- for last quarter, it was near about 70%, about that mix. And for the formulations also, Vishwa?

Yes, for formulations, also it will be about 75%, between 70% to 75%.

We have next question from the line of Chirag Dagli from DSP Mutual Fund.

Am I audible?

Yes, you are.

So you mentioned 55% of raw material purchased is imports.

Correct.

How much of this is China, sir, from China?

Around 80% of the imports would be from China.

Okay. Also, you mentioned, so would there be final API products also where you compete with China. And there also, there could be some supply challenges and hence, it'd be easier for you to take price hikes. Is there a set of products which fall into this bucket?

Yes. Harit Bhai, would you like...

Yes. Yes, there are many products. But in antibiotics, we are competing with China. So we are revising the rates, and Chinese companies have revised their rates, and we're also getting better price relation in exports now, starting to get better relation, yes.

Can you quantify, sir, what percentage of...

It depends on the product to product. Basically, the -- see, the situation is so volatile. For example, coal prices, which went to $200 a ton. Now it is -- today, it is $160 and the government -- Chinese government target is to do at $83. So there's so much volatility. So if the power cost also has gone up, then it will come down. So as of now, whatever raw material increase percentage-wise, whatever got increased. So that much increase we have done in sales price. Also, the quarterly cost of utility has gone up. So we are also taking that in account. So overall, we want to have that stable margin basically in there. So we hope that we will be -- in exports, we will be getting better margins whatever contract we have, but beside that, we will try to get better margin.

Understood, sir. And you mentioned about some onetime staff costs for the quarter, which were not -- which would not be recurring. Can you quantify what this number is?

It was slightly less than INR 1 crore.

Okay. So not much basically. Okay. And the last question was you mentioned the capacity utilization in API is 70%. For which products is it lower and for which products is it higher? Just broadly some sense. Some extremes wherever you are seeing dramatically lower utilization.

No, no, there is no such product that is extreme lower utilization. It is more or less across the globe.

Understood. And this should normally scale back to how much over a very short period?

So it should scale back to at least late 70s, 75% to 80%.

We have next question from the line of [ Nilesh Joshi ] from GL Capital.

The question again relates to gross margin reduction on Y-o-Y basis. You alluded that largely, it's because of the raw material price increase and that from China and that, too, because of some power shortage and I mean the cost of power has gone up. But if I remember and what we read from the newspaper and understand is that the real power shortage at the cost of power has happened from August, September. Whereas the supply chain would have forced you to buy this raw material at least 3 months in advance. So am I missing something in the process? So sir, the impact of this power shortage and the price increase should actually happen in Q3 and not in Q2. Am I missing something in the -- in between?

See, what the logic, what you're pointing out is in the sort of way it is correct, but then what happens is there are some prices or some materials which we are also buying locally. But whenever such a thing happens, some news come out, immediately, those prices are revised. So the local purchases, so the wait time is very short.

But that would not be a very high percentage, right? Because to impact 7% on the overall revenue, I mean the local purchase would not be, to that extent, would have impacted. Or the other way to understand, sir, is that, what kind of price increase actually has happened for those intermediates and raw materials? On a Y-o-Y basis, if you can just quantify on a percentage terms, what kind of actual price increase have you seen?

I actually don't have that number. You mean -- but I will try to find out and then release...

I'll just add one thing. Like what has happened this power shortage and outage started in August, and what is happening immediately Indian producers of basic chemicals. To give you an example, [indiscernible], it was available at INR 45, they have increased the price to INR 120. So it's more than 100%. There, I can give you example of at least 10, 15 chemicals, which -- where they made almost 2x price. Although the Chinese shipments were still coming at old price, but the domestic price in China went up. So they immediately increase the price here. Debt to government company also, like caustic play, which was available as say, INR 30 is a kilo. Now it is at INR 60. So it is commodity driven, in all the APIs or basically, these chemicals. So this local chemical products also increased the rate. That has also caused a lot of [ disturbance. ]

So those are not purchased on some monthly basis or those are?

No, there are spot purchase. We have contracts, but [indiscernible] they have done, every time, they revise their price.

I see. I see. During these quarters, whether the product prices have fallen. I mean if I look at last year versus current year. Is there any change downward revision in the product prices, for example?

No. For metformin. Otherwise, no, yes.

