Aarti Pharmalabs Limited ($AARTIPHARM)

Ladies and gentlemen, good day, and welcome to Aarti Pharmalabs Limited Q4 FY '26 Earnings Call, hosted by YES Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sidharth Jain from YES Securities. Thank you, and over to you, sir.

Good evening, everyone. I'm Sidharth Jain from YES Securities Limited. It gives me immense pleasure to hold the Q4 and the FY '26 Aarti Pharmalabs Limited Conference Call. From the management team, we have Mr. Rashesh Gogri, Chairman; Ms. Hetal Gogri Gala, Vice Chairperson and Managing Director; and Mr. Piyush Lakhani, Chief Financial Officer. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. Without further ado, I would like to hand over the call to Rashesh sir for his opening remarks, and then we can open the floor for Q&A. Thank you, and over to you, Rashesh sir.

Good evening, everyone. I would like to welcome you to the Aarti Pharmalabs earnings call covering the fourth quarter and the full financial year concluded in March 2026. I appreciate your participation today. I will start with a high-level review of our financial health, followed by an update on our key business development and a brief look at our growth outlook for the coming quarters. Let me start with a summary of our stand-alone financials for Q4 FY '26 and full financial year FY '25/'26. The revenue was INR 580 crores for Q4, which was INR 530 crores a year back, an increase of 9% Y-o-Y. On a full year basis, FY '26 revenue came in at INR 1,798 crores versus INR 1,771 crores in FY '25. The EBITDA was INR 134 crore as compared to INR 141 crores in the corresponding period of the previous year for the Q4. For the full year FY '26, we achieved an annual EBITDA of INR 406 crores versus INR 428 crores a year back. The profit after tax for Q4 FY '26 was INR 62 crores as compared to INR 89 crores a year back. And for the full year, FY '26, the profit after tax stood at INR 176 crores versus INR 257 crores in FY '25. It is noteworthy to mention that profit and loss account for the financial year FY '26, there was a net foreign exchange loss of INR 33 crores. I'm pleased to inform you that the Board has declared a final dividend of INR 2 per share, and this brings the total dividend of FY '26 to INR 3.50 per share. Now let me present a few business highlights for each business segment. The Xanthine derivative segment recorded the highest ever quarterly revenue and contributed to 43% of our turnover in Q4 FY '26. The volume split was 74% beverages customers and 26% other. In terms of geographical split, the export sales was 63% and rest 37% was local sales. The API and Intermediate business stood at 28% of the turnover. The subsegment wise breakup is 53% regulated market, 30% ROW and 17% non-reg market. Looking for ahead to FY '27, we anticipate Y-o-Y growth for this business. However, it is important to recognize that persistent competitive pressure in the market headwinds affecting our product portfolio. The third segment, CDMO/CMO has contributed to 29% revenue in this quarter. This segment also locked the highest-ever quarterly revenue of INR 155 crores as of FY '26 and we are working with 21 customers, and the number of active projects is 54, out of which 35 projects are in the commercial stage and 19 are under different stages of development, both at customer ends. For the full year FY '26, the CDMO/CMO segment has shown a robust revenue growth of 32% Y-o-Y. Nearly all of our revenue came from Phase III molecule -- Phase III and commercial molecule reiterating a clear focus on late risk projects. The impact of ongoing war, geopolitical tension in West Asia has caused significant raw material shocks, including logistics hurdle and rising energy costs. These inflationary pressures have strained profitability and supply chain operations, particularly in the Intermediate segment, where competitive pricing mix cost passing difficult. However, our 2 other business units have reasonably been able to pass cost hike in our customer pricing. Let me now discuss the updates on the expansion projects. We have invested approximately INR 400 crore capital in -- during the financial year '26, and we plan to maintain a similar level of spending for the FY '27. The budget includes ongoing Xanthine expansion, debottlenecking at Tarapur Unit 4 and a possible new production block at Atali. Atali is now largely passed start-up issues, which were encountered during the ramp-up of Phase 1 with the corrective actions majorly in place, we are progressing well with the production scale up. And Phase 1 is likely to become completely operational by the end of this current quarter. Having cleared the customer audits, the site is well positioned to support CDMO and Intermediate production in coming months. The Phase I of Atali which comprised of 440 kl of reactor capacity, it is a multipurpose block given the current visibility. Within the CDMO segment, we are assessing to put up a dedicated manufacturing block tailored to our specific projects. There are 2 specific projects, this dedicated assets offer superior operational efficiency and require lower CapEx. Currently, we are in preliminary stage design and planning stage of this block. And the completion time line could be expected 12 months from the construction commencement, being a brownfield project. The Xanthine derivatives expansion is progressing as planned, with current capacity being 6,000 metric ton per annum, and the incremental capacity will be available for production at the end of the current quarter. And the ramp-up up to 9,000 metric ton per annum in next few quarters gradually will happen. Recently, the steroid block at Tarapur Unit 4 has undergone the debottlenecking resulting in capacity increase by about 1/3 capacity of existing capacity. Similarly, there are a few more brownfield expansion initiative planned at our Tarapur Unit 4 USFDA approved API facility in the financial year '27 to increase the capacity of anti-cancer in other blocks. We have decided to invest in R&D of tides, that is peptides and oligonucleotides. And this investment done in new R&D technologies will yield -- will not yield immediate reserves, but has a good potential in the future, and we would like to explore these newer technologies. Looking forward, we are confident that our recent investments and expanded capacities will drive significant momentum across our businesses. Based on current project visibility and the operational ramp-up, we are again 15% to 18% growth in both revenue and EBITDA for next 3, 4 years. For immediate FY '27, we expect the CDMO/CMO business to lead the growth with a projected sales growth of 40% to 50% per annum. Moving forward, we remain focused on driving operational rigor, expanding the market reach and investing in the talent and technology essential for -- to our long-term success. The moderator may now open the forum for Q&A session. Thank you.

