Aarti Pharmalabs Limited (AARTIPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aarti Pharmalabs Limited Q4 FY 2025 Earnings Conference Call hosted by Valorem Advisors. [Operator instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Nupur Jainkunia from Valorem Advisors. Thank you, and over to you, Ms. Jainkunia.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Nupur Jainkunia from Valorem Advisors. We represent the Investor Relations of Aarti Pharmalabs Limited. On behalf of the company and Valorem Advisors, I would like to thank you all for participating in the company's earnings conference call for the fourth quarter as well as for the financial year 2025. Before we begin, let me just mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and the information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings 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 Mr. Rashesh Gogri, Chairman; Mrs. Hetal Gogri Gala, Vice Chairperson and Managing Director; and Mr. Piyush Lakhani, Chief Financial Officer of the company. Without any further delay, I request Mr. Rashesh Gogri to start with his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone. Thank you for joining us today on Aarti Pharmalabs earnings call for the quarter Q4 and full year FY '25. I appreciate your continued interest in our business. I shall take a few minutes to walk you through our performance for the quarter ended 31st March 2025, highlight some key achievements and provide a future outlook. Consolidated financial highlights for Q4 and FY '25 were as under. I was pleased -- I am pleased to report that FY '25 has been a landmark year for the company. Q4 served as a strong finish to a year defined by business expansion and operational excellence. Revenue for Q4 FY '25 stood at INR 564 crores, representing an 11% Y-o-Y growth. On a full year basis, the revenue came in at INR 2,113 crores, a 14% increase Y-o-Y. This reflects an upward growth trajectory supported by strong execution and healthy demand across all the business segments. EBITDA for the quarter was INR 146 crores, a 24% increase Y-o-Y. EBITDA margins expanded to 26%, up from 23% in Q4 FY '24. For the full year FY '25, we achieved an annual EBITDA of INR 464 crores, growing by 20% Y-o-Y and underscoring our strength of our operating leverages and efficiency measures. Profit after tax for Q4 FY '25 rose sharply to INR 88 crores, marking a 35% Y-o-Y growth and setting a new record for quarterly PAT. For the full year FY '25, the profit after tax reached INR 272 crores, a 26% increase over FY '24, driven by both top line growth and the margin expansion. In FY '25, our net cash from the operations remained strong at INR 332 crores, providing us the financial flexibility to reinvest in the capacity expansion and R&D. In line with the strong financial results and our commitment to enhancing shareholder value, the Board has declared a dividend of INR 2.5 per share for Q4 FY '25 and final dividend, bringing total dividend for the full year to INR 5 per share. Let me now represent -- let me now present the business performance highlights. The company operates in 3 separate segments in the pharmaceutical industry, Xanthine derivatives, API Intermediates and CDMO/CMO segment. The Xanthine derivative contributed to 34% of the turnover in Q4, and there was no significant change in pricing. The Xanthine facilities operated at almost full capacity in Q4. The API Intermediates business recorded the highest ever quarterly sales and stood at 39% of the total turnover in Q4. The subsegment-wise breakup is 52% in regulated market, 38% in ROW and 10% in non-reg market, which aligns with our long-term focus towards the regulated market. The CDMO/CMO segment has contributed to 27% of the turnover in this quarter, and we are currently working with 21 customers and the number of active projects are now 61 projects against last year's 56 projects, out of which 33 projects are at the commercial stage and 27 are under the recent stages of development, both at customers' end. Let me share the progress update on key growth initiatives. For our Xanthine derivative business, the capacity expansion to 9,000 metric ton is progressing as planned with a phased commissioning estimated in H2 FY '25. As promised in Q3 earnings call, we have completed the filings for regulatory approvals of [ U.S. GMS ] and CEP for the pharmaceutical market. The pharma market sales is likely to yield higher realization on a per kg basis. In the long term, we anticipate the beverages market to continue as a large segment for this sensing business. The greenfield project at Atali, Gujarat is in final stages of completion. The mechanical completion is expected to finish around the end of this current quarter. This plant to get operationalized in phases and the full ramp-up is expected by end of this financial year. I would like to update you about our sustainability achievement. Recently, we earned EcoVadis Gold rating, ranking among the top 5% globally in sustainability. Another milestone has been the approval of GHG emission reduction targets by SBTi. With this, we have become the sixth Indian pharma CDMO player to earn SBTi approval for all the 3 scopes. Let me highlight now about the forward outlook. Looking ahead towards the future, we are confident of building on this growth momentum. Long-term relationships and repeat orders from key customers remain the cornerstone of our stability. Our business strategy continues to be centered around growth, backward integration and financial discipline. On a stand-alone basis, we are guiding an EBITDA growth of around 12% to 15% in FY '26 over the higher base of FY '25. This should be supported with the increase in contribution from higher-margin products and improved process efficiencies and volume growth. The Xanthine capacity of 9,000 is likely to be operationalized fully by Q1 FY '27. And in next 3 years, we aspire to -- in the next 3 years, we aspire for a capacity utilization of 80% to 90% with 50% targeted sales to beverages and regulated customers. For API and intermediate segments, we are continuously working towards the product innovation and focusing on new molecules with patent expiry in the next 3 to 5 years. On the back of strong manufacturing capabilities and sound R&D setup, the CDMO/CMO revenue is estimated to grow around 30% to 40% in FY '26. Conclusion. To conclude, FY '25 has been a record year for us with highest ever EBITDA and PAT driven by strong performance across all the 3 business segments. The performance is a testament to our team's hard work, strategic focus and resilient business model. I want to express my deepest appreciation to all business stakeholders for their outstanding contribution to our investors for your continued belief in the growth journey of Aarti Pharma Labs. We have entered FY '26 with a strong fundamental, clear strategy and a solid platform for sustained value creation. Now I request moderator to open the floor for questions. Thank you.