So more or less, the product prices have remained the same.

It has gone up intensely.

Yes. To answer your question, the selling prices that you're asking, so September '20, that is the last September quarter, the prices were high, but then the prices had come off in December and March quarter. And then again, in June quarter and September quarter, they went up. And current September quarters, prices are as high or in some cases higher than the September '20 quarter.

Okay. But in that case, sir, what has happened that why your revenue is flat Y-o-Y?

That mainly is because of the fact that, as I was saying, in this volatile situation, it's very difficult to go aggressive in taking orders because if you peak long term -- because in such situation, customer comes in the start asking that you want to peak price for 3 months down the line, and we want to give you order something like that. But then that is risky for us, COVID took it a little slow in this particular situation.

But sir, then what kind of revenue is on spot basis we sell and what could be on a long term, especially on the volume side? I can understand pricing would depend on the formula or something.

Difficult, but I can give you some sense. Like for example, 65% is domestic, 35% is exports, in API at least fro customer. So in that -- in export market, usually, the pending order is 2.5 to 3 months. And in domestic market, some -- there are few customers like [ MNC ] operating in India, they are trying to fix price for 3 months and all. But then there are few B and C types of customers who order like 10, 15 days [indiscernible].

But do they not give us some kind of planning or some kind of advance intimation that -- is it really a spot?

No, no, the organized player, they do. They do. But then there are a lot of kind of formulation phase in the market.

Right. So out of our business, what kind of domestic sales we do through dealers and the traders in this -- or everything is sold directly to the formulator?

Yes. Most of our sales, we pay direct to the formulator. Most of the sales, yes. Except for some companies, where we are not sure of our payment issues yes. Okay.

We have next question from the line of [ Sindra Akarwalo ] from Centrum Broking.

Adhish, could you help us understand, out of the top 10 products, if we look at where are we seeing the demand weakness? And what is the outlook that we have? Any sense that you can provide on these? And just to support that, if we look at the demand scenario, simultaneously, if you can highlight out of the top products, where we see EBITDA level pressure more? And what is the view on that?

EBITDA level pressure?

Which are the products when you're seeing the impact of the higher raw material or the volatility in the market leading to the kind of pressure that we are seeing in our P&L? So if you could relate the demand with the EBITDA and explain to us would be very helpful.

So as far as -- because the raw material prices went across the board, typically, all the products face that question, but especially even the antidiabetic products, a lot of new capacities came up and plus the raw material prices are also going up sharply. So the market was quite volatile. So last 6 months, we have seen that even antidiabetics segment, the profitability had gone down as compared to previous years. But then we are seeing signs of recovery based on the orders which we are having in September month -- which we took in September month and in October. So it's dynamic because the price was changing so drastically. It's difficult to pinpoint. Once the raw material prices stabilizes, and after that in 2 months' time, it will be very much clear that whether the slide in margin is slightly on a permanent basis or it is very temporary. And as far as demand is concerned, there is no specific category where we feel that it's a matter of concern. It is just a matter of time for antibiotics, yes, as I said, the kind of applications in which we operate some infections, respiratory infection and UTI. So those kind of -- for that therapy, the demand was slightly lower because of this second wave.

But apart from that, the new launches also in the cardio segment that we have planned, we haven't created any support? What is the outlook there? And when you're talking only about anti-infective and antidiabetic, what about the other key therapies of roles that we have? What is happening there exactly? And how should we see these things? Because anti-infective when you say even in the base here, we had a complete miss on that segment as such. So where do we see this coming back? And do we have any sense around demand per se?

Yes. So if we compare our half yearly basis, so we have lost mainly in this, as I said, antibiotic and antiprotozoal and mainly the products which are going in the application areas which I highlighted. So it will come back. It will come back. So we are not much worried about that. And once the demand is back, the margins ideally should also be slightly better because now, what happens is then it is like a temporary excess supply for reduced demand. So the margin is also contracting that now.

Sorry. One more on the scenario, the way we have described raw material and are contracting with our suppliers or our buyers. How do you -- do you envisage any strategy to protect ourselves in a better way going ahead? Is there any possible solution or strategy that you guys are working on? Or is it on cars? Or do you think this scenario will continue?

