Aether Industries Limited (AETHER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '23 Earnings Conference Call of Aether Industries Limited, hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nilesh Ghuge from HDFC Securities. Thank you, and over to you.

Thank you, [ Ashesh ]. Good afternoon. On behalf of HDFC Securities, I welcome everyone to this Aether Industries conference call to discuss the results for the quarter and financial year 2022, '23. From Aether Industries we have with us today, Dr. Aman Desai, Promoter and Whole-Time Director; Mr. Rohan Desai, Promoter and Whole-Time Director; Mr. Faiz Nagariya, Chief Financial Officer; and Ms. Shubangi Desai, Executive IR. Without further ado, I will now hand over the floor to Mr. Shubangi Desai to begin with the earnings call for Q4 and FY '23. Over to you, Shubangi.

Good evening, everyone, and thank you Nilesh for the brief introduction. Last Saturday on May 6, 2023, our Board has approved the results for the fourth quarter of fiscal year '23 and year ended on March 31, 2023. And we have released the same to the stock exchanges as well as updated the same on our website. Please note that this conference call is being recorded and the transcript of the same will be made available on the website of Aether and exchange. Please also note that the audio of the conference call is the copyright material of Aether Industries Limited and cannot be copied, rebroadcasted or attributed interest or media without specific and return content of the company. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectations on future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Aether Industries or its officials do not undertake any obligation to publicly update any forward-looking statements whether as a result of future events or otherwise. Dr Aman Desai will begin by sharing the ongoing expansions and strategies of the company going forward. Then Mr. Faiz Nagariya will cover the financial highlights for the period under review and Mr. Rohan Desai will talk on a high-level overview of Aether's business. Now I hand over the call to Dr. Aman Desai who share the updates. Over to you, Dr. Aman.

Thank you, thank you, Shubangi. Good afternoon, everybody. In spite of it being a Monday, I do hope that everybody is doing well, and I'm happy to connect with you all to discuss the performance of our company for the quarter 4 and the full year of fiscal year '22, '23. We have in January 2023, launched our Site 3 for the production, which is a greenfield production Site for our new products. Trial runs has started in January 2023 and commercial production has also begun since January 2023 end of month. We will stepwise start-up production of 5 new advanced pharmaceutical intermediates in this new Site 3, all 5 products will be manufactured for the first time in India by Aether. We have also recently got the position of the Site 3 plus and 3 plus plus, which are land plots adjacent to Site 3 where we'll be beginning -- we will be launching 3 new products for Agrochemicals. This will expand our Site 3 to essentially double its original size. And these 3 new products for agrochemicals, which will be in addition to the 5 new products which are advanced pharma intermediates actually are manufacturing at Site 3. The land parcel for the next greenfield manufacturing site, which is Site 4 has also been increased from 8,000 square meters to 18,000 square meters in the recent months. Documentation for the position of all the plots and the amalgamation into a large extended Site 4 is already going on. Our plans towards the next 2 greenfield manufacturing sites, namely the aforementioned Site 4 in Surat and the Site 5 -- the large production site in Site 5 in Panoli are all advancing well, and various activities are going on for these Sites 4 and Site 5 towards the planning, including initial civil construction, product selections, regulatory approval and overall design of these the 2 new sites. The reason for the large CapEx is primarily on the backing of process inquiries and outsourcing opportunities, which we have been receiving and which we remain confident in our abilities to grab these opportunities and work with world-class multinational innovators across the sectors in the chemical industry. The growth in our CRAMS business model is continuously on the rise in the current fiscal year, and the demand for the products in contract manufacturing is also increasing quarter-on-quarter. We have also recently made a few public announcements in this regard, which reflects this continuous growth, which includes partnerships with Polaroid in Germany, Otsuka in Japan and Saudi Aramco in Saudi Arabia. The last one, which I'll speak shortly about as well. We remain upbeat and positive on this business model for future outlook. As in the last quarter, we continue to see a significant upwards trend in inquiries, customer additions, previous contract renewals and actual business being translated into revenues in both the business models of CRAMS and [ contractless ] exclusive manufacturing. Public announcement in this quarter, which came from our end was letter of intent signed with Saudi Aramco Technologies company. The letter of intent captures the preliminary terms between Saudi Aramco and Aether of a detailed licensing agreement towards the manufacturing and commercialization at Aether of the converged polyols technology and product series. The manufacturing process for which has been previously jointly developed and validated at pre-commercial scale by Saudi Aramco and Aether. New customers added during this quarter are 13 in number, which all are added in the large manufacturing business model. We have 2 returning customers with whom we have done the business, previously before 2 years in the CRAMS business model, and they have come up with new molecules to be developed under the same CRAMS business model. This shows that the trust that we have built with these customers across all the business models returns for repeated business. R&D expenditure for 12 months of fiscal '23 stood at 7.5% of the total revenues, this includes revenue capital expenditures. The strength of the R&D team has increased from 164 in March '22 to 233 in March '23. Our 3 business models continue to be robust, and we are seeing growth in all business models, largely manufacturing business model, which was seen contributing less in the first 3 quarters of fiscal '23 due to the pharma sector being down overall has contributed well in the last quarter of fiscal '23 as new products are launched in Site 3 in the large-scale manufacturing business model, which are of higher value and have significant demand in the market. The pipeline in R&D, as always, is packed for future molecules with plans to launch these molecules in the upcoming years in the Site 3 plus, Site 3 plus plus, Site 4 and Site 5 greenfield manufacturing sites. With that, I request our CFO, Faiz Nagariya, to share the financial highlights of Q4 of fiscal '23. Faiz, over to you.