[Operator Instructions] The first question comes from the line of Ahmed Madha with Unifi Capital.

Congratulations on good set of numbers. I had a question on the CDMO business. Just to understand the CDMO business model better, I have 2 questions. One, in most of the products which we have in our pipeline are already commercialized, are we the primary source suppliers, the first or second source supplier or are with the third, fourth or rather a secondary supplier? And could you quantify in whatever projects about 30 of them commercialized, how many -- can you quantify them into 2 different buckets, whether we are primary or secondary?

Yes. Currently, we are primary and secondary in different projects. So we are currently not quantifying them. And however, each project is important and the commercialized products are being sold as commercial products by innovator in the marketplace. So -- that's where the -- wherever we are a second source, we have represented Aarti as a viable option, creating our value proposition and allowing them to shift from their other sources to us. So those businesses are also as important as the first source opportunity that we have.

Got it. And from the total [ 53 ] commercial projects, how many of them contributed to revenue in FY '25?

Yes. That number we will have to work out exactly how many we have in FY '25. I think we should have worked on at least 75% of the project roughly. Exact number, we'll have to double check, but roughly 75%. 70%, 75%.

Got it. On the CDMO business side, you have said 30% to 40% growth. Going forward for the Atali project, we see you have pushed the time lines for about 3 quarters. Last quarter, you spoke about Q1 '26 26 commercialization, now FY '26 and commercialization. So if you could give some light on when you see the project ramping up in terms of revenue contribution? And secondly, on your website, we see that you have mentioned about ramping up the capacity to I think 1,000, 1,200 kiloliters incremental in a few years. So if you will give some guidance beyond FY '26, how do you plan to see the capacity addition in the Atali?

Yes. So basically, we would like to correct there that the mechanical closure of Atali Phase 1 will happen by end of this quarter. Then being also the facility from where we will do the GMP intermediate supply, we have to go through the qualification and all that. So those things will happen over next 3, 4 quarters where we take the validation batches and conclude. So that's what we have given. And that was also originally the target of getting all these things anyway going to take. But however, we may be able to get a few products commercially out also, early stages out from this site. And we are very hopeful that we will be able to utilize the asset for continuous production of some of the products, and we may ship some of the intermediates also at the Atali site and wait for the qualification. Secondly, regarding this 1,100 KL capacity is our overall capacity currently, which we have in all the multipurpose plants that we run, whereas we are adding 450 KL capacity, additional capacity. This is over and above the capacities that we have in the dedicated assets that we have. So post this Atali implement project getting completed, we will have almost 1,500-plus KL capacity, which will be available with us. And subsequently, annually, we will add the capacities because Atali then being a brownfield expansion, we'll be able to add additional capacity much quicker and it should be able -- we should be able to do that in a 12-month time frame whenever we require additional capacity at Atali.

Next question comes from the line of Deep Gandhi with iThought PMS.

Congratulations on a very good financial year. So sir, my first question is on the CDMO side. So in our past interactions, you always explained that we have shifted from a preclinical model to a commercial project model. But now to me it seems that some of the molecules which have scaled up recently for us are such molecules where the innovator is still going ahead with the FDA approval. So just wanted to understand more about that. Is it fair to assume that such products which we are catering to will make our CDMO business much more lumpy? And secondly, could you comment on how the shipments will work here? Will it be a recurring shipments or will it be lumpy? And are we going to target more such opportunities? Or was this like a one-off opportunity for us?

Yes. See, first of all, we have 21 customers with 60 product basket. So we have a very wide basket and very wide number of customers. Second of all, we are specializing and we are pitching ourselves as a manufacturing specialist. So we would like to take up the projects for CMO opportunities at Phase III, in and around Phase III. What happens, as I have explained to everyone earlier also on the call that the manufacturer or the innovator would like to change and make their sources more efficient and the products ROS is also more efficient. And that is where we try to push our expertise and get those projects. So that is where our target is. And I think Phase III to final approval, if you see the chances of those are also almost more than 50% generally in the small molecules. So with that, we have very high probability of product getting success. I am not saying that we don't have any products in clinical phase or early clinical phase, Phase I/II also. We have some products there also. However, we have a large basket of commercialized products where we have just delivered some initial quantities for their validation, et cetera. So those also, we expect them to commercialize in coming years. And the innovators do not take campaign every year. So some campaigns are alternate year. And then depending on their API manufacturing locations also, they also have schedules. So it takes a little time. But once we are in, I think it's a long-term business, and that's what we like. So instead of volatility, I think this business is going to give us more stability overall.

Sure. So is it fair to assume that the products which have contributed significantly for this quarter, you think should remain sustainable going ahead or there will be some lumpiness, if you can clarify that?

No, no, they will be sustainable. The products that we have in this quarter, large products will be sustainable.

Sure. That was helpful. And sir, secondly, on the API side. So if I look at from the export side, could you comment a bit on the pricing of some of our key products, particularly on, say, corticosteroid side, where I see some of the products like [indiscernible] have very high realization. So do you think the FY '25 growth in realization for some of these products are sustainable? Or were there some factors like, say, some shortages which helped our business?

So basically, the corticosteroids product range is very stable. There could be some pricing correction. But however, these products go in very limited quantity. So it is very difficult for our customers to change the source also. So this would remain a continuous business for us.

So pricing will be stable more or less, maybe a tad lower, but quite stable.

