Aarti Pharmalabs Limited (AARTIPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aarti Pharmalabs Limited Q4 and FY 2024 Earnings Conference Call hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We manage 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 fourth quarter and financial year ending 2024. 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 that could result, 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 the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us today Mr. Rashesh Gogri, Chairman; Ms. Hetal Gogri Gala, Vice Chairperson and Managing Director; Mr. Piyush Lakhani, Chief Financial Officer. Without any further delay, I request Mr. Gogri to start with his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone. I welcome all the analysts and investors to this earnings call on the performance of Aarti Pharmalabs for the quarter and the year ended March 31, 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 in 3 distinct areas within the pharmaceutical industry. One, Xanthine derivatives; two, API and Intermediates; and three, CDMO/CMO. The Xanthine derivative segment contributed to 44% of the turnover in Q4. As you know, we have the largest manufacturing facility in India for the Xanthine derivatives. In order to fortify our position, we are undertaking brownfield capacity -- brownfield capacity expansion and working diligently towards debottlenecking of our plants. The API Intermediate business contributed 37.6 percentage of the turnover in Q4. And out of our -- out of the API and Intermediates turnover, the regulated market contributed 54%, and the rest of the world contributed 34% and the balance 12% was from the nonregulated market. The regulated business continues to remain our area of focus while offering higher profitability and stability to our business. Strategically, we are present in lifestyle drug market, which is low high-value business. This category includes antihypertensives, antidiabetic steroids and oncology drugs, which are sticky in nature. We offer real advantage to the customer. That is one, lower cost due to backward integration and, two, minimum dependence on China for KSM. These advantages position us as a favorable partner among global customers. Third segment, CDMO/CMO business contributed 18.4% of the turnover in Q4 in CDMO/CMO space. We are presently working with 16 customers on 40 projects. Of which 21 projects are commercial and 19 are under different stages of development at customer end. This highlights our presence in late-phase projects. We are also working on expanding existing chemistry capabilities of peptides and oligo, nucleotides, ADC linkers, et cetera. In CDMO/CMO, our USP is strong expertise in commercial scale up manufacturing which enables us to form long-term supply partnership with our customers. Now I will share the key financial highlights. Consolidated financials, I'm pleased to announce that Q4 FY '24, we have recorded the highest EBITDA and the net profit till date. So the Q4 FY '24, the consolidated EBITDA from the operations stood at INR 117.5 crores as compared to INR 95.7 crores in the previous quarter. That is an increase of 23% Q-o-Q. And on a Y-o-Y basis, the consolidated EBITDA grew by 47%. The consolidated tax for the quarter was INR 65.3 crores, which was higher by 24% Q-o-Q and 52% Y-o-Y. For the entire year, FY '24, the consolidated EBITDA stood at INR 386 crores. This was 13% higher Y-o-Y. The consolidated tax for the FY '24 was higher by 12%, INR 217 crores, resulting in EPS of INR [ 22.9 ]. The consolidated net debt-to-equity as on 31st March '24 was 0.14%. Stand-alone financials for Q4 FY '24, the stand-alone EBITDA was INR 107.3 crores. This was higher by 22% Q-o-Q and 40% Y-o-Y. Stand-alone PAT for the quarter was INR 63 crores, which was 31% higher Q-o-Q and 58% higher Y-o-Y. For this entire year, '24, the stand-alone EBITDA stood at INR 346.2 crores, and this was 12% higher compared to the FY '23. The stand-alone PAT for the financial year '24 was higher by 17% at INR 201 crores, and which translates into a stand-alone EPS of INR 22.1. The return on capital employed improved to 18% for the FY '24 as compared to 17.7% for the FY '23. The Board has recommended a final dividend of INR 1 per share in addition to an interim dividend of INR 2 per share paid earlier in this year. Let me now share the update on the ongoing expansion projects. We are expanding our relationships with the several large corporations for supply of Xanthine derivatives, primarily [indiscernible]. For the same purpose, we are in the process of enhancing our production capacity of our xanthine derivative units. Such that additional land parcels are likely to be purchased, and we target to complete this brownfield expansion project by the end of FY '25. And thereby, a total production capacity of 750 metric tons per month will be achieved. This expansion will maintain a capital expenditure and additional working capital volume. Our project at Atali primarily focusing on CDMO/CMO and internal manufacturing is progressing as per plan, and we expect the commissioning by Q4 FY '25. As discussed with you last time, we are nearing completion of semi-commercial block at our USFDA Intermediate manufacturing site at Vapi, and this is expected to become operational in the current quarter. I would also like to share that we have undertaken a project in Akola, Maharashtra to set up a solar power plant. Which will help us to get the clean and green electricity, which is estimated to fulfill our power requirement and reduce overall manufacturing costs at the same time. It will support the sustainability goals by reducing the carbon footprint. These steps underscore our deep and continuous commitment to business expansion, sustainability, self-reliance and keeping up with the customers' needs. Talking about the future outlook, we expect to achieve EBITDA growth of approximately 10% to 12% in FY '25 and remain well positioned to achieve a long-term goal of around 15% annual growth in the next 3 years. I now request the moderator to open the forum for Q&A session. Thank you.