Thank you, Dr Aman, and good evening, all of you. The total revenue of the company was INR 6,676 million in the financial year '23 which had led to led to an increase of 12% in the total revenue finance year on financial wise. The EBITDA has grown at 16% on FY Y-o-Y basis from INR 1,751 million in financial year '22 to INR 2,028 million in financial year '23. EBITDA margins of 13.4% in finance year '23. Debt increased from INR 1,089 million in financial year '22, which was 18.2% to INR 1,304 million in financial year '23 which is 19.5%, being 19.7% more compared to the last financial year. The company's planning for CapEx of INR [ 7,500 ] million over FY '24 and FY '25 for Site 3 plus, Site 3 plus plus, Site 4 and Site 5 along with R&D and pilot plant expenses. We have taken an [indiscernible] resolution for rising additional equity in our Board meeting. So taking care of the CapEx handover FY'24 and FY'25, what is the approval to the shareholders [indiscernible]. Now I will request. Mr. Rohan Desai decide to open a high-level overview of Aether's business. Over to you, Rohan.

Thank you, Faiz, for the financial highlights. In terms of the demands, we have continued to see good growth in Quarter 4 which have started in Quarter 3 compared to the first half of the financial year. We are seeing strong demand for our products and expect the demand growth to continue and are not seeing any kind of slowdown for our customers in the rest. For our products, the end product price have been fairly stable across the board. Average selling price of our product, which was INR 1,450 per kilo in financial year 2022 has gone up to INR 1,766 per kilo in financial year 2023. On the raw materials front, we are seeing the prices getting stabilized, which relate to our margins going forward. As mentioned by Aman, we are seeing great traction from the customers based out of Europe and U.S., respectively, for the CRAMS business. With the utility crisis in Europe, we have seen significant increase in opportunities for the CRAMS business. This, to a certain extent, has been demonstrated by our result announcements with respect to our partnerships with Polaroid and an increase in business with our existing agrochemical customers. Coming to the 3 independent business models. In financial year 2023, we have seen 52% of our total top line coming from large scale manufacturing business model, where we anticipate good growth in the future due to the launch of new products in the greenfield manufacturing Site 3. 13% of our total top line comes out of contract research and manufacturing services business model and our third business model that is contract/exclusive manufacturing contributed to 34% of our total top line. We have achieved a good balance between large-scale manufacturing business model, CRAMS and contracts as exclusive manufacturing. This does not make us dependent on any single business model. Our sales mix stands at Pharma 42%, Agrochemical 35% Material Science 5%, High Performance Photography 6%, Coating 3%, and others, including oil and gas at 9%. Our export stands at 69%, which includes exports to [ SEZ ] and EOU units in India and domestic sales stands at 31%. Export outside the geography of India accounts for 41% of our total revenue from operations. We believe that with the launch of new products, building up the new capacities, seeing the increasing demand from market lines across the sectors and geographies and renewal of existing contracts, we are certain to give a good growth going forward. We are also excited about the growth at Aether and with the commencement of the CapEx for Site 3 plus plus, Site 4, Site 5 and we are confident of our new product launches, which are in our pipeline. Thank you. And back to you, Shubhangi.