Sure. And sir, just one last question regarding this only. So our top 5 products in API in terms of exports contributed 70% of our revenue in FY '25. So could you comment on the outlook about the products for FY '26 in terms of growth? And are this product itself expected to grow quite well? Or are you expecting some new products also which should start contributing in FY '26, particularly in the API side?

No, our top products, though we have not specified which are our top 5 or whatever the top 10, but we know for sure that these products are great products, and we are continuing to build our strategic position in this product, and we are continuing to grow this market. We don't see any product under threat currently. And definitely, we have a few new launches also coming up in next couple of years where we see good antidiabetic products or some other anticancer products for which we see that there would be a good scope for us to grab market share.

Next question comes from the line of Prakash Kapadia from Spark PMS.

A couple of questions from my end. If CDMO segment is expected to grow 30% plus in FY '26, shouldn't the 12% to 15% EBITDA growth be higher? And should we expect -- is it right to expect 25% kind of EBITDA margins on a stand-alone business?

Currently, we are on a very -- significantly high base of FY '25 because we have grown over last year by almost 23%, 24% on EBITDA. So over and above, I think we should be happy with the good growth.

And on -- just to get some more direction on the revenue side of the company. So with commissioning of the new plant for Xanthine sometime next year, what is the kind of growth we would expect in that segment?

See, as we have mentioned that the Xanthine capacity will get fully operationalized by Q1 FY '27 and capacity utilization will happen over 90% over 3 years. So I think it will be a gradual growth there, but we hope to consolidate our position with our large buyers and this segment will grow in terms of overall quantum of revenue for sure. There will be a good growth in this along with CDMO growth as well.

Okay. And on the API Intermediate segment, we've seen a big growth this financial year. So what kind of a growth we would expect on this base in '26? And if you could give some insight into, again, the growth will be led by regulated markets or rest of the world because we've grown pretty well this year. And lastly, on the CDMO side, you said 30% plus growth. So again, there, if you could help us understand the driver in terms of products or certain geographies, that will be helpful. That will give us more insights in the kind of potential revenue we are looking at.

Yes. I think overall growth in API is driven by regulated markets and growth in export market or exports backed market basically. So even if we are giving to India, but ultimately, the end consumer is exporting the products to Regulated markets only. So that is where our focus has been, and that's where we have been more and more successful in pushing our product. And in future also, the same will continue. And in terms of the CDMO/CMO growth, we have given a guidance of 40%. We expect 30%, 40% guidance, and we expect this to be achieved by our current product mix of almost 60 products that we have with 21 customers. We plan to grow it. So in last 1 year, we have added almost 20 new products with 6 new customers. So you have seen the growth of customer addition as well as the number of projects that we have done over a period. So I think we continue to maintain a strong R&D position, time-bound commitment to achieve the turnaround of the product inquiries that we receive and grow the overall CDMO market in a very fast pace, yes.

Okay. And lastly, if you could quantify the U.S. share in our exports and any impact of the current uncertainties given whatever U.S. pharma is stocking or whatever U.S. is trying to do? Any impact on that part of the business?

Yes. Overall, U.S. -- direct U.S. export is not very, very significant as such in overall total revenue. But API is exempt from all these duties. So we don't anticipate APIs will come under duty because if there is any impact, I think it will be more on the formulation front, not on the API front. And then there will be shifting from supplying these APIs to Indian players who ultimately end up exporting there to directly to U.S. players who will ultimately buy our API and then supply in the U.S. market. So we don't feel as of today, any threat to our API current situation of the business.

Okay. Okay. That's helpful. And any CapEx number you could share for FY '26?

Yes. I think FY '26 overall, the CapEx number is around INR 400 crores to INR 450 crores total CapEx that we will end up doing in FY '26 as well. So that is a remainder of current CapEx of the Atali and then there are in expansion CapEx, which will also be spent. So overall, we expect around -- so this year, we ended up spending almost INR 400-plus crores. And next year also, it will be the similar number, plus or minus 10%, yes.

[Operator Instructions] Next question comes from the line of Mohammed Patel with Edelweiss Financial Services Limited.

Sir, can you give approximate share of U.S. in all 3 segments, direct and indirect?

Yes. I think we'll have to work out that number and get back to you with that number.

Okay. Okay. And sir, what is the breakup of this CapEx, INR 400 crores, INR 450 crores?

Yes. Total CapEx is broken into the remainder of Atali CapEx, which is almost around INR 200 crores remaining there and some CapEx of Xanthine project around, we have to spend close to INR 100 crores plus there. And then other maintenance CapEx and other R&D CapEx. So all this put together, we will have close to this number.

Okay. And if you can just reiterate the CapEx commercialization time line. So for separately for Xanthine brownfield CapEx as well as Atali project?

All will be commercialized in this current financial year.

Okay. And my last question, any comments on Xanthine pricing, especially in the U.S. market? And any comments on how pharma grade caffeine can contribute to your volumes and improve overall realization?

Overall, the Xanthine derivative prices are stable. Of course, they are low, but stable. And we understand that the prices have bottomed out. And the pharmaceutical market, of course, is a regulated market where we require to communicate with the FDA and the medical agencies of different countries. So that's why the pricing is a little different, and it is definitely higher. So now we are continuing to get newer inquiries and the focus is towards selling the products in the regulated markets so that we can accelerate our position in this segment.

Next question comes from the line of Madhav with Fidelity.

Just wanted to check on the caffeine, Xanthine prices currently. Do you expect prices in the next year or so to be at similar levels or to move a bit higher? And what are the key factors to watch out for price recovery from currently lower levels? And second part of the question is how different are spot versus contract prices for us? If you could give us some sense, that will be helpful.

