Aarti Drugs Limited (524348) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aarti Drugs Limited Q3 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Adhish Patil, CFO and COO. Thank you, and over to you.

Thank you. Good afternoon, everyone. Hope everyone is doing well. On behalf of Aarti Drugs Limited, I extend a warm welcome to everyone joining us today to discuss our financial results for quarter and 9 months ended 31st December 2023. On this call, we are joined by Mr. Harshit Savla, Joint Managing Director; Mr. Harit Shah, Whole Time Director of Aarti Drugs Limited and Mr. Vishwa Savla, Managing Director of Pinnacle Life Science Private Limited; and SGA, our Investor Relations adviser. I hope everyone had an opportunity to go through the financial results, press release and investor presentation, which we have uploaded on the stock exchange and on our company website. Let me begin by sharing an update on the ongoing capital investments. The capital expenditure incurred during first 9 months of FY '24 amounted to approximately INR 162 crores, and the targeted total CapEx for the entire fiscal year shall remain between around INR 250 crores to INR 300 crores. Greenfield projects and Gujarat Sayakha for specialty chemicals got slightly delayed and is expected to be completed by March or April of this calendar year. And Tarapur project on dermatology product is on track and in the final stages of completion and most probably will be starting by the end of this month itself. Operational commencement of dermatology products, as said, is anticipated by the end of January of current calendar year. This shall lead to operating leverage from next fiscal year once these projects are commissioned and capacity utilization is ramped up. Now coming to the financial performance. In Q3 FY '24, our revenue stood at INR 608 crores as against INR 665 crores, a decline of 8.6%, mainly on the account of negative rate variance. EBITDA stood at INR 72 crores, with EBITDA margins at 11.8% improved by 100 basis points year-on-year. PAT stood at INR 37 crores and PAT margins at 6.1%, improved by 60 basis points. For 9 months FY '24, our revenues stood around at INR 1,912 crores as against INR 1,975 crores, a decline of 3.2%. EBITDA stood at INR 234 crores as against INR 213 crores. EBITDA margin stood at 12.2%, improved by 140 basis points. PAT stood at INR 124 crores and PAT margin at 6.5%, improved by 90 basis points. Now coming to segmental performance. In the quarter gone by, in spite of the visible geopolitical uncertainties and macroeconomic volatility, the company has demonstrated resilience by achieving around 8.4% year-on-year volume growth in API amidst lower realizations due to negative rate variance, which have impacted revenues in Q3 FY '24. Nevertheless, it is noteworthy that there has been improvement in gross margin attributed to stabilization of input costs for the majority of our products and operational efficiencies. We anticipate gross margins to improve further at current selling prices and also on the account of increased proportion in the revenue contribution from export sales of the standalone business which was down in Q3 FY '24. Recently, the challenges encountered in certain export regions during FY '24 attributed to heightened interest rates, dollar shortages, destocking and conservative ordering has not gone unnoticed. However, we are cautiously optimistic about the forthcoming turnaround in our export business in near future on the back of the anticipated interest rate reduction and the end of destocking cycle. Within the API business, the antibiotic therapeutic category contributed around 48%, antidiabetic around 14%, antiprotozoal around 16%, anti-inflammatory around 10%, antifungal around 9% and the rest contributed around 4% to the total API sales for Q3 FY '24. Formulation segment's revenues stood at INR 79.3 crores for the quarter, a growth of 58.7% year-on-year, with exports contribution of around 58%. In 9 months FY '24, the revenue stood at INR 257 crores with growth of 18.2% year-on-year. Specialty chemical industry, while India's domestic chemicals demand is expected to stay strong in 2024, price expectations are not very robust as the market struggles to find the right balance amid the new production capacities coming onstream in the country and in China, changing trade flows, weak global demand and volatile upstream prices. Coming to standalone performance for the quarter. The revenue for Q3 FY '24 stood at INR 540 crores as against INR 627 crores, a decline of 13.8% year-on-year. Standalone business contributed around 87% to the consolidated revenue for the quarter. Around 67% of these revenues came from the domestic market and 33% from the export market for Q3 FY '24. Domestic revenue declined by around 4.5%, while exports grew by around 29% year-on-year for Q3 FY '24. Although on a blended basis, volumes grew by approximately 9%, mainly because of fantastic volume growth in the domestic market. As we navigate through short-term challenges, our commitment to overcome these obstacles and achieving long-term success remains unwavering. Our journey may be characterized by uncertainties since past couple of years, but it is equally defined by our collective ability to adapt, innovate and emerge stronger. Today, united and determined, the company shall continue to spread the success story. I reiterate on our positive outlook for both our API and non-API business, our ongoing projects, coupled with optimized capabilities will serve as the cornerstone of steady growth in the ensuing years. Importantly, we anticipate continued growth in exports within the formulation business, which shall be an important growth driver for the bottom line in coming years. Also, Board of Directors, in the Board meeting held on 24th January 2024, recommended an interim dividend payout of INR 1 per share. With this, we can now begin question-and-answer session. Thank you.