[Operator Instructions] We have our first question coming in from the line of Ankit Gupta of Bamboo Capital. Ankit, please go ahead with your question now.

Yes. Sir, on the -- a few questions on the CDMO side, sir. So if you can elaborate on this dedicated block that you're planning for the CDMO project at Italy. So is it for the molecule, which has recently got approval for hot, hot flashes or is it for the molecule, which is under Phase III and for lowering LDL or some other new molecule? If you can elaborate a bit more on this project and upon completion, what can be the revenue potential from this new block? And when do you expect to reach that?

We are exploring, putting up this dedicated block, which can manufacture several of these potential long-term projects for us. And we are working on overall capacity and working with customers on what kind of visibility they are able to give us in the coming quarters. And once we have some strong understanding of that, I think in the future quarter, we'll let you know. But I think, as you know, we have a very strong pipeline of these products, and these products can have very good revenue in the future. And that's how we have projected line of sight of close to $100 million in CDMO segment going forward.

Sure. And what can be the potential from this block and this molecule or when we start operations from them -- from this new block?

I think we are assessing all the possible options and working with the customer over their demand. Bills which, I think, of course, the current Atali is capable of manufacturing it in multipurpose block. But in future, I think dedicated block would be prudent so that we keep on freeing our multiples capacity for the newer projects. So that is how we are going to work. In all the projects which enter into this commercial phase, post Phase III or launch, and the customers have higher visibility, those products will move to dedicated block where we have 5 to 10-year visibility of these projects. So we will start with this kind of approach. And this is what all the larger CDMO also do. And that can give us higher visibility. I think depending on how we configure this, it can have potential of close to INR 250 crores to INR 300 crores top line also single block. Yes.

Sure, sure. And sir, on our overall guidance for the CDMO, if you look at our FY '26 performance, we also had some spiller of CDMO revenue from Q4 FY '25 and like with Atali commencing operations in a full fledged way by June '26 audit has been completed. So shouldn't we expect higher growth in FY '27 given our lower base in FY '26? And overall in the segment -- in the CDMO segment, with this what we starting dedicated blocks, are we on track to reach INR 1,000 crores revenue from the CDMO segment in FY '28 or max by FY '29, as you have been highlighting in the earlier calls?

Yes. Basically, the traction is to reach this goal as soon as possible. Of course, it depends on the customer projections and how the products get launched. We have some visibility on approved products, but I think there are a few products which are still going to get this approval. And that's why we don't have a firm number how we will reach and when we will reach this number of $100 million, but that number is there, and we are pretty sure that we will reach that number going forward. And I think -- and that's what I can share with you to now.

Sure. And just one last question on the API segment before I come back in the queue. So sir, API segment last quarter -- last year, we saw a significant degrowth. You had highlighted about price erosion and inventory destocking, which was happening for some of our newly launched products in FY '25. And we have some decent launches in plan -- in the oncology side in FY '27. And you did highlight about growth in the segment in FY '27. So what kind of growth are we looking in the API segment? And if you can also elaborate a bit more on the launches planned for FY '27 and FY '28?

Yes. So for FY '27, I think, as you rightly mentioned that FY '26 was a soft year. And of course, it was marked by inventory issues and the issues that our customers and -- and I think we are looking at growth in FY '27 going forward because we actually degrown in last quarter -- last year over earlier years. So I think we will be definitely able to surpass that number and further grow our API business beyond FY '25 number. So that's what we are looking at. So it should be around in that.