Yes. So Xanthine derivatives are sold in different market and different markets have different pricing dynamics. So of course, for confidentiality reasons, we can't explain all that. But overall, we are quite confident that the low-end prices of the Xanthine, which are prevalent in certain market segments, they have bottomed out. The higher-end prices will come down a little bit and lower end prices will go up. So I think it will be a balance basically, which will happen. And overall, with the expanded capacity, we are still going to see the expansion in overall profitability of this business for next few years to come.

Got it. And should we assume that volumes in the Xanthine segment for FY '26 will be flattish because we're running at full utilization. So volume growth is more FY '27. Is that how we should think about it?

Yes. Basically, what we have earlier also guided from 4,500 to 5,000 plus capacity. So we will have tad increase in the overall volumes of Xanthine. I think we will do phase-wise commissioning. So there also, we'll get certain capacities for last couple of quarters, last quarter also. So with that, I think the overall Xanthine that we will produce will be much higher than last year. But of course, it will not touch the capacity. But on an annualized basis, it will be higher.

FY '27, we'll have higher capacity.

So essentially, you're saying 3 years to ramp up the new Xanthine capacity. So FY '27, if we start Q1, so you're saying by FY '29, it should be fully utilized. That's how we should look at it?

Yes. In next year -- see, basically, 80%, 90%, we can always place the product in the spot market. But our idea is to get 50% targeted sales in the beverages and regulated customers. So to achieve that, it may take a little longer.

Okay. And my last question was in the CDMO business, where we have about INR 200-plus crores sale. Could you give a very broad sense in terms of how much of the revenue comes from commercialized molecules versus those which are in, say, Phase I, Phase II, Phase III kind of stages?

So bulk of the molecule -- bulk of our sales is coming from Phase III onwards, so currently, Phase III and commercialization product would constitute to be more than 80% -- 75% to 80% of our overall value of sales would come from that and smaller amount from the early phases.

Okay. Got it. Got it. And sir, is there any of our, let's say, Phase III or late-stage molecule, which has like a clinical readout in FY '26? Is there something like that which is lined up for us?

Yes, we expect certain products to get launched in the next coming couple of years.

Next couple of years. Okay, okay.

Yes. This current year and next year. So probably it depends on the approval when the FDA is approving. But I think next 2 years, we expect a few products to move and be big products for us, yes.

Next question comes from the line of Ankit Gupta with Bamboo Capital.

Congratulations for a good set of numbers. So my first question was on the CDMO side, sir. So if we look at over the last 2 years, I think there are primarily 2 molecules which have contributed to the overall scale up that we have seen in the CDMO revenues. So -- and given how our pipeline has increased over the past 12 to 18 months, do you think we have a few molecules lined up, which have a potential to turn out to be a INR 50 crores, INR 100 crores kind of contributor to our sales over the next year or 2?

I don't know about which 2 products you are mentioning, but we have good products, which have grown bigger. And I think we are going to have much more products we can -- which will grow still bigger.

Sure. And given our pipeline has increased significantly, both the number of customers and our molecules. So the scale-up from this newly added molecules is expected to happen over the next 2, 3 years?

Yes, yes. Yes. Yes.

Okay. And sir, when do you expect the Atali Phase I to be, let's say, optimally utilized at 70%, 80% will be starting this year and hopefully ramping up in FY '27 from Q1 onwards. So when do you expect that the Atali Phase 1 will be fully ramped up and we'll have to go for the second phase of Atali because we have a lot of land and we do have plans to build more blocks there?

Yes, yes. So we anticipate we don't want overall occupancy to go much higher. We will build newer capacity. So I think we are -- every year, we will commission additional blocks in Atali. That is what the current plans look like. And we are very hopeful that every second year that we commission the manufacturing facility, say, for example, now we are commissioning in FY '26. By FY '28, we will completely exhaust that capacity. And by '27, we'll have another capacity up and running. So we always have capacity which is available, one block available as spare to meet the increasing demand of the customers. So that is how we are going to keep up with the pace at which we keep the production capacities build up.

Sure. So what you're saying is, as we have guided earlier that for the Phase 1, INR 400 crores is the amount we are spending, which will have some common infrastructure for the -- like for other phases also, but -- and that should give us 0.9x to 1x or 1.2x kind of asset turnover. So that we should expect that most of that revenue we can come by FY '28?

Yes. See, ultimately, that complete revenue breakup on the final sales may not be that faster, but it will overall contribute towards the sales growth in our Aarti Pharma's intermediate as well as CDMO business because this plant is configured towards meeting the demand of intermediates and CDMO. So it's a common facility, which we will be utilizing for both the assets. And what happens is that we -- initially, we will ship the early stages in this site and get additional capacity freed up with the approved site, which we have currently. So that is the idea. And then we will also get our Atali also approved for the newer projects that we do. With Atali we'll also have cyanation capabilities and other capabilities, which will be unique and for which like how we have in Custom Synthesis division, the current CSD plant, we have hydrogenation capability. Here, we will have cyanation capability along with our cyanation capacity that we have in the Xanthine plant. So that's where we are adding up.

Sure. Sir, my last question was on the guidance of EBITDA of 12% to 15% for FY '26. So sir, things like are we being conservative here timely because CDMO, you are guiding for 30%, 40% growth in revenues for this financial year. API also, despite the kind of growth we have seen last year in last con call, you were confident that we still have decent capacities available for good growth, and we do have a lot of new products coming up, especially on the anticancer front, which will be getting launched and the existing products will also ramp up in FY '26. Xanthine also, the added capacity will contribute a little bit towards growth for FY '26 as well. So like are we being conservative in our guidance of 12% to 15% in FY '26?