[Operator Instructions] We take the first question from the line of Rahul Jain from Credence Wealth.

And congratulations on a wonderful set of numbers, sir. Sir, my first question is with regards to CDMO/CMO. We have done exceptionally well on this segment of the business for the last 2 quarters. And in the current quarter, we have almost reached about INR 76 crores of sales from CDMO/CMO versus INR 53 crores. And for the full year-to-date stands at INR 177 crores compared to around INR 100 crores last year. So sir, two questions. What is the sustainability of this segment to grow further from here? In the previous call, you had spoken that we expect this segment to grow around 40%, 50% for next 2 years. So can share some more details on the sustenance of and the growth of this segment?

Yes. As I mentioned to you earlier, and as we reported earlier, now we are working with more than -- on 40 projects, out of which 21 has become commercial. And with this expansion and the way in which the progress of these projects happen with our partners, we will see growth in this business area. And that's why in last call, I had projected and I still retain that kind of a number of possibilities in this business segment. So we have done all the right things. So now we have a new R&D center, which is completely focused towards innovator. And we are also investing in a new manufacturing facility, which can cater to the additional requirement of manufacturing capacities. And with the right regulatory focus, I think we can grow this business faster.

And sir, with regard to margins, again, this quarter, we have recorded record margins both on the EBITDA and the gross margins. Our gross margins today stand for stand-alone entity at almost 55%. And on consolidated basis at [ 5-0, 50% ]. So how do we see the sustainability? What is driving this margin? It is only on increased CDMO contribution? And secondly, what do we feel are the sustainable gross margins?

Yes. Definitely, the CDMO business is more lucrative than the rest of the businesses that we are operating. However, our overall other business segments are also API and the Xanthine business segment is also having reasonable gross margins. quarter-to-quarter, as we deliver and meet the customers' requirement, the quarterly, there would be ups and downs, but we are hopeful that we will be able to maintain close to 50% gross margin, I think...

Yes, at annual basis.

50% on consol basis, right?

Yes.

We generally talk about annual stand-alone because consol, we have a trading entity also which gets consol. And in the trading activity, we may not have that kind of gross margins...

So because stand-alone gross margin, sir, 55%, sir? That's why I asked that question.

That will rationalize to around 50% long term.

Fair enough...

Apart from the margin, percentage margins, we normally track the absolute numbers. Because the percent margin is again a function of [ FG ] prices. which in turn a function of RM prices. So at least in some of the business, when the RM prices goes down, like in Xanthine for consolidation, we have Ganesh Polychem, where the pass-through mechanism is when the RM prices go down, we pass that advantage on to the customers. So normally, we track the absolute growth in the profit numbers.

Sure. Sir, with regards to your guidance on EBITDA growth, previous presentation and concall, you were talking about EBITDA growth of 12% to 17% for next 2, 3 years. And in the current presentation, you have mentioned that we expect EBITDA growth of around 10% to 12% in FY '25. Now if I just take the average of last 2 quarters' EBITDA, even if I sustain the average of last 2 quarters, we can be at around 10% EBITDA growth for the full year FY '25 compared to FY '24. So are we trying to be a bit more conservative on giving guidance for FY '25 for the EBITDA growth?

Yes. For the FY '25, we are already sitting on 2 good quarters. And of course, the market is volatile, as you know, the pharmaceutical industry. However, we are trying to be more and more in the stickier business and with a profitable business. So generally, we want to be moderately conservative in all our guidances.

Okay. And last question, sir, with regards to the CapEx, which has been completed till date because this CapEx, which has been completed, you had done some bit of it in FY '23 and also FY '24. So typically, as we speak today at today's price of all the segments, typically, what kind of business can be generated on a stand-alone basis from all the 3 segments put together at optimum utilization?