There are 2 things. There is a limit also with how much a formulation company can absorb increased API prices because for them also, it's a precious situation because ultimately, the prices need to be paid by the consumer in the MRP. So once the situation stabilizes, only then we'll be able to really forecast something. But the thing is, in past also, what we have seen that most of the time, such situations are temporary in nature, and ultimately, a new norm is formed. And when that will be formed, then again, the margins will be like before.

So it's not just the margins. I'm trying to understand that from a raw material exposure and the volatility that we are experiencing, do we have any strategy in mind? Like we have said in the past that we are backward integrated in most of the products. But still, we are facing these kind of volatility because of basic solvents and at large, on a basket level inflation in terms of raw material. So do we have any strategy here which can protect us going ahead? Or are you guys working on it? And the supply side, what I mean is when you look at contracting, when you talk about your contracts domestically or an export term, could there be any provisions to take care of such volatility, which will help us to have a more sustainable P&L going forward?

So the thing is there are a few contracts which are cost base. So there, the impact is not much, but then there are a few contracts, which will take like 3 months or 4 months basis. So anyway, the prices are revised for 3 months. But within that 3 months, then there won't be any. It is very difficult for us to go back to the customer and say that we want to increase the price of the existing 3-month contract because that is anyway in short-term nature, so we may not be able to do that. But for a longer contracts, definitely, we have that clause in writing. As far as backward integration, yes, as far as backward integration is concerned, this particular situation, what we are seeing is not structurally nature as such. So if it is like -- so in the past also, whenever we see that there is very high profits to be made on a long-term basis for any particular KSM or something, then we definitely do backward integration. But right now, based on the current scenario, I don't think we have any new plants, though we do have a line of products where we have already done R&D, where we can put the plant if we don't want to do it right now because we want to let the situation stabilize and then make a decision on it.

Any quick update on the USFDA side and on the CapEx, where we are in terms of our expected time lines?

Yes. So the first CapEx is concerned. Right now, the speed is very fast, though the first half of the year was -- had suffered a little because of the 2 factors which I highlighted, something like that is the second wave and because the rainy season, [indiscernible] not being at a little bit. But otherwise, all the projects have started and couple of greenfield sites. We are planning to start the production by the end of next calendar year, that is calendar year 2022. And USFDA side, we are in a very advanced state. We are getting more colleagues than from [indiscernible]. But then the thing is we recently got Australian audit done for the same plant, and that will go through since it will be cleared.

We have next question from the line of Manish Poddar from Nippon India.

Only 2 questions. First one is this COVID situation, I think, has stabilized? And you [indiscernible], how's that?

Yes, Harit Bhai, would you like to...

Okay. Situation has become -- suddenly from China point of view, there are a lot of containers. Because of their power shortage, we are getting shipments on time now, at least timing is concerned. Otherwise, there was a delay of shipments from China. And rates have come down from peak levels, around 20% to 30% correction is there from China point of view. From India, the situation is getting normalized, but there is still delay in some countries where we want to export. But things, I think we'll get streamlined in the next 2 quarters, more or less.

Okay. Could you also talk about retailers' issue about the power supply, let's say, the technology or cost inflation on the power side?

For us?

Yes, for us. You mentioned power in the percent of sales showing 4% to 5% of sales, right?

Power and fuel has gone up because of the coal. Is that what you're asking for the quarter?

So like incremental. For the quarter, [indiscernible] or the incremental?

So there was a rate variance, which they are a 50% hike in the coal prices for the last quarter. So that is the reason why the power and fuel segment has gone up for us. But as soon as these prices come up, then it will again go down.

Okay. And just one last one. So could you probably talk about the supplies from China, both in terms of such a raw material and, let's say, competitive intensity in terms of finished products? How is that?

Yes. So the thing is in a lot of therapies, a lot of therapies, especially antibiotic therapy. And in some cases, antiprotozoal also, in some cases. We do compete with China as far as our finished product is concerned. So there definitely, we'll get benefit. And as far as the raw material, as you said, that 55% of our total purchase is around imports. And of that, around 80% comes from China. So their situation means still it's very volatile. So we'll to know in a month or to how it stabilizes.

We have next question from the line of Rashmi Sancheti from InCred Capital.

Just to get a better sense again on gross margin. Usually, our revenues majorly come from the domestic business. And what I understand that the price hikes, the transferring the price to the customer is a bit faster than the export business. So is it something that we have already started doing that? Or we expect that even the price hike on the product, which will be transferred to the customer, would be taken place in this fourth quarter?