Yes, yes. Along with, as whatever you mentioned, you will -- once we commercialize our Atali, the expense will also start adding up there. And it will not add any meaningful revenue or contribution in the initial phase, suppose. So for the second half of this year, I will have to expense that out also. So we have considered all that and then we have given the guidance. I think we prefer to be -- to meet the guidance and...

Be realistic.

Be realistic, yes.

Sure. So given all this, FY '27 then is expected to be a very big year for us. Xanthine will have all the phases coming in. Atali Phase 1 will be -- will have validation and all approvals done. And hopefully, API also the debottlenecking project that we were talking about in last con call should also be done. So FY '27 should see a significant growth for us is what we can assume?

Yes. In FY '27, of course, it depends on the way in which the approvals come from the CDMO marketplace and how we are able to shift and get the newer projects for which the approvals are accepted from the FDA, how they do. So on that basis, I think the CDMO business will grow. And I think other 2 businesses are anyway going to grow organically, as mentioned earlier in my speech that both the businesses will have organic growth with the capacity addition in API as well as the intermediates and the Xanthine, right.

[Operator Instructions] Next question comes from the line of Dhwanil Desai with Turtle Capital.

Congratulations for a very strong set of numbers. Sir, most of the questions are answered. Two questions, one on Xanthine. So I think we are doing around INR 180 crores to INR 200 crores quarterly number on Xanthine, so INR 720 crores to INR 750 crores top line. So with increasing capacity by 80% and the product mix changing towards more regulatory pharma side where the realizations are higher, as and when it gets optimally utilized at 90% plus, should we expect INR 1,300 crores, INR 1,400 kind of crore kind of a revenue? Is that a right number to look at?

Yes. As you rightly mentioned, the current number is around whatever you stated, probably plus or minus here or there. But we expect -- we have to see how fast we are able to push the product to the regulated customers and the additional market share from the beverages customer. It all depends on that. And I think range would be from INR 1,000 crores to INR 1,200 crores in any number from that could be the growth area of Xanthine. I think we can go up to [ INR 1,000 crores to INR 1,250 crores ] depending on how fast we are able to get commercial and how the prices sustain for the other market.

Sure, sure. And second question on CDMO side. So what we have observed is that if you look at some of our data on the product side, some of the products which are in fourth, fifth year after patent, so maybe we are second or third fourth supplier in that. And of lately, probably we are also supplying to products which are going to be launched and maybe there we are a primary supplier. So in terms of maturity of our business model of CDMO with customers, how do we see this progression happening over the last 3, 4 years? And are we seeing incrementally more projects coming to us where we are primary suppliers or where we are working on a lot of products which are going to be launched hence forth in next 2 years? Is that proportion rising?

Yes. Yes. As you rightly mentioned that we have good products. And Touchwood, we expect them to get launched in the next couple of years. We have -- we are quite comfortable doing the products which are commercial because we know how big the market is and where we have a value proposition, where the innovator is transitioning this product from other vendor to us, I think that's a very, very big step. And as we pride ourselves that we are the manufacturing specialists for these products, so we give them a value proposition. I think there are a lot of products which are shifting from China to India. And I think a few of them are -- what happens is that I think the new product development and getting entry into the new products also is quite a challenging task. I think shifting if we are able to get as a third, fourth source also, but we are part of this commercial product gives us a clear viability and visibility of what we will be able to do there. And that's what we like. So we like both kind of projects actually. And because we like the stability and we like to be part of the newer age drugs, which will get launched in the next few years, yes. So we like both the products. We don't differentiate between them.

Okay. Sir, just a follow-up on that. So I think some of these newer drugs may be requiring slightly more evolved capability like peptides, et cetera. And I'm sure last one of the calls, you had mentioned that you guys are kind of preparing yourself in terms of the R&D setup, et cetera, to kind of get into peptides and all. So where are we in terms of that process? And are we kind of building that capability? We are still far away from that? Any thoughts on that?

Yes, yes. I think we are -- clearly, we understand peptide is where the entire market is going to grow, biotech products, peptide products, anticancer products. So we like that area of products. And of course, we currently do more small molecules, but we are attempting to do more higher molecular weight products, which are not very large molecular weight peptides, but relatively midsized peptides, we have started attempting them, and we have a few projects which we are going to get ourselves getting a shot at those projects as well. So we have started that journey. Eventually, we will do more solid phase products and then see how we take it up, yes.

Next question comes from the line of Nitesh Dutt with Burman Capital.

My first question is on Xanthine. I think you had previously mentioned that you are doing the expansion in 2 phases, first to 7,500 metric tons and then to 9,000. So just wanted to confirm that we'll reach the 9,000 number by Q4 that you mentioned? And in which quarter do you expect the first phase of the 7,500 metric ton to start?

It will be mostly in second half only. So it will be in the last 4 months, I think something will come November, December, something will -- November, December, January and something will come by March. So basically, it will be in the second half where the capacity addition will take.

So next question on API Intermediates. So we have been around INR 190 crores, INR 200 crores quarterly run rate since the last 3 quarters. So do we have enough capacity available to drive growth in API Intermediates segment in FY '26? And what are our current utilization levels? And can we quickly like add capacity if required?

Yes, yes. As mentioned earlier, the Atali site will also have intermediate manufacturing facility. So that is where we will add newer intermediates. And in our API site at Tarapur Unit 4 also, we are debottlenecking our current new block. So we are adding one additional line. So with that, our capacity will go up by almost 15% to 20% of the current capacity that we have in overall general products that we do. Of course, we are also looking at the plans to enhance our capacities for steroids as well as the anticancer product in future. So we'll come out with those announcements also in future. So we will have enough capacities to meet the demand in future.