[Operator Instructions] We have our first question from the line of Pramod Dangi from Unifi Investment Management.

Yes, I would like to know the trade component of the exports as well as domestic. How much of it is supplied to trade and how much of it to the ultimate formulators?

Okay. Harit bhai, would you like to answer this question?

Most of our sales are directly to the consumer for exports, yes.

Okay. So given that, so...

Sir, we can't hear you clearly. Can you use your handset mode?

Yes. So in the opening remarks, you had mentioned that there is destocking and interest rates causing some pressure so to the ultimate formulators, is the interest rates a big variant?

Major problem was destocking also because of during the COVID times, people have bought a lot of API intermediates and finished formulation stocks were at peak levels. And what also is happening is that most of the countries have local tenders for their social health and due to dollar issue and interest -- high interest rates, they are not coming up with new tenders although the stock levels are now coming down for them also.

Okay. And the new CapEx that we have planned, there are some new products also. So the customer validation would happen after the commercial production starts? Or has that already been happened? So I wanted to understand how long it will take for the new capacities of new products to come into -- where the commercial sales can start.

Yes. So the customer validation for dermatology products have already been started. We spoke with all the important customers in the domestic market. So that has already been done. As far as the specialty spec chem project and intermediate project of concern of Sayakha, majority of the production will be consumed for our own -- more than 50% would be self-consumption for one of our API. And the rest of the you can say not exactly byproducts, but the side products of that chain would be sold outside. And there also, we have a -- means we know few customers where we have already spoken to them regarding the upcoming capacities.

Okay. So you expect the commercial -- I mean, sales to start in the first quarter of the operation -- I mean the facilities being operational?

Yes. To some extent, definitely, yes.

We have our next question from the line of [ Romil from Chelsea Investments ].

Just wanted to know, like, can you throw some light on the details of our new project finishing up at Tarapur and Sayakha? What will be its capacity and how will the utilization level be phase-wise once operational and expected revenue?

Yes. So the Sayakha one, as I said, is mainly for captive consumption. But if you talk about the dermatology products, our -- the final aim of the capacity is around 2,000 tonnes per month. However, we'll be ramping up that capacity one by one and we will start -- but that ramp-up should happen within 6, 7 months. And at the same time, given the customer -- as per the previous question, when the customers will start procuring step by step, it won't happen right in the beginning. So probably for the dermatology product, we can expect some approximately 30%, 40% utilization in the first year.

Okay. And what price levels for API products are favorable going forward?

So the current price levels are very favorable in terms of overall demand of the API because they are almost back to the pre-COVID levels, historical levels of pre-COVID. So we don't see the prices of raw materials and APIs going down further. But as you correctly pointed out, in September 2023, that is the previous quarter, the sales -- selling prices have further fallen down by around 7% on aggregate basis. But going forward, we feel that further fall will definitely curtail.

[Operator Instructions] We'll take the next question from the line of [ Parth Vasani from KK Advisors ]. We can't hear you clearly [ Parth ].

Am I audible?

Can you speak a bit louder, please?

Am I audible now?

Yes, please go ahead.

Sir, I had 2 questions. So first one was on the margin front. So due to the price cut and weak demand, so how our margins are impacted? And what is the scope for further improvement if you can just throw some light on that.