Yes, currently, we are almost utilizing our Xanthine plant at 90% capacity utilization and other plants are also utilized at 85% capacity currently with the expansion. But now going forward, in next 1.5 years, we will have a lot of CapEx, which are upcoming like our Atali manufacturing plant, the new plant, new block at USFDA location in Vapi as well as the debottlenecking of Xanthine plants. So all these 3 projects will enter a lot of capacity unlocking, new capacity addition, which will come up for FY '26. And that is when we will see a growth '26 onwards as we occupy more and more of these capacities with the production.

Sure. And wish you all the best.

Thank you.

The next question from the line of Pratik Banthia from Girik Capital.

Yes. Great set of performance. A couple of questions from my side. So firstly, in the current -- in the last quarter, we were supposed to start the backward integration for Xanthine which would reduce our dependence. So has that led to some big increase in the margins? And was the plant started in the fourth quarter?

No, that manufacturing asset is operationally ready, but looking at the current manufacturing costs and the prices of product availability from China, we are not opting to continuously operate that plant looking at very lower pricing availability from the market. So we are keeping it ourselves ready, but there is an upper cap, so it can go above certain value, then we will always operate our facility. So that has not impacted on our margins per se.

Understood. So how should we understand the improvement in the EBITDA margin, it's driven by, if you could, in terms of which was like the segment, which has the highest impact followed by the next segment, if you can just line up that way, which segment has impacted the highest in terms of incremental EBITDA for the quarter?

Yes, we have seen improvement of overall performance in CDMO/CMO segment and also API and Intermediate segment has also done well. Traditionally, our Xanthine segment was doing well. But now overall, with this growth percentage, I think the Xanthine has peaked in terms of the current capacities that we have and we are anyway further enhanced -- going to enhance our capacity in the next 12 months or so. So then we will again have more improvements from that segment going forward.

Interesting. Interesting. And you mentioned Q1 '25, our factory at Vapi is going to see some expansion. So is it the API or it's going to be on CDMO side?

Q2, we will -- this current quarter, we will have an expansion. So, we are going to have additional manufacturing block, which will basically, it's a semi-commercial block, and we will have more of this capacity so that we can do more seeding projects or the early requirements of the customers up to 100 kg can be maxed from this manufacturing side.

Okay. So it will reflect in Q2, the revenue?

Yes.

Q2, onwards. Yes.

And it is around 28 reactors of 28,000 liters capacity, right?

Yes. So they are very small reactors and that was a gap that we had in our current setup of intermediate manufacturing to have this size of the reactor, which is predominantly required for customers for the development stage. So which were are trying to fulfill.

Okay. Okay. Okay. And again, on the CDMO. So incrementally, I think 2 new molecules have been commercialized in the quarter, if we just go by the comment you made in the presentation. So now -- so what sort of incremental revenue would those 2 new molecules be contributing, and can you just give us again your outlook on CDMO, which therapies is more focused upon? And what sort of -- are we -- the share of innovator, you look over the next 2 years? Because it's CDMO/CMO both. Yes, that...

Yes. We are operating in both the segments of CDMO and CMO. And largely, it is more CMO, which brings larger revenue repetitiveness in the business. We are currently working with 16 innovators or the partners. And as you see that there are 40 new products that we work with them, and these products have grown over a period of this entire year, we started the year with close to 28 products and now we are at 40 products. So we have added 12 new projects in this year. And these projects normally take 2, 3 years to fully grow minimum. So as these projects grow and depending on the product outlook of the customers, but we have some good projects with customers, large customers, which has shared good outlook with us.

Okay. So should we assume around -- you mentioned around 30%, 35% growth in CDMO for the next 2, 3 years?

No, we are projecting, yes, that kind of. Overall, we are projecting higher growth in this segment. So...

Interesting. Okay. Okay. So -- and sir, Xanthine is at 90% in the fourth quarter exit. Then -- so until our new expansion comes, which will take the capacity to 9,000 per annum. Then this number, INR 190 crores, which -- sorry, INR 220 crores, which we did in Xanthine should remain at this, right? For the next three quarters, four quarters, till the time we have capacity?

Yes, the product are in the [indiscernible].

Yes. Yes, the top line is dependent on the overall pricing and the metrics, how the prices are sustained in the marketplace. But I think in the spot market, the prices have now bottomed out. So we are not going to see further prices going down. That is what is the current understanding of the market that we know.

And even on...

We will have the expansion only next year. So the expanded capacity will come. Still, till I think there is a possibility that we may further increase our utilizing to 95% also. So that may happen in this year. But later on, next year, we will have higher capacity.