Got it. On CDMO/CMO, sir, in this financial year, were there any products, basically revenue from any products which might not get repeated in FY '26? And hence, do you see any kind of risks on the 30% to 40% guidance that you've given?

No, 30%, 40% guidance we have given based on the orders that we have and the visibility that we have. So in CDMO/CMO, we are already in May and most of the business are in Q3, Q4 deliveries. So we already know what we are supposed to make and what we are supposed to give. So we have a large part of this number already booked in the system as orders. So there will be certain products which will not repeat, but depending on the innovator preference of doing annual campaign or multiyear campaign depends on that and depends on how we qualify with one of their sites or the second site and all that. So it's a complex thing, but we are confident to meet and beat this number.

Got it. And lastly, sir, on Atali, you mentioned that there will be certain costs in second half of FY '26. So possible for you to quantify the fixed cost that will come in this financial year? And also, how should we think about expected utilization or ramp-up from FY '27 onwards, assuming FY '26 revenue would be negligible from Atali?

So overall, I think it's a large manufacturing site. And of course, we have the budgeted numbers, but it will be -- I think we'll have to really look at the number and give you some number guidance on that. At this position, we are currently not ready to give you that number. But there will be expense. We have run this kind of size facilities in past in custom business division and other sites. So there will be significant expense. But of course, in FY '27 and FY '28, as I mentioned that the year that we commissioned next year and the year after that, we should turn positive on the Atali asset that we ramp up. And then by that time, we will have newer asset also. So in Atali, we'll continue to invest in newer and newer block and we will build up. So that's our investment program that we will do there, and we'll try to beat. So I think in totality, we have to look at the integrated business because initially, it will be only -- we will be only able to transfer our certain project from our current site to Atali. So I think overall, if you see the growth of CDMO and intermediates business, I think that will really mirror the Atali utilization and the way in which it is going to go ahead.

Understood. Sir, one just last bookkeeping question. Aarti USA, is there zero business coming by this entity? You had mentioned last quarter that you're going to wind it up. And also, if you could provide FY '25 CapEx breakup of roughly INR 400 crores that you have spent, that will be really helpful.

Piyush, you want to answer Aarti USA.

Yes. Piyush here. So basically, we never said we are winding up. The business is likely to go down because whatever business Aarti USA was doing for Aarti Industries, that's going to decrease. So if you have to give you a number in last quarter, Q4, the top line was INR 7 crores -- around INR 7 crores or so. So it is definitely coming down, but it's not going to wind down.

Yes. And on the CapEx also, we have given the number at INR 400 crores, INR 450 crores kind of a number of overall capitalization that we will have in FY '26. And I think it will be a mix of remainder of projects that we have for Atali and for Xanthine and there will be certain new projects, which will have certain CapExes over the current year.

Next question comes from the line of [ Yash Sinha with MIPL Family Office ].

I had 2 questions. First, around Xanthine. I just broadly wanted to understand the difference in realization between the pharmaceutical usage of Xanthine and the more consumer-focused usage of Xanthine?

Pharmaceutical and consumer, there would be 20% difference.

And volume-wise, what volume did we do for consumer and what volume did we do for pharmaceutical usage in FY '25?

So I think we have given the breakup this time that how much we have done with the beverages. I think we have done around 54% of our total volume and other is all pharmaceutical and unallocatable volume. So in pharmaceutical also the regulated is different. Spot is different. So it's a mixture. So beverages is 54% this last financial year, yes.

Got it. And on the CDMO side, I just wanted some color on the late-stage projects. If you are allowed to release the name of some of the larger clients that you have and what specific drug usage dealer the late-stage projects are for, that would be very helpful.

We are bound by confidential. So we can't reveal the names of the newer...

Therapeutic areas, can we talk about?

Yes, they are lifestyle therapeutic areas. Some of them are lifestyle, some of them are anticancer kind of products that we have currently, which are queued to go in.

So lifestyle includes things like skin care, weight loss, is that understanding correct?

Yes, all kind of lifestyle, antihypertensives or all.

Got it. Congratulations on a good set of numbers.

Next question comes from the line of [ Neha Karodia with Abakkus Asset Managers ].

My first question was on the CDMO business. So just wanted to understand that industry-wide CDMO business is more skewed towards H2. But for us, at least for this year, it was significantly skewed. So let's say, 10% in H1 and then 90% in H2 kind of distribution. So just wanted to understand going forward, let's say, in FY '26 or FY '27, do we expect this to more of normalize as in about 40% in the H1 or 60% or maybe some normalization versus the current skewness?

No, no, it will be volatile. If we have large volume customers buying at certain period of quarter, we are helpless. We have to supply them then, yes. But we are confident about the growth that we have anticipated. But there will be no linearity in the numbers.

Understood, sir. And sir, I also wanted to understand why the other income was negative for the quarter versus a run rate of about INR 4 crores to INR 5 crores per quarter?

Yes, that's because of the ForEx losses. So when we started -- at the beginning of the quarter, it was heading in one direction, rupee against dollar. But towards the end of it, it came down. So it's basically the ForEx loss.

Understood. And just lastly on the Ganesh Polychem business. So we did about INR 14 crores EBITDA in the last quarter from that business. And this quarter, it has significantly come down. So just wanted to understand how should one look at it going forward? And like is it more -- the business itself is more skewed towards Q3 and Q4 is usually low? Or how should one look at it?