So as you are saying that we are taking price hike and -- but the problem was the back-to-back RM was also increasing. So whatever hike you took for, say, for the month of April, May, June, that is core. But then again, the RN prices kept on increasing until the month of September. So it is a continuous process. Definitely, we are getting better realization now for the product, for the finished products. But we need to see how it pans out, how much you are able to pass and how much further price hikes will take place at the input side or whether they will taper off. So that is it.

Also, we have taken that for export contract.

. For export contracts, the constructs are usually for 2.5 to 3 months. That means pending orders. So there will always be a lag of 2.5 for increasing the prices.

And how many months inventory usually we keep it because of the segment, which is coming from the China?

Which inventory, raw material inventory?

Yes, raw material inventory.

Raw material inventory, it is in late [indiscernible] in terms of days overall.

Sorry. I didn't hear it. Raw material inventory [indiscernible]?

It is around 45 to 60 days.

45 to 60. And we normally do it on fee per basis?

Yes.

Okay. So if we are doing it on a fee per basis, do you feel that whatever inventory that we are focusing, say, late second -- I mean late second quarter as well as in the beginning of the third quarter will also have an impact on fourth quarter, the gross funds?

Yes. Typically, yes, but then we are also taking out price hikes so.

It should offset that?

To some extent, it should offset that.

Okay. And what was the reason behind the growth in the intermediate and bulk? It is also because there also we have lost volume growth? The fact that if you combined with your specialty chemicals of intermediates and bulk, I think there we have shown a drastic decline in sales on Y-o-Y basis.

So if we look at our half yearly performing, fairly number. So in that, the only conflict looks to be like this antibiotics, couple of antibiotics and antiprotozoal products, frankly speaking. The rest of the products are positive or flat.

No, what I'm trying to understand, I'm not talking about the API segment. I'm talking about the intermediate as well as specialty chemicals, [indiscernible] in that presentation.

No, I'm talking from a half yearly basis. So quarterly basis, I'm not talking about because sometimes the orders flow from one quarter to another quarter, so that can happen. But on a half yearly basis, there is no decline.

Okay. I got that. And finally, on the [indiscernible] plant, have we commercialized that plant? Or...

[ Lifting ], yes. Yes, since we recently commissioned and few commercial batches also in that plant, so it got commissioned recently a month back. And we have already taken validation back this for the new bidding. So a couple of liftings. So it will be a new launch for us.

And lastly, last one question on the export side in Formulation business. You mentioned that shipments and exiting were delayed and all have lost the sales in the Export Foundation business. So is it something that this is just before and going to come back in fourth quarter or the sales which is [ loss ] is not going to come back? On the export formulation side?

It will come back. I mean the only thing is the orders are delayed. The prices in delayed, order and the prices are delayed. So it will flow into the next quarter.

Okay. The second quarter is expected to be better in terms of export formulation business?

Yes. As of now, it's -- yes. It's slightly better than quarter [indiscernible].

We have next question from the line of Chirag Dagli from DSP Mutual Fund.

Just a quick one. You said EBITDA margin should be back to normal levels in 2 quarters. What is a normal level?

So we are targeting, in short term, around 17% to 18% of EBITDA money.

But that is what you're targeting long term also, Adhish.

When I say long term, long term, once we launch all these product, greenfield products also and the utilization goes up, then ideally it should go up.

Understood. So you are saying that fourth quarter we will start seeing this 17%?

For next 1 or 2 years, yes. We are keeping a target of 17% to 18%.

No, no. Adhish, in the initial comment you made, you said that EBITDA margin should be back to normal levels in the next couple of quarters, you mentioned. And then through the quarter, you've been talking about price hikes, et cetera. So in the fourth quarter, is that what you're guiding to that fourth quarter one, we'll start seeing a 17% to 18% margin. That is the question.

Yes. So if no further changes in the market conditions, then we should start reaching that. Correct.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Adhish Patil for closing comments. Over to you, sir.

Okay. Thank you. So thank you, everyone, for joining us on this call, please reach out to us to our IR consultants, strategic growth advisers or us exactly should you have any further queries and wish you a very happy and safe Diwali. We can now close the call. Thank you.