Yes. So as you can see, our gross margins have actually improved on year-on-year basis. Quarter-on-quarter basis, it has very slightly improved by around 15, 20 basis points. But what we expect was that the margin should have grown -- the gross margin should have grown even more. What happens in the API business -- API and spec chem business is that for every product -- it is product specific, for every product, there is certain markup in terms of absolute number per kg. So what we have seen in the last quarter, even if we compare to the historical numbers of that markup, that markup has not been achieved and that was mainly because of the volatile scenario, the falling trend which continued in December quarter. So even if we reach that fixed markup, our margin should definitely improve by around a couple of percent going forward in terms of gross margin and that will reflect in EBITDA margin as well.

Okay. Okay. That was helpful. Sir, second question was on the side of formulation segment, which has done well this quarter. So just wanted to know, are there any plans for increasing its contribution in our revenue or something like that?

Vishwa, can you answer this question?

Yes, sure. So yes, formulation business under the name of Pinnacle is growing due to primarily as we are transitioning from a contract manufacturing base model to more of own exports -- own branded and branded generic exports. So your -- the contribution both in terms of the revenues as well as margins, we see good chances of increase. As we are opening up additional markets, we have a number of new product launches and new market launches planned over the next 24 months as well as there is a capacity enhancement brownfield project ongoing. So post April, we expect to have additional capacities of about 30% as well as we've set up a new manufacturing plant dedicated for oral oncology anticancer molecules, which has just begun, we are expecting U.S. FDA and EU audits to happen in 2024 calendar year. So with those approvals coming and product launches and capacity enhancement, we see high growth over the next few years for the formulation segment.

[Operator Instructions] We have a question from the line of [ Pooja Mehta from JC Securities ].

So I have a couple of questions. So first question is so with -- since our largest export market is Latin America and our standalone exports revenue has declined substantially. So what are the challenges we are facing and how do we see it going ahead?

Harit bhai, would you like to answer the question?

Yes, of course. See, we are -- in Latin America has suffered a lot. We are -- due to -- major problems were dollars, interest rates and dollar shortage and third was inventory destocking. So if more -- we expect maybe another one point after second quarter of this accounting -- this year 2024, we expect demand to come up again basically. There's a lot of destocking has started almost getting over. We feel that way.

Okay. So we see positive growth ahead.

Yes.

Okay. Okay. And also one more question. So currently, we are facing freight cost rise due to supply chain issues in Red Sea or any other challenges?

No, as of now, we don't have any other challenges except we buy some raw materials from European sources. There, we are facing some delays. But for -- as far as we -- because of Red Sea issue, but as of now, we are okay with the inventories. So we don't have any issue on the production.

Okay. So freight cost is fine, right?

Yes, yes, freight costs have gone up, but then the -- most of our export shipments are -- 50% of our export shipments are FOB. So that doesn't affect us. And otherwise, we increase -- we get revised rates from the customers.

We have our next question from the line of Pramod Dangi from Unifi Investment Management.

So there are 2 things. You just commented to the previous question, that last quarter, we were down 7%. This quarter, again we are down on top line, the volume is good. But in the March 2020, we were sitting on a huge high base. So what kind of pricing impact we see going forward for the quarter-on-quarter or year-on-year from March to March because the pricing is already there. And you are saying that there will be no more negative growth. So what kind of volume we are expecting?

See, as far as the pricing is concerned, we feel that the negative rate variance should stop at least it should reduce significantly because what we -- it might be there a little bit because what we observed last time was by February 2023, last year that is, the raw material prices stopped correcting. But it was still, I think February, the raw material prices kept on going down. So a slight impact might be seen in March, but it won't be that sharp as the December quarter on a year-on-year basis.

Okay. Okay. And I believe that whatever we saw in the September quarter, the inventory impact is already there behind us, right, in terms of raw material costs?

Typically, if you consider raw material, WIP and FG all put together, almost 90 to 100 days of stock is there in the entire value chain. So -- and what we have seen is that our December selling prices were almost on aggregate, which is 7% lower than the September selling prices on the account of falling RM. So probably now they have stabilized in last quarter, but then it -- little bit of it might be consumed and sold in the first half of March quarter.

Okay, great. And lastly, if I may. Any update on the American under the FDA regulations, we were waiting for the inspection to happen.

Yes, actually the thing is we had received the communication that our file was already passed to the ORA department, that is the inspection department, from the -- all the responses were reviewed and they were found adequate and they passed on our file to the inspection department. Now the thing is most of the time, the inspections are [ circle ] inspections. So probably, we might take one follow-up from the local inspection department that our inspection audit has been pending. So if you can hurry that up. So we might do a follow-up in January.