Yes. So we'll be surpassing the FY '25 numbers that we did or like [indiscernible]

No, no, we will be able to surpass the FY '25 numbers of API intermediates. Yes.

So we were around INR 770 crores. So we should be able to surpass that in FY '27?

I think it was INR 700 crores. That is what the split I have. So here, we did INR 600 crores. So.

We'll take our next question from Meet Katrodiya of Niveshaay.

Yes. My question is on, let's say, our EBITDA guidance of 15% to 18%, right, sir. But if I reconcile the EBITDA, the math, right, so you are guiding your CDMO vertical will grow 40%, 50% next year. Xanthine is also ramping up. So can we expect a much higher growth in FY '27? I'm not asking for a specific guidance. Just directionally, if you can share anything on this?

So I think we don't want to give a pointed guidance for this year. So we are giving a general guidance of 15% to 18% because the projects keep on shifting by a quarter, and that can really hamper our numbers. And as you rightly mentioned, there are a lot of different plans which are going to do the ramp-up. And those costs we will have to absorb whereas the production ramp-up will take some more time. So I think they have to be a little patient about overall how the profits will ramp-up in future. So that's what I have commented.

Got it, sir. And sir, another question on the Xanthine part that crude prices have gone up, right? So I just want to understand, are we able to pass on the prices, how we are familiar, is there any lag? Second is [indiscernible] is also removing the rebates, right? So pricing of the Xanthine is increasing. So I just want to understand how much peak revenue we can do from Xanthine as that from new total capacity Xanthine is going to be live?

Yes. As you rightly mentioned, the costs have gone up because of the Middle East conflict, and we have been pushing our customer for the price increase, and we have had some success on on that. And it is quite logical that we cannot absorb the full cost of the Middle East contract, which for certain products was quite heavy. And in terms of overall revenue, we feel that with this current new capacity expansion, it can be well beyond INR 1,000 crores, from the Xanthine newly added capacity and already whatever that we are doing. And in this current quarter only, we have been able to do close to 200 and -- significant percentage of sales as has happened in the current quarter also. So INR 227 crores was what we did in the current quarter.

Got it. Sir, on the CDMO positioning as compared to our peers, the most of Indian CDMOs works on maybe early phase molecules also, right? So our model is a little different. We work on a more commercial stage molecules, right? So maybe I will just some understand -- I want to have some understanding, let's say, how does the margin profile differ compared to our CDMO peers? And their revenue is lumpy, right, quite lumpy because they have only 2, 3 commercial CDMOs and our is structurally good and less lumpy. So I just wanted to have your view on lumpiness plus margin profile as compared to our peers.

Yes. Basically, Aarti Pharmalabs and entire Aarti Group is having a focus on chemical manufacturing and pharma manufacturing. So our genesis is manufacturing and that's what we specialize on. And that's where we get the core value. Of course, now we have R&D centers, which can do much complex R&D also. And as I mentioned in the opening remarks during my speech also that we are going to enter into this newly -- the peptides and oligonucleotide linkers, this kind of chemistry going forward. So that's where we will also try to do early phase work with our customers. Currently, there is a lot of traction towards moving away from China because of the U.S. customers wanting the products to be coming from a differentiated geography. And that's where we found a lot of opportunities, and that's how we could get a lot of projects from our customers. So that's where we have been concentrating till now, but we are open to doing work even at early phases, and we have certain projects which are also bit of early phase or Phase 2 moving to 3 kind of projects as well.

Got it. Sir, can I have a follow-up on this?

Meet, I'm really sorry. Would you like to rejoin the queue? We have other participants as well. We have our next question coming from Yash Doshi of Unify.

So regarding the Xanthine, if I'm not wrong, we have done a turn of around INR 250 crores this quarter.

Rashesh sir, can you hear the question?

No, no.

Yash, can you speak closer to the microphone, please?

Am I audible now?

Yes, yes.

So in Xanthine business, we have done around INR 227 crores on all in this quarter. So whether it was more of volume led or price led since the prices have gone up for Xanthine in last 2, 3 months? And just along with that, what has been the capacity utilization for Xanthine this quarter?

See, currently, we are operating 6,000 metric ton per annum capacity before the current new block comes into the operations, and we are fully utilizing this capacity. And current, I think overall sales were led by both, I think, quantity as well as the overall rate changes that we affected in this product.

Another thing was regarding [indiscernible] we surpassed the FY '25 numbers for API Intermediate. So which product gives us the confidence that we'll be able to surpass -- surpass it? Any product pipeline specifically?