Okay. Okay. And on the EPS, sir, also...

I'm sorry to interrupt you, sir. May we request you to join the question queue as there are several participants waiting for their turn.

This is the last question, then I'll join back. Yes. And sir, last question on the cashflow statement. We have taken a R&D project write-off of about INR 6.76 crores. What is it regarding?

Sure, Pratik, that is the projects that basically we stopped working on. We think that there is not enough market or we don't want to pursue. So then we do this exercise every quarter and whichever projects we think are not -- we are not going to pursue in future. We take that as an expense in the P&L.

[Operator Instructions] The next question is from the line of [ Lars Sharda ] from NTAsset Management.

I have two questions. One is, what is the CapEx guidance for FY '25? And secondly, in your opening remarks, you mentioned about the brownfield expansion of Xanthine. So could you -- I didn't hear it correctly. Could you repeat that, please?

Yes. In total, for the FY '25 is going to be CapEx heavy for our overall size, I think we are going to have a total CapEx of around INR 600 crores happening in this year with the 3 big projects, as we mentioned in my speech, and out of this the, xanthine, overall capacity, which is currently at 5,000. We are on -- and debottlenecking it to 9,000 metric ton in the existing assets that we have by taking adjacent plots and doing a brownfield expansion.

The next question is from the line of Ahmed Mahdev from Unifi Capital.

I just wanted to understand the CMO business a little better. So the kind of products we are -- we have in the pipeline, are these the full EPS or does the key starting materials and Intermediates for the [indiscernible]?

In the CMO business, we have largely the products are in KSM, RSM regulatory starting material, key starting material, a large component of them. We still also operate in a few APIs. But 80%, 90% of the portfolio is in this first two segments.

Okay. And what are shipments or the scale up, which has happened in the last 2 quarters? So can you give some sort of understanding on what kind of products are there? Or what kind of products we are selling? Number two, will the consistency in the volumes will be there in the CMO every quarter or will it be fluctuating in second half or in 1 or 2 quarters? How will it function?

Basically, we will see quarter-to-quarter fluctuations because normally, these are multistate products that we produce. And if we had orders of these products, then it may take more than a quarter to do the manufacturing, and these are all campaign-based products that our innovative partners order with us. In terms of the profile of the products, these are all -- we are working with 21, which are already commercialized products, 19 products are under development. So that is the current profile that we have.

And we'll be the only sole supplier for the KSMs which we are supplying or there will be multiple suppliers?

Most of the innovators and the manufacturers, they have multiple sources. So that would be a Chinese source or rather European source possibly for these products.

Okay. So are we seeing any shift from the other suppliers to us?

We are also basically trying to pitch in Phase II, III, when the innovators are looking for more commercially viable sources and that is where we are trying to pitch in. And the movement is basically between the medicinal chemistry companies, those which are operating in that space to us, where we are more commercialized-focused company. So that is the shift which we are seeing. Geographically, also, I think innovators have been largely dependent on China for KSM, RSM and they want to reduce their dependence on China. For sure.

Okay. And the second question is on the Xanthine derivatives. So if I look at the standard numbers and I look at the annual reduction in the top line, it is above 15%. So can you share how was the volume growth and the price decline this year, the breakup between the volume and pricing?

Yes, sir, there is definitely a volume growth vis-a-vis last year as you -- as earlier we explained that 1 brownfield expansion that we did last year. However, the Xanthine prices have reduced drastically. And along with that, the raw material prices also have reduced. So because of that you are seeing the top line degrowth.

Can you quantify the price decline, rough range, about 20%?

A price decline should be around 25%. 20% to 25%. So it will be around 20% to 25% price reduction. And I think capacities have gone up by around 12% to 15%.

Okay. Got it. And I just want to clarify on the CapEx, sir, you said INR 600 crores CapEx. So can you just break it down in the 3 projects which you are doing?

Yes, Sir, major one is going to be the Atali project that is the greenfield project that is coming up at Atali in Gujarat. So that's going to be about INR 300 crores. Then additionally, as Rashesh bhai clarified in the beginning itself, we are expanding the Xanthine capacity at Tarapur. And then there are -- additionally, we are also going to spend -- continue to spend on intangible asset development also, another INR 40 crores to INR 50 crores will go on that.

Yes. And we are also spending almost INR 80 crores to INR 90 crores on the solar projects this year. So, yes...

INR 80 crores to INR 90 crores of solar projects.

Yes.

Sorry, I didn't get it?