[Operator Instructions] We have our next question from the line of an Skand Chaturvedi from Enarr Capital.

I just wanted to know about the plans for receiving a debt-free status on roadmap. Can you please highlight the roadmap and timeline for reducing and eliminating the debt from the...

I'm sorry, sir, you're not very clear. Can you use your handset mode, please?

Yes. Can you hear me?

Can you speak, please?

Yes. I just wanted to inquire about the plans for achieving the debt-free status of the company. Could you please highlight the roadmap towards reducing and eliminating the debt?

So our current debt-to-equity ratio on the consolidated basis is 0.47. So, historically, we -- historically, almost 25 years. I'm talking about 5 to 7 years before today, before 2024. We had run the company around 1.4x to 1.5x debt. So we have reduced that sharply to 0.47x in spite of the fact that we have been doing a lot of CapEx for the future growth. So in spite of that, we were able to reduce our debt-to-equity to 0.47x. So the thing is once now the projects gets operationalized, to reduce debt won't be an issue for us, but the problem is if we reduce debt too much, our ROE will also go down. And frankly speaking, we are very much comfortable to run a debt of around 0.5x to 0.7x in terms of debt-to-equity ratio. We are very much comfortable doing that. So probably we are not looking for a debt-free company but yes, definitely, we will keep debt to the minimum level so that it won't hamper -- means it won't create any cash crunch for the company any time in the near future. And I would also like to highlight the fact that we have also done buyback in the beginning of this year, along with the CapEx, we have also done the buyback. And in spite of all these cash outflows and shareholder payouts, our debt to equity is still 0.47x as of now.

[Operator Instructions] The next question is from the line of Hrishali Shah from Unifi Investment Management.

Congratulations on the set of numbers. A year back, there was a mention of increasing the contribution of specialty chemical and intermediaries to 20% to 25%. My question is on that front, what kind of chemistries or what kind of products are we targeting? And what is the roadmap going ahead? That is what I wanted to ask.

Harit bhai, would you like to answer about the product line?

Yes. So for specialty chemicals, we are coming out with methylamine project, which we are expecting to be commissioned somewhere in March or April. So there we are going to make dimethylamine, monomethylamine and trimethylamine. Then 50% of their consumption is within the group and 50% we need to sell outside, the outside market. The second project is of salicylic acid. We are planning to make 2,000 tonnes per month eventually, and we are starting the production somewhere in first week of next month or -- first week of next month, February. And we will start gradually. And at this moment, we'll run at -- and as Adhish mentioned, first year, our capacity utilization will be 30% to 40% for that. So both projects goes to online, then our Specialty Chemicals business value will go up like that's what -- yes.

[Operator Instructions] The next question is from the line of [ Ruchi Gupta from Value Consultancy ].

Can you please throw some light on the Specialty Chemicals segment? How do we see FY '25 growing? Also we are coming up new plants in Gujarat, what are our plans regarding that?

Yes. So as Harit bhai was mentioning that Sayakha plant will be operational by April, mostly by April, May of this current calendar year. And we have chloro-sulfonation product line as well, those capacities are there in Tarapur, and that will also be ramped up. Then we are coming up with salicylic acid as well, which will be a dermatology product. So overall, our spec chem business, we can see a very good growth, means we can easily double it once all these production line, production capacities come up. For the next financial year, overall, it's slightly difficult to say as of now, but we'll definitely target a handsome growth of around 30% to 40%. But it all depends on the rate variation. Hopefully, the further negative rate variation won't take place. If that is there, we should be able to achieve very high double-digit growth in the spec chem segment.

Okay. Also on raw material prices plant, how were the prices for top raw materials in quarter 3 versus previous quarters and your views on future likely prices to be?

Harit bhai, would you like to answer this?

Also on raw material prices front, how were the prices for our top raw materials in Q3 versus previous quarters and your views on future likely prices to be?

Yes. See, most of our major raw materials are less than pre-COVID levels, and we don't expect further price going down. Price from quarter 2 to quarter 3, of course, definitely prices have come down of raw materials. Now prices are more or less stabilized, and we don't expect further price reduction in these chemicals intermediates. Yes.

[Operator Instructions] We have our next question from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand for next 2 to 3 years with all this CapEx coming in and new sources of revenue coming in, sir, what kind of top line and bottom line growth do we expect going forward?