See, we operate in steroid space where we have recently debottlenecked our capacity by almost 30%. So that will also show some growth. We also have certain products which are getting expired in this financial year in the general category as well as the anti-cancer category. And these kind of products and certain products have been launched by our customers in U.S. and Europe markets. So all these will give us higher sales than the last year.

Last thing on the Atali project, which has just been commercialized, can you just quantify the OpEx hit which we have got?

I think we are not sharing these granular details now.

And there are not any one-offs, right, in the OpEx. It's all make me -- cost of the Atali project being commercialized.

Yes, there's no one-offs in from the Atali plant.

Have you got approval for USFDA and EU GMP for Atali plant?

No, no, Atali plant is going to supply the Intermediaries. So it is not getting any inspection for the FDA. But I think we have started doing the work for innovators there, for which we have got several innovators come and approve.

[Operator Instructions] We are taking our next question from T. Manish of Carysil Limited.

Is it now clear?

Sorry, Manish, we are not clearly able to hear you. Do you want to try it 1 more time?

Yes. Is it now?

Yes. Yes, we can hear you.

Just I want to know, since the margins, the [indiscernible] margins have been already conducting this quarter. So is it largely because of the rising raw material prices and the logistical issues due to the West Asia crisis or anything else? And if it is due to that, so are you seeing the things furthering Q1 of fiscal '27 because only 3 months have [Technical Difficulty]

Yes. I think on the overall expenses have been, I think, nearly similar to what we have got in previous year. Piyush, you want to answer?

No, see, quarter-on-quarter, the margins -- EBITDA margins have remained almost flattish. So are you asking compared to the last year?

Yes.

So last year, obviously, we have added a few facilities. So those will take time to ramp up, but then the cost is, we are basically incurring at full capacity. So that's where the cost has gone up a little compared to last year, and that's what is impacting the margin.

Yes. And on this West Asia, I think this -- you mentioned about the cost increase also?

Margins.

Margins. Yes. Yes, yes. Okay. Anything else you would like to have a clarification?

For [Technical Difficulty]

Sorry, Manish, we are still not able to hear you clearly.

So the pricing cost, are you planning for any pass-through of these costs to your buyers for the API and Intermediates or for the CDMO players? Because the cost increase is significant, but...

Yes, yes. As I mentioned in the -- my speech already, we are able to do some pass-on in CDMO as well as the Xantine segment. In API segment, on the already orders which we have on hand, it is difficult to change those orders because these are all high-value drugs. But I think in the future, we will try to get some increase going forward. Of course, it depends on the competitive scenario for each and every product, but there are a few strong products, which we have where we can get price increase as soon.

We'll take our next question from Rahul Jain of Credence Wealth.

First of all, since the CFO is also here, there is some confusion on the numbers, which have been spoken in the current con call by you and also based on the numbers which are there in the PPT. So if I take the PPT itself, the stand-alone numbers, which are mentioned in the PPT and the percentages. And we have always said that these percentages are to be applied on the stand-alone revenues. So based on that, sir, the FY '25 API number is INR 772 crores, which has come down to INR 650 crores, roughly INR 647 to be precise. So then to a previous participant, you said we will come back to our FY '25 revenue in FY '27 in API Intermediates. Are you talking about going back from INR 647 crores to somewhere around INR 770 crores or you mentioned INR 700 crores. So a bit confuse on that, number one. Another confusion also is on the CDMO and Xanthine side, again, based on the PPT proportions and the numbers given, the Xanthine quarter 4 revenue is roughly around INR 244 crores. And the CDMO revenue is about INR 169 crores. For the full year, it is INR 296 crores. The PPT mentions INR 276 crores and INR 155 crores for CDMO. And just now, I think you mentioned about Xanthine being INR 227 crores. So if you can first clarify this or there is some confusion on this number, sir.

Yes. I think there are some undistributable as certain sales, which is some trading activity sales or some number, which gets knocked off. So I think overall, I think you are correct. So the CDMO sales for this quarter is INR 155 crores. And for the entire year, it is INR 276 crores, for your clarification. And in Xanthine sales for this financial year is INR 792 crores and for this quarter is INR 227 crores. So please note these numbers. Yes.

Then, can we get that what is the kind of trade turnover or if is it...

It is around INR 50 crores, which changes this percentage, but that's not very significant, but that has an impact of few crores here and there.