Yes. For the Ganesh business that we have, actually, there have been some slowdown in overall demand. And what we have done is produced a significant quantity in earlier quarter. And then we are actually upgrading our facility to move to a lower cost production route of synthesis for these products. And that's why we have a shutdown, which is ongoing for that side, which is almost 3, 4 months. So that's why you will see in the current Q4 as well as Q1 of this financial year, the numbers will be impacted. But then once we start, I think we'll be able to make up the -- we will be able to come back to the normalization of the numbers.

Sir, since you mentioned that it will be lower cost, so going forward, should one expect margin expansion over the Ganesh Polychem business?

No, no, we will be able to be a competitive source, and we will try to get -- so once the market recovers, we will definitely be able to garner more market share of certain products, whereas we are trying to expand other products that we have and which has aerospace application. So that product is being used for jets and all kind of drones and stuff like that. So that product, we are trying to expand our volume, and that also will happen in coming year where we are doubling the capacity from earlier years. So with that, I think a couple of quarters of pain, but ultimately, the overall in future, it looks sound.

Understood. And sir, just lastly on our guidance, so we have guided for a medium term to grow about 15% for next 3 years. So any change in that or like over the medium term, are we more bullish or any change in the guidance?

So out of the 15 years guidance in 3 years, we have achieved 24% in first year. So but still, we are guiding for 12% to 15% growth in current year. And I think we will grow faster looks like.

Next question comes from the line of Ankit Gupta with Bamboo Capital.

Sir, on the margin front, in one of the earlier calls, you had stated that the margin difference between CDMO and API segment is not as what analyst community used to expect and it's around 4%, 5%. And how much will be the margin difference between, let's say, APIs and the Xanthine business? Will that also be like 4%, 5% or more or lower?

We are not giving the absolute margin difference between both the businesses or any of the businesses. CDMO is higher margin business and Xanthine is -- and API are reasonable margin business.

And sir, you also stated about entering into peptides and weight loss drugs. So is it on the API side or generic side or on the CDMO side as well?

CDMO side. Not weight loss, but we are attempting to get into. However, if we become successful, then we will be attempting newer drugs also.

It's still in the pipeline, not something that we have got in our -- it's still in the works and not something which we have in our pipeline is what we can understand?

Yes. We end up developing 20, 25 products every year. And these products are in different categories and even different. So we have done fewer large molecular weight products also there, which are part of the peptide manufacturing.

Next question comes from the line of Aman Madrecha with Augmenta Asset Managers LLP.

Sir, I just wanted to understand, as you mentioned that the margins in CDMO is higher than maybe the API and the Xanthine business. But if we see the quarterly contribution, we recorded somewhere around 22%, 23% EBITDA margin on an overall basis, wherein your CDMO portion was higher, Xanthine was lower. But the sense we are getting is that CDMO is somewhere diluting the margin. Correct us if we are wrong over here?

I don't know from where you are getting this margin data. I don't know what numbers you have because whatever I stated is that the CDMO overall gross margins are reasonably higher than the API and the other 2 businesses.

Next question comes from the line of Kumar Saurabh with Scientific Investing.

Thanks for good set of results. Sir, my question is on the margin side. Like in last 3, 4 years, we have done very well to improve the margin from 17% to 22% despite of a tough scenario on Xanthine. And given Xanthine margins are at bottom, how sure we are that we will be able to retain this 22% margin despite of whatever margin pressure comes on API or the CDMO side?

Yes. So basically, as you rightly stated, the Xanthine prices are at bottom for the spot market, okay? So they are different and our average is still healthier overall. And I think we are just expecting a growth in overall EBITDA. The margins may move 1% here or there, but I think we are quite confident that we'll be able to grow the EBITDA. Of course, there could be some volatility depending on the product mix and what we are doing because the top line, we don't too much bother about the top line. We bother about more bottom line growth, and that's what we are guiding basically.

Sure, sure. And sir, on the CDMO, I know you don't want to talk about the customer or molecules. But from a competitive side, can you elaborate like with whom do we compete on the CDMO side? Do we have an advantage?

Yes, yes, we are competing European, Indian and Chinese, all 3. In different products, we have different competitors. And that's how overall basket is lined up.

I mean, are these competitors of similar size or there bigger [indiscernible] advantage compared to them?

Yes, they -- some of them are bigger size. So however, we have also grown overall our overall top line and all that we are close to $250 million company. So I think others may be higher than us also, yes.

Sir, if possible if you can name your top 2, 3 competitors for studying?

We compete with all the large who's who of China, India and Europe.

[Operator Instructions] Next question comes from the line of [ Keshav Bagri with Barnwal Family Office ].

Sir, my question pertains to the API segment, where for FY '25, we have grown by 28%. So is it possible for you to bifurcate this growth into price, products, I mean, volumes and new launches, this 28%?

Yes. I think we had a few good products in FY '25 and certain products have done very well in FY '25. And we have exciting launch coming up in FY '26 and '27 also. So we have newer products and we have to see whether our partners are able to get the market share and how it goes with our partners because completely the model that we have is wherever we are primary source there, we have to rely on the partner's ability to retain the market share. And secondly, what we do is where we are very strong and where we have backward integration, we try to get into these companies as a second source. So there are certain such opportunities also which we are targeting. And with those approvals, I think will be gradual in certain products that we already have commercialized. And so we work with both these strategies in our API division.

Okay. Sir, can the growth of FY '25 be extrapolated to FY '26? I'm talking particularly for this segment, given the fact that we have some new launches coming up and we have the new position with the innovators. Of course, it is contingent on the fact that your partners they get or they retain the market share, but just to get an overview.

I think we can't say pinpoint depending on how it goes. But overall, I think we are confident about the EBITDA growth overall of the company. And that's what we generally guide for individual businesses. I don't want to give a guidance because, overall, I think it averages out and we grow our EBITDA. That's what the goal is, that how do we grow our bottom line.