Yes. So definitely, we will target a volume growth of around 10% to 15% for coming years. We are taking into account that the newer projects will typically have some troubleshooting problems which we'll overcome soon. And then there will be some gestation period as well in terms of demand to pick up, means getting the product approvals from various customers. So we are speaking of 10% to 15%, but that will continue in the further years as well because overall, we plan to achieve around 4,000 to 4,500 for the standalone company from all these new capacities which are coming up.

And sir, what kind of margins do we see from this incremental revenue coming in from the Specialty Chemical as well as the API business?

Yes. So typically from the market, what we have seen for these products, the EBITDA level margins are quite high that way upwards of 18%, 20%. But the thing is, when we come with the newer capacity, definitely, we expect some bit of price loss. So initially, we probably around 15%, 16% EBITDA margin should be fairly achievable from these products is what we believe.

Okay. And sir, do we have some offtakers for the salicylic acid as well as the methylamine project?

Sorry?

Sir, do we have some offtakers for the salicylic acid as well as the methylamine project that we are starting...

You're asking about offtake?

Yes, sir.

So the thing is salicylic acid plant will start in next week. So we have already spoken with customers and they're ready to buy from us because we'll be the only manufacturer after China for this product for Indian market. So that still should pick up pretty fast and the Sayakha one, as Harit bhai was telling, that around more than 50% is a captive consumption. So that we will immediately start consuming.

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

I joined call bit late, so maybe you could just repeat it. I just wanted to understand this price continue to fall in the API segment. Is it just partly to do with the lower raw material cost and so subsequently it is passing on the benefit to the customers? Or there is something more to this? And how long will this happen?

Tushar, can you please mute your line? There's some background disturbance on your line.

Sure.

Yes, so the main factor for the selling prices of APIs to go down in December quarter was related to the falling raw material prices. But having said that, I would also like to point out that last quarter, our exports did not do well. And that is the -- and in export market, typically, you get higher with gross contribution and higher margins because of the requirement of higher regulatory approvals. So because of that, since the proportion of those sales these higher selling prices that went down, we had double impact not only because of raw materials selling prices went down, but also on an average level because the export component was lesser in December quarter, hence, it went down a little further. So on that account, we feel that we should be able to regain some bit of margins in terms of gross contribution.

But on the pricing front, are you witnessing further reduction in the raw material prices?

So that question, Harit bhai answered that as compared to September quarter, we saw some reduction in December quarter. But now the prices have stabilized. So now we are not forcing further reduction because even the selling prices of APIs and even the raw material prices, they are almost to the level of pre-COVID levels -- pre-COVID historic levels. So we don't foresee that they can go down further considering the fact that over the last 4 years, seeing the inflationary -- other inflationary factors are also there. So we don't foresee the raw material prices to go down further. Having said that, we do carry the raw material, WIP and finished goods all put together, we do carry around 90 to 100 days of inventory in pipeline. So a little bit of that inventory will be sold in the first half of March quarter as well. So that might impact the performance of March quarter to some extent.

Understood. And just on the inventory in the system, not at the company level but at the industry level, do you think that the inventory for our core products are largely now stabilized and at a lower level, and so that will not further drag the prices as far as our products are concerned?

Yes. That is what we've seen, especially in export market because as far as domestic market was concerned, we had done a fantastic volume growth of around 20% year-on-year for December quarter. So domestic demand point of view, there is no issues. The only issue lies with the export market. So the destocking, and we believe that now it should be done. So we hope that the demand should pick up for the export market as well in the coming quarters.

[Operator Instructions] We have our next question from the line of Hrishali Shah from Unifi Investment Management.

My question is that there is some seasonality that we can see in case of formulation segment in both domestic as well as export front. So is it expected to stabilize further as we grow or looking at Y-o-Y numbers is a better method for it?

So as far as seasonality is concerned, in our products, our antibiotic, antidiarrheal, these 2 segments, historically, what we have seen, the December quarter is the leanest quarter and March, June and September quarters are usually better in terms of these therapeutic categories. But the rest of the categories like antidiabetic and cardioprotectant, even anti-inflammatory to some extent, we don't see much of seasonality. But having said that, our antibiotic does contribute around 44% to the total API sales and API sales will be roughly somewhere around 78% to 80% of the consol sales.