Okay. So just to understand, sir, you mentioned that INR 1,000 crores of Xanthine revenues we can do in the current year FY '27. And we have already spoken about 40%, 45% growth on the revenues in CDMO and also with regards to API, you mentioned. So if I try to sum these numbers up, then -- and also based on the CapEx, which we have done in last 2, 3 years, do we feel that the guidance which we have given both for revenue and EBITDA is a more conservative number as far as FY '27 is concerned?

See, first of all, my guidance is for 3 to 4 years. So FY '27 numbers, basically what happens is the annual number pinpointing becomes difficult because of the CDMO/CMO nature. And the kind of approvals which our customers will get. So depending on that, the revenue can move from 1 quarter to other or half year to second half year. So that's why we are -- we have decided to give longer-term guidance. I think looking at the current scenario, it is possible on the top line growth. Definitely, we will be able to grow the top line. Of course, on the EBITDA, I think we have to look at overall West Asia crisis and how the war situation moves ahead and how the things normalize in the future? And what will be the rupee going forward. So all these factors have a lot of bearing on overall EBITDA. So we will have to wait and see what happens.

Rahul, would you please rejoin the queue? We have other participants waiting please. We have our next question coming in from Dhwanil Desai of Turtle Capital.

Yes. Sir, 2 questions. So if we look at historically, in last 3 years, we have spent INR 1,300 crores, INR 1,400 odd crores of CapEx. And as you mentioned, FY '27 -- including FY '27, and we are kind of catching up in terms of ramp-up, it will take its own sweet time. So are we -- should we look at our company going forward from next year onwards, capital intensity coming down and more kind of ramp-up revenue catching up and hence, EBITDA to PAT conversion getting better? Is this how we should think or we'll continue to invest this kind of capital going forward?

See, I think last year, we spent INR 400 crores. And the year before that, we spent INR 200 crores approximate. No, no, last to last year we spent INR 200 crores. So total INR 600 crores spend. This year, we plan to spend another tentatively INR 400 crores going forward. And of course, these are for the projects. Whereas this entire Atali CapEx itself was close to INR 450 crores. And also the CapEx for the Xanthine expansion was also. So these 2 were very large CapExs, which we had to, of course, Atali being greenfield, we had a lot of first-time CapEx. Now looking at newer blocks, which can double the capacity will be at much lower cost going forward. So we have to bite in the first round of higher CapEx in Atali. As far as other CapExes are concerned, we are trying to do more brownfield where we did expansion of our API facility in steroid block expansion and [indiscernible] block coming in future. I think these days current year capacity expansion that is planned. We have earlier mentioned on our call that we want to do every year, 1 block at Atali going forward. And we will stick to that as our projects move to commercialization phase, we will have more and more manufacturing will move to Atali in the future. And I think overall, to meet our long-term revenue growth of this 15%, 18%, we have to grow our manufacturing footprint. And that's for which we have to do the availability of volumes beforehand. And we are doing appropriately expansion to manage the overall capacity.

Got it. Sir, my question is that I understand the need to expand. But I'm saying because most of this expansion going forward will be brownfield. Generally, the ramp-up is faster and the CapEx outlay is lower. So the depreciation and amortization is much lower. So is that how the equation will pan out from FY '28 onwards? Is that how we should look at it?

Yes, yes. From FY '28 [indiscernible] that is what will happen, but we had to do more CapEx greenfield in this year. And capacity of Xanthine also requires some greenfield and some brownfields, which we had to...

Got it. Got it. Sir, the CapEx intensity will come down from FY '28. Yes. Yes. And sir, second question, so we have guided for next 3, 4 years, 15% to 18% revenue, 15% to 18% margin. But in the previous commentary, we have talked about CDMO being the highest margin followed by Xanthine, followed by API. And if I look at the CapExes that we have done, the large ones that we have done are mainly on the CDMO Xanthine side. So of course, the proportion of revenue from Xanthine and CDMO will go up in the overall pie. So ideally, that should lead to margin improvement and hence, much better EBITDA growth than revenue growth. I mean, that's on a conceptual level, so what am I missing here?

So in Xanthine, currently, we are trying to capture all the marquee customers. As our higher capacities will come, we'll have to go after more spot market. There, of course, we have to fight with our competitor and get that volume. So that is where definitely the top line growth will come. But overall, I think EBITDA growth will not catch up that level. I think in CDMO/CMO also as we commercially ramp up the products, I think the volume can grow faster, value can grow faster. But of course, we have to get lower margin expectation as we increase our sales for the commercialized products. And of course, slowly, I think once we catch up on this manufacturing and commercial in the benefits of -- that's why we are doing -- looking at doing for purpose expansion for these kind of projects so that the plants are designed for what they are manufacturing, so which can get more years, more recycling of solvents and stuff like that in future. And then the cost efficiencies can come in, in future. So that is to be seen. But overall, that's where we are in terms of EBITDA and the top and the revenue.