Next question comes from the line of Kaushal Sharma with Equinox Capital Ventures Private Limited.

My question has already been answered.

Next question comes from the line of Ahmed Madha with Unifi Capital.

So my question is on the CapEx side. We spent about INR 400 crores in FY '25 and you are guiding for INR 400 crores to INR 450 crores for FY '26. So cumulative INR 800 crores, INR 850 crores, can you please break it up for us in terms of segment-wise for Atali, how much for brownfield Xanthine expansion, how much for solar plant, how much and for any other purposes, how much so this we can understand the breakup better?

Piyush, you want to take it?

Yes. So Atali cumulative would be about INR 400 crores, INR 425 crores out of INR 800 crores that we are talking about. Solar was around INR 85 crores. Xanthine expansion would cost us anywhere about INR 150 crores. And then there are other smaller projects. So that's how it adds up to the INR 800 crores a month. Then there is R&D also we are doing about INR 40 crores every year.

Capitalization.

Yes, yes.

And solar plant, what will be the savings for us already done for Q3, Q4, if we can quantify the amount and what kind of savings you expect for the full year next year from the solar plant?

Yes, Piyush, take it.

Yes. So I think we are -- what we began with was a payback period of around 3.5 to 4 years, and we are on track to basically have that kind of payback. So you can do the math.

Next question comes from the line of [ Vivek Gautam with GS Investment ]. Mr. Gautam? We'll take the next. It's [ Jai Shah from GS Family Office ].

Congratulations for a good set of numbers. I wanted to ask a question on the API and the CDMO side. It's a bit of a strategic question...

I think they've lost him.

We'll take a last question.

Yes.

[Operator Instructions]

Yes, the queue has somehow got disrupted. So I think we'll take a last question probably.

[Operator Instructions]

Yes, let us take Jai Shah question.

Yes, we have a question. It comes from the line of [ Banerjee with RAP Capital ].

Am I audible?

Yes, yes.

Yes. Sir, in recent past, we have seen there is a bit of selling by the promoter group. So is there any further plan for offering the promoter stake in the company? And if you can give some color on that?

Yes. I think those different promoter groups have different appetite to -- and long-term plans. So I think there will be minor selling here or there, but it will not affect overall control of the company or anything. So I don't expect very large change in the promoter holding.

Okay. And regarding the total borrowings that we have, currently, we are having around INR 400-plus crores of borrowing. So what do we see the borrowing in the next 1 year to go from here? And yes, if you can just give a color on this?

So next year -- in current year, I think the borrowing is likely to go up by about INR 100 crores to INR 125 crores, which would basically mean debt equity of roughly in the range of 0.23 to 0.25.

That's great. And sir, you have guided for 15% growth in revenue and 30%, 40% growth in your CDMO business. Going by that, I mean, we just calculated that it comes around 15%, 16% of the total revenue. Is my interpretation correct that in the next year, you're looking for CDMO revenue contributing around 15%, 16% of the entire revenue?

No, we have not guided for the revenue. So we have guided on the EBITDA, whereas we have guided on the top line growth of CDMO. So...

The last question comes from the line of Jai Shah with GS Family Office.

Can you hear me?

Yes.

So as previously I have connected, I was asking that you mentioned that over the next 3 to 5 years, a lot of molecules are going to go off patent. So what I want to know is how does the management basically look at entering into new molecules? And is it via backward integration that you choose the molecules apart from the chemistries that you already are in? And what is the amount of backward integration even you have currently in terms of your top 10 API molecules? And second question is, as you keep on increasing your wallet share in API, do you think there is in future an overlap possibility of one of your API intermediate clients getting into the CDMO basket as the comfort of the client increases?

No, largely, there will be certain products which will -- for which the patent expiries will happen. And as earlier mentioned, we have almost 8 to 10 APIs, which are constantly under the development, and then we are able to commercialize some of them every year. And we have more than 50 U.S. EMFs already filed. And with those different forms of -- and different formulations also keep on expiring in future. So with that, we get a chance to grab additional market share from the generic market perspective. Now in case of overall, the strategy that we have backward integration on almost 60%, 70% of our overall portfolio, barring, I think, some of the steroids at current situation because most of the steroid intermediates we have to source because of the fermentation-based product unavailability in India. And those are the only products where we don't have backward integration. Most of the other products, we have at least a good amount of backward integration. And as a model, we also sell our intermediates in some of these products. So we have almost our intermediate basket of more than 100-plus products also. which we offer to the other generic manufacturers who are vertically integrated. So that gives us an overall additional market share for these large products where the integrated players will win the market. So that is how the strategy works, and that's how we expect the growth to happen.

Understood. And on the second question, is there any possibility of an overlap between the existing API intermediate clients and the CDMO clients?

I think first, what happens is that innovator has to lose exclusivity and then only they become generic. So I think it will be ulta. It will be first CDMO/CMO. And then once it becomes generic, we enter the generic space. And I think that is what mostly unlikely to happen because generic -- the innovator still continues to be in the market and the market -- once the product expires also still, there are so many countries where are difficult to reach by the generic players. So that market share still remains with the innovator. And that's where the current market of the innovator still continues. And once innovator decides to sell off the product or do something with the product life cycle management, that's where the product can move from innovator-driven to the generic space. Whereas the CDMO business that we are focusing largely on, it's more for the newer products and not for the older products. So there are certain older products which have been genericized and still innovator wants to buy and they add us as a source. But our model is towards patent-protected products largely.

Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Yes. I would like to thank everyone to take the time out and attend our FY '26 final conference call. Thank you.

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