And that will basically take care of our 1/3 of our power needs. So once we have our own solar, we will have a huge savings in electricity energy consumption and spend that we have.

I just want to deep dive a little bit in the CapEx part. So in Xanthine -- the capacity will go from 5,000 to 9,000, what will be the CapEx, sir?

And we have been working on the numbers. So we are not saying that the numbers would be in INR 130 crores to INR 180 crores in that range. So we are still freezing those numbers.

Okay. And the solar plant, what kind of ROI you looking at? What kind of cost saving based on INR 80, INR 90 crore CapEx. The would be number is large, considering the size of for? So what will be the savings, roughly?

Piyush, do you want to answer?

Yes. So the payback on that one would be less than 5 years, between 4 and 5 years. And in terms of rate of return, it would be about 20%.

Okay. And all the -- this is my last question. So intangible development, you said INR 40 crores to INR 50 crores cost. So all this we are capitalizing on our books or how?

Yes, yes. So it goes under the intangible assets under development initially and when the project is handed over to the plant, then at that time, it could capitalize and amortize over period of [ time ].

This year, we had about INR 40 crores intangible asset cost. So how much did we book in the P&L?

See, INR 43 crores was the total spend of this INR 17 crores was capitalized. Around INR 7 crores was basically written off the P&L. And the other is still under that development. So it remains under intangible assets under development.

Sorry to interrupt you Mr. Madha, may we request you to join the question queue.

Just finishing on this part. So as soon as we commercialize projects, we'll book the cost on P&L, is it?

Yes, correct.

It is amortized over 5 years -- it is amortized for 5 years. So it goes into the block, the [indiscernible] block.

[Operator Instructions] The next question is from the line of Ankit Gupta from Bamboo Capital.

Congratulations for a good set of numbers. So my first question was on the CDMO segment. So during the year, if you look at our commercialized molecules have gone up by -- like we have added five molecules in our -- already commercialized molecules of 16, which was there at the start of the year. So the scale that we have seen in the CMO/CDMO segments, has then been [ plan ] because of these five new commercialized molecules which have been added? And second part to that question was like do we have the commercialized molecule portfolio that we have, are there any molecules which haven the potential to become blockbuster molecules and scale up to INR 200 crores, INR 300 crores kind of revenue per molecule over the next few years?

Yes. I will -- just to give clarity on these numbers, so this is a cumulative number of the products that we are mentioning is that 21 commercialized, we may not operate the all 21 manufacturing may happen in the entire year. So these are the projects which are still viable and they are in the commercial stage, whereas 19 products are in the developmental phase at our end. So that is the breakup. And every year, we may do some of them or we may do more of them. So it depends on how the customers' requirements are and how they request us to produce these products. But these are the commercial products that we have with the 15 customers that we have. And in terms of overall, we have good projects, of course, we can't share confidential detail about the size and because we are bound by the confidentiality agreement with our customer.

And the second part of the question, do you have some forecast from your innovator company that some of these molecules or few of these molecules have a potential to become blockbusters and reach a scale of INR 200 crores, INR 300 crores from a single molecule, not in the near term, but let's say, 3, 4 years down the line when they scale up.

Yes. So I did reply to you that we can't share that information. There are some good potential products that we thought we can share with you now.

Sir, my second question was on the Xanthine part. Xanthine we are doing -- despite a significant decline in prices, we are expanding our capacity in a big way from around 5,000 tonnes to almost 9,000 tonnes. And so what is leading to this expansion, such a big expansion and how are we seeing the growth in the segment over the next 2, 3 years?

So typically...

Yes.

Yes, so typically all our customers are looking at us as a sustainable partner. And to have a significant portfolio on their purchasing list, we find it, it is important for us to expand and be a [ world send ] capacity for Xanthine business and that is the reason why we are expanding. And as everyone is also seeing, China plus one is a very important criteria for all the customers in current times.

So we already have tied up for this incremental capacity, which is coming up, like we have indications from our customers for that?

Yes. The indications are there. And beyond that, it is confidential to share more details.

On the API intermediate part, we saw a top line growth of around 9% last year. So what is the outlook for this segment? How do you see this segment shaping up for us over the next 2, 3 years?

Yes. So there is -- as Rashesh explained in his speech, we have a lifestyle APIs where -- which are sustainable and which are sticky in nature where anticancer, antidiabetic range of products, which we are looking at some growth potential in coming years.

We take the next question from the line of Nitesh Dutt from Burman Capital.