We'll take our next question from Preet Jain of Nivesha Investments.

Sir, my question is on the Atali plant CapEx. So sir, Atali block level -- I want to know the block level economics of Atali plant and now the common [indiscernible] are in place, what is the incremental CapEx and time line for additional block at Atali? Would we expect the asset turns to step up in subsequent change here, your guidance was 1x, 1.2x per ton. I want to know that any revision to that? Or are you intact on the guidance only?

I think for the dedicated blocks, we anticipate CapEx turn of 1.5x to 2x. Of course, it depends on the number of stages that we are doing. We are doing quite a bit of stages, then this CapEx turn can reduce, but the margins can grow. So I think for the near future, whatever the current visibility that we have, we are looking at 1.5x to 2x on the CapEx turnaround.

And sir, my other question is on impact of RM cost on margin. First, for Xanthine, has sulfur urea as RM impact, and second, UPI RM cost pass-through, logistics for what margin impact -- can you quantify this in value term?

No. So overall, I think, as you rightly mentioned, in Xanthine, we have several raw materials, which or urea and methanol and methanol-based derivatives. So all these prices have gone up by 2x or whatever they were earlier. And in certain other raw materials, of course, the prices have also gone up by 30%, 40%. We are testing our customers to take proportionate price increase for this. In case of API, I think largely the impact has been because, as you know, we are into high value, low volume API, I think largely the impact is on the solvents. And Aarti Pharma has a lot of solvent recycling capabilities. So that is being fully utilized. Even our Atali plant also has a solvent recycling facility. So wherever permissible as per GMP, we try to recycle this solvent so that this impact can be minimal. But still, I think this impact remains. Also, of course, the logistics impact also remains, I think, anywhere between I think 5% in the raw materials, we are seeing this overall impact of solvents and other cost escalation, 5% to 7%.

And my last question is on for your active CDMO customer has stayed from 2021 for last 5 consecutive quarters. I want to know that with other players, they are shifting from China plus 1 value chain. So could you please help us understand are you in active engagement RFP stay with any new customers that simply haven't translated to any commercial projects yet? And on the new business funnel, what does your inquiry pipeline look like, like today versus 12 months ago?

No, I think in year 2025, we had overall slowdown because of the global uncertainties and the tariffs. You know how and where the manufacturing should happen. I think that situation has stabilized a little bit, and we are seeing some inquiries get more inquiries getting generated now. In case the number of customers which are 21 currently. But of course, we are engaging with the same customers on the newer projects as well. We are also engaging with more new customers as well. I think in future, we'll see this number grow in this current financial year.

We'll take Yash Sinha of MIPL with his question now.

Yes. Sir, I just wanted to understand, this quarter, we saw slightly muted performance in the intermediaries business because of the feedstock inflation that you mentioned. I just wanted to understand how has that evolved so far in Q1 of fiscal '27 given that those key raw materials are still inflated, what kind of communication have you had with your clients about potentially at least passing on some of this expense this quarter? Or do we expect that for the rest of this financial year performance in the B2B business to be kind of muted.

Yes. I think as you rightly mentioned, there was a lot of price increase due to the Middle East crisis. And for the orders which we had already on hand, I think the customers have resisted giving the price increase because these are all high-value, low-volume projects that we have. I think, however, they remain committed that for future, they will be able to give us some increase in future. Normally, these projects on which we have these orders are campaign-driven. So we have once in a year or once in every 2 quarter order from the customer. So this is not a regular item. So we have to see what will happen in the future and how the raw material pricing will remain in future going forward and how much price escalation that we can get from these existing customers. But however, any new inquiry, we are able to quote at a revised cost basis where the new orders that we will accrue will be of a little bit of improved pricing over last pricing.

Got it. Got it. Lastly, just a question -- a bookkeeping question from my side. This quarter, we saw that INR 33 crores onetime ForEx led a loss. Do we have any other forward contracts currently on our books that can potentially lead to a onetime hit like this in financial year '27?

I think everything has been accounted for going forward. I think we don't have anything unaccounted, which is beyond 6, 8 months. Of course, we have term loans.

So basically, Rashesh, this INR 33 crores comprises of what the gain on the operations, that is export minus imports, okay? So that is a gain of about INR 22 crores -- and INR 23 crores of this INR 33 crores is the foreign currency loss or notional loss that I incur on my foreign currency loans.

Got it. This is not a cash loss, right, so just to confirm.

No, no.

our next question from Shubham Agarwal of Burman Capital.