I guess I was not clear. My question was on the formulation front that we see certain seasonality there that H1 is quite good whereas H2 is lean.

Vishwa, would you like to answer this?

Yes, yes, sure. So going forward, at least on the -- more on the international markets, we don't think the formulation business will be subject to much of seasonality change. However, what is happening currently since the business is very new in many of the international markets, we are having some new product launches, some new markets opening up which is what is causing majority of the changes. But going ahead, we don't foresee too much of seasonality impact on the formulation business. Of course, on the domestic CMO front, there will be a little -- a slight impact during the winter, the seasonal, which is lower. But in general, in totality, we don't think the business would suffer a lot or would change a lot due to seasonality impact.

And can you please throw some more light on domestic CMO front, which you just mentioned right now?

Yes. So domestic CMO has been our core business in Pinnacle in the Formulation segment since we started. However, the objective has been that over the last couple of years, we have been increasing our sales and production contribution more towards international markets, more towards our own branded generics. So as of now about -- depending quarter-to-quarter, about 40% to 50% of our business is still coming from the domestic CMO. And with our volume expansions going on, we plan to maintain that at around 40%. And in the domestic CMO segment, we cater to most of the leading Indian MNCs and primarily on products where we have backward integration on the API, we supply those products to them.

[Operator Instructions] We have a question from the line of Gagan Thareja from ASK Investment Managers.

Am I audible?

Sir, not very loud.

Is this better? Can you hear me now?

Not really. Can you speak now, please?

Yes.

Yes. Please go ahead.

Okay. So the first question is on the working capital. If you could give some idea of how inventory and receivable days compare at the close of this quarter versus a year ago?

Yes. So if you see -- and if you compare with the March 2023 number, the December 2023 numbers look much better in terms of data cycles. In fact, we were able to reduce data cycle...

Would it be possible to give it?

As compared December '23 as compared to March '23?

No. I'm asking December '23 compared to December '22, if it's possible.

December '22, exact number I don't have right now. March '23, I have. March numbers were somewhere around 100 days, but that has come down to 90 days for the December 2023. I don't have. Maybe offline, I can give you those numbers.

All right. All right. And would year-to-date, the company has taken some sort of inventory losses because you would have been holding input inventories at high cost and they have continuously dropped through the year. And if so, can you enumerate the value of the inventory losses that you would have taken?

So the thing is, this time, we haven't taken any inventory losses because the domestic sale was high. So everything has been sold, nothing is in stock which is at a level which we have valued over the market. So that is not there. So that is why we haven't taken any inventory losses as of December end. But most of the product got sold. So automatically, it came in the raw material pricing.

No, I understand, but would there not have been any mark-to-market sort of impact of...

No, that did not happen for December end.

Okay. But for the first half of the year, if there was any...

No, the thing is typically what happens generally if we are holding to a lot of stock, then such things happen in terms of marking down. December quarter, frankly speaking, our volumes were up by 8.5% to 9%. So that way, we were able to sell the product and that is the reason why it did not come in inventory losses, but actually it came the gross contribution itself of December quarter.

Okay, fine. So I mean as you head into FY '25, you've said that even from September to December, your prices have gone down, right? So if prices stabilize here on, year-on-year, at least for the first 2, 3 quarters of the next financial year also, your pricing would be lower. And if you have volume growth of 10% to 15%, would that therefore mean that value growth would be lower than that? Because the pricing, if it maintains at current levels would be lower than what you have seen in the first half or first 9 months of this year.

I understand what you're saying. So as you currently pointed out the first 2 quarters, the June quarter and September quarter, prices were much higher than what the prices are today, what we have seen in December quarter. Definitely for the next year, first 2 quarters, can see some bit of negative price variation. But then we feel that -- so it won't be that high as we are seeing right now year-on-year basis, but our volumes should go up further because the new capacities will be added for the next financial year. So that should also take care of some bit of volume growth.

So just to get some idea because you talk of a substantial amount of new capacity coming onboard. First thing is, when you monetize it fully, what's the revenue potential of these assets that are getting commissioned today or in the near future? And over the next year, where do you see utilizations broadly on these assets? And thirdly, there will be fixed costs associated with these assets, which as and when you commission, then will come into the OpEx and obviously, till the time you hit a reasonable utilization, those costs will impact margins, if I understand it correctly. So while at optimum utilization, they might benefit margins to start with they actually impact margins. So if you could give your assessment of these 3 factors: One, full potential to what could be utilization? Three, what could be the margin trajectory, starting at optimal levels?