Congratulations on a wonderful set of numbers. My first question is, is it possible for you to quantify the economics for your three segments differently. So basically, ROE or ROCE, gross margin and EBITDA, respectively, for Xanthine and non-Xanthine. CDMO and APIs, I understand it might be [ clubbed ]. For Xanthine and non-Xanthine if you can separately classify?

Currently, we are not doing this classification, maybe we will look at it if there is a possibility of doing it in future.

Got it. Sir, on Xanthine side, right, so the end market demand of Xanthine derivatives in my understanding, is growing at a 5% to 7% CAGR. Now with 15% to 20% market share, you are a sizable player already globally. So if I look at a longer-term horizon, right, 5 to 7 years, will you be growing at a similar rate as the end market? Or are you looking at a much faster growth rate? And what will support this growth?

As you know that we have 15%, 20% in terms of market share with these large customers, but they are definitely requesting more quantities for us -- from us, and that's why we are expanding and as Hetal mentioned that we would be doing this expansion wisely to ensure that we remain a very sizable player in this market among top 3 in the world. So that is the endeavor that we have that we have sizable capacity available for the requirement. Overall, we see developed market growing, India market is also growing in terms of demand, and we also see diverse usages of these Xanthine derivatives in home and personal care and we have also -- I was reading an article today that there is a possibility of usage of this Xanthine derivative in the EV space also. So there are newer end usages, which we anticipate may come apart from the traditional end usage of the Xanthine derivative, there is a possibility of that also...

Sir, you had previously also hinted at new capacities for Xanthine in China, et cetera, right? And now as you are also adding -- significantly adding capacities, so do you foresee any kind of overcapacity scenario in the market and especially competition from Chinese players? And also, this 9,000 empty capacity, how soon do you think you will be able to utilize that effectively?

Yes. I think, since this is a brownfield project, just to answer to your second question, the capacity utilization can be relatively faster. Those approval gestation period will be there, but we see that we will be able to have capacity utilization meeting within 3 years' time. And yes, there is going to be a significant capacity. And as I mentioned earlier, the strategic geographical, which we would want to bring in, and our customers are also excited on the expansion front of -- with us.

So basically, the advantage that we have -- yes, the advantage that we are giving to our customers is completely nondependent and also the green and sustainable manufacturing assets that we have with the green power that we are now investing in and our overall total carbon footprint also to be much better than the other competitors. Yes. Yes.

Got it. So sir, basically, you don't foresee that overcapacities might be a challenge because of non-China and sort of green product, your value chain? And second, it is active at the end of FY '25, expansions happen by end of FY '25. By FY '27, you are expecting to utilize it fully? If I got that...

Yes, yes.

Got it. And sir, on your, right, P&L, this quarter, OpEx has seen a drastic increase of 35% Q-o-Q and 27% Y-o-Y. So that is one, what do you see as a normalized level? And second, our tax rate has also been 32% in Q4 and 28% for FY '24, and there are some deferred tax liabilities of INR 100 crores plus. So want your inputs on OpEx and tax rate?

Yes. So OpEx in this quarter has been higher. The major component as we earlier also touched upon was there's a write-down of R&D, the projects in R&D to the tune of around INR 6.5 crores. And also in line with the increase in the sales, there has been an increase in the freight. So these 2 are the major components, which has basically contributed to the increase in OpEx quarter-on-quarter and Y-o-Y. But if you see year-on-year, it has barely grown by INR 4 crores. So from INR 3.03 to INR 3.07 on a consolidated basis.

[Operator Instructions] The next question is from the line of Dhwanil Desai from Turtle Capital.

Sir, my first question is on the CDMO. So you talked about development on the peptide side. So if you can talk a bit about capacity development on some higher entry barriers, things like ADCs, peptides, sterile, where are we on that capacity and capability building? And a question tied to that globally with GLP-1 thing, there is a lot of shortage on the API side, which are peptides and [ fill-to-finish ] side. So are we anywhere there in that value chain present?

Yes. As you rightly mentioned that these are high barrier research, which requires us to enter the segment and our endeavor with the new R&D center and the newer capabilities of the customers that have joined us in this new R&D center is to establish this business going forward. And I think it will take a couple of years, 2, 3 years for us to gain confidence, have more skill sets and some manufacturing assets being put up simultaneously to develop these segments in future. So that is what I mentioned that we have started the journey. I think it will take 2, 3 years for us to see some light of the day in this area.

Sir, is it safe to assume that Atali expansion in current form doesn't include any of this. That's safe to assume, right?