Sir, I just wanted to understand that your OpEx costs have obviously gone up by 43% year-on-year and about 13% quarter-on-quarter. I just sort of wanted to understand what is the largest driver of this increase? And should we like expect to the OpEx cost to remain at this level going forward and therefore, your margins can come under pressure in FY '27.

So basically, we have additional almost 440 kl capacity at Atali plus another 250 kl at our lease side. So combined -- coming on our books almost 700 kl from the FY '27 Q1. So which is a very large multipurpose capacity as against our earlier capacity of around 1,000 kl. So it's almost a 70% increase, which has happened from the previous years' numbers to FY '26 number and going forward also. So this increase and overall our man hour, which have been locked in over previous year have also increased significantly, almost 50% to 60% over and above the earlier year man hours. So as we expand our manufacturing footprint for these multipurpose projects, I think the costs are increasing. And of course, as the ramp-up happens, you know that the revenue increase will also come.

Sir, you mentioned that your capacity leases are largely gone in Q1 as well. So like should we expect another step jump in your operational costs from Q4 to Q1, FY '27?

So I think not Q1, but I think from Q2 -- Q1, Q2, you will -- Q2, we will have a step jump, because as we mentioned, we are finishing our Xanthine expansion also in Q1 for final product capacity. And also we are completing the Atali all Phase I completion, whatever the small block that remained that will also get completed and fully capitalized. So this is both coming in, I think, next quarter onwards, we will have full operations on all the expanded assets.

So sir, due to this other increases happening from Q2 onwards, like can we expect the margins for the company to like go below 30% where we can see large pressure coming in?

No, no.

Okay. Okay. Understood. Sir, lastly, on the Xanthine prices, can you just help us out with how much price increases have we seen so far due to the Chinese rebates going away and because of the war conflict if you can just quantify that part?

I think Chinese rebate was close to 11% or 13%, I think. 13%, and that's what I think overall, the prices increased due to that. Apart from that, I think in U.S., there is a 20% tariff also 25% tariff on China. So considering those benefits that we have, we have been able to get those price increase, particularly for the U.S. market from our end.

Sir, can you just help us with the...

Sorry about that. Shubham, we have other participants waiting. Can you rejoin the queue, please? We have Tushar of Omega Portfolio Advisers.

I just wanted to understand like in terms of if you convert our revenues in the dollar adjusted terms for the 55% of your export revenue, we see that there is a 5% of degrowth in the revenue. And I just wanted to know in terms of your view on the API front, also the pass-on of the prices. So how do you see the growth coming in adjusting for the dollar terms for the next 1, 2 years? That would be the first question. And sir, secondly, in terms of -- you said that the CapEx costs are front loaded. So when can we expect that balancing figure in terms of the EBITDA contribution from the CapEx is from which quarter or at least on which half start materialize in terms of the margin expansion or at least maintaining that?

I think overall, the foreign exchange rupee-dollar has moved significantly over the last couple of quarters. I think earlier part of the year was not that big change. So overall, I think CapEx -- the rupee adjusted -- anyway, we have mentioned that API, Intermediate, there was a degrowth, definitely on that segment. And that has resulted in overall muted growth in rupee terms in our top line. So and in terms of the overall capacity and the EBITDA catch up, I think it will take at least 1 year from now for the current CapExes which are coming on stream in Q1 to meaningfully contribute to the EBITDA and normalization to happen.

And sir, this post the CDMO scale up, do you see the working capital to increase? And if yes, then by what number?

We have to account the working capital increase because most of these projects have one-time or time deliveries in a year. And as we grow the sales of single projects that we have and if they are large projects, we end up carrying a lot of inventory and manufacturing across our facilities for many quarters till we deliver this. So we have to see how it goes in the future. Unfortunately, these large customers don't pay us advance. So we have to finance this inventory ourselves.

We are taking our next question from Bhavika Sanghvi of CJ Shah.

So my first question is I want to understand that in Q3, CDMO mix was very high. Still our gross margin was less Q-on-Q. So is it one kind of event or did we experience any major raw material pricing pressure in any division?

So I think overall, this quarter, we had INR 155 crore consignment of last quarter to moving to this quarter, in terms of revenue getting increased in this quarter. Otherwise, last 2 quarters would have been INR 100 crores, INR 100 crores each of CDMO sales. As we over previous quarter previous year, we have more operational assets to digesting and which has resulted in higher manufacturing costs -- and I think in going forward, as we do more meaningful production from these assets, revenues will increase and they will compensate for the cost increase in future.