Okay. So the new CapEx, what we are planning, what will come online in the next couple of months, this seems that at current price levels, the incremental revenue potential from these new projects would be anywhere between INR 1,000 crores to INR 1,200 crores. So -- and as you correctly -- but the thing is which -- what happens is that as we are scaling up the production, the workforce and everything which is added, it's typically on incremental basis. It won't create that big of a drag. I mean first year, even at, I would say, 30% utilization, we would be able to make profits out of it, not that we will make losses.

So INR 1,200 crores optimal...

At the optimal level, when you go -- you see current market -- as per the current market trend, those products are fetching upwards of -- no, no. As per the current market trend, those products are fetching EBITDA margins upwards of 18% to 20%. But the thing is once the capacity is launched, there might be some bit of price loss. So -- but still, we feel that 15% to 16% should be easily achievable from the near term.

So 15% to 16% is achievable at what utilization level is what I'm trying to understand.

I think beyond 50%, we should be able to achieve that.

Okay. And for FY '25, you are aspiring for what sort of utilization of this...?

'25 we were thinking of around 30%, 40%.

30%, 40%. So basically, what you're saying is that incrementally the new capacity should give you a turnover of INR 400-odd crores in the coming year. And while optimal margins could be 15%, 16%. When you hit that utilization, first of all, am I correct in saying INR 400 crores? Or are you saying that you will exit the year at 30% or 40% utilization starting at zero and therefore blended utilization will be more like 15%, 20%?

Correct. Correct. So we will be exiting at that level. The initial -- first and second quarter, there might be some commercial level trading volume.

So basically, 15% utilization is what you will have for this, and that would mean roughly INR 170 crores, INR 180 crores of turnover.

We'll try more, no doubt we'll try more because the captive consumption, that will immediately go up right from day one.

I get your point. But if the incremental turnover from this asset in the first year is going to be around INR 170 crores, 180 crores, what could be the incremental EBITDA you could generate from that? I presume it would be less than 15% and probably more like 10%, 12% to start with, and then it moves up as you sort of exit the year, perhaps you'll be absorbing your costs better and there, the quarterly run rates might be higher in margins. But for the full of next year, the new facility margins would probably be more closer to what you are doing right now, would that be a reasonable assessment?

So EBITDA -- see, the main drag factor would be depreciation and the interest. So at the EBITDA level, probably we will still be able to make better margins than 10%, 12%. But as you said, at the PBT level, there might be a little bit of drag because of depreciation and interest.

All right. All right. And on the current capacity that you have, incrementally, how much more can that add? I mean when you say -- when you talk of 10% to 15% volume growth, you're talking of that coming entirely from your existing capacity or you're taking into consideration the new capacity as well?

That is including the new capacity as well.

So the existing capacity would give you how much in terms of additional volume growth?

You can target somewhere between 5% to 10%.

And would you be in a position to do better gross margins on the existing capacities going into the next year?

Yes, that is what we believe from the day one.

Of what order could the gross margin be higher by?

We feel that, frankly speaking, if we restore back to that markup -- basic markup beyond over the RMC costs, it can put our existing margin profile by a couple of percent for sure.

Okay. While domestic, this year has been -- or this quarter has been good in volume growth. The pricing is still down. But exports volume itself is down.

Domestic pricing was almost down by around 24% whereas the volumes were up by more than -- a little more than 20%.

All right. I mean exports, how was it? Volume and value?

Exports, it was both were bad. In fact, the rate variation was around, say, 15% -- minus 15% and even the volumes were around 14.5% and negative.

This is for your API business or [ across ]?

This is for the API business only -- it is for the standalone business rather, but the formulation business did really well. We had -- around 58% of our revenues in formulation came from exports.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to management for closing comments. Over to you, sir. Mr. Patil?

So thank you, everyone, for joining us today on this earnings call. We appreciate your interest in Aarti Drugs Limited. If you have any further queries, please contact our Investor Relations adviser, SGA or us directly. Thank you, and a happy Republic Day to all in advance.

Thank you, sir. On behalf of Aarti Drugs Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.