Okay. And other I want to understand from the valuation point of view, in a global innovator shortlist stadium or partners. Does Aarti Pharmas like Aarti's financial strength, specifically because we have a very unique balance sheet as we self fund CapEx from the Xanthine cash flow. So I just want to understand that how the evaluation work, does it pay in our favor? And also for the Atali unit specifically have full customer commitment in place for the capacity being built, right now? This is just to understand our broader CapEx philosophy that do we only commit to build capacity after a customer is signed? Or do you some time build it is speculatively and then budget. If you can help me understand this.

Yes. Overall, for the CDMO, we are definitely doing the CapExes keeping long-term plan in mind. I think there is a mix of multipurpose CapEx and custom-built manufacturing facilities that we plan to do in future. for several projects that we have, we have near long-term understanding from the customers, what kind of volumes these kind of drugs once approved, can reach? And once we have this greater visibility, we are putting up these kind of assets to meet our innovator customers demand going forward. Largely, I think, the custom build facilities are on the basis of a sensible forecast that we have from these customers. Of course, these customers cannot be held at gunpoint at if they don't buy from us. But we have to have use our judgmental call for our CapExes. This custom build facilities, of course, have the certain reactors, which can also be made purpose fully multipurpose also in future, if there are any issues with these customers. But largely, I think we are following with their guidance. And as long as we continue to work and meet the customers' expectations on quality and the deliverables, I think, we'll continue to get more revenue from these questions.

I think we missed the first question -- first part of the question that, does our unique balance that help us shortlist by our CDMO partners?

Yes, yes. I think, yes, I think while we get shortlisted adding a few things. Our manufacturing capabilities, overall unique ability to scale up the production from kilo let and put up the assets unique ability to do a very backward integrated player where the China dependence is reduced. I think apart from the balance sheet, these are the other factors which play. Of course, the chemistry also plays a big part now with the R&D and the addition of our CSO also, along with the other team members have also one of the factors why we can get more projects.

We're taking our next question from Deep Gandhi of ithoughtpms.

Sir, first question is on the CapEx side. As you have guided that this year, you will do INR 400 crores CapEx, but I don't think share a breakup. So can you give us a broad breakup in what all areas is this INR 400 crores going to be spend? And does this also include [indiscernible] dedicated block?

Yes. I think it's a mix of CapEx where we will be completing the Xanthine in this current quarter. So there are certain projects which are ongoing on this Xanthine front. Also, we'll be finishing our capitalization of the Atali earlier Phase I is starting Phase II there also. So all these projects and of course, debottleling. I think these largely 3 buckets where -- and fourth bucket will be, I think, normal CapEx that we have, the replacement CapEx. So I think more or less equally spread out among all 4 largely, plus or minus 2. And of course, we will also spend on R&D.

And does this include the CapEx for dedicated block? Or will that be a separate number, which you will share later on?

That has been factored.

So how much will be the CapEx for dedicated block?

We are still working that down. So once we have some numbers, we'll [indiscernible]

And sir, on the Xanthine side, can you broadly call out what was the volume growth and value growth for this quarter on a Y-o-Y basis, the growth which you have seen?

I think that we'll have to look at the Y-o-Y numbers. But as we have mentioned, we are operating fully. So we are utilizing our plant at 500 tonnes per month. And we have given you the revenue numbers.

We have Vikas Sharda of NTAsset Management.

One clarification on the foreign currency loss. So in the P&L, there is a line item of INR 17 crores. And in the table below in notes it says, INR 13 crores. So are these overlapping numbers? And how does the overall the foreign exchange impacted the results this quarter or, let's say, going forward?

Yes. So INR 17 crores is the total ForEx loss for the quarter. And the INR 13 crores is on one of the contracts. So that's where the difference is. The INR 17 crores, as I mentioned earlier also, it comprises of my gain on the operations. That is my exports receivable on exports less payable on the imports. And then the loss on the contracts, the foreign currency contracts that we enter into. And then there is a third portion, which is the increase on my foreign currency loans, which a part of it, we undergo foreign currency loans. So that is basically a net effect of that is INR 17 crores.

Got it. And when you look at the EBITDA, when you guide for EBITDA, you exclude this line item or you include that?

Exclude.

[Operator Instructions] So ladies and gentlemen, due to a paucity of time, we will take that as the last question for today. I will now hand it over to the management for their closing remarks. Over to you.

Yes, I would like to thank everyone who could take the time out to attend this call. Thank you.

Thank you so much. As there are no further questions, on behalf of Aarti Pharmalabs Limited, this concludes today's conference call. Thank you all for joining us, and you can now click on the leave icon to exit the meeting. Thank you all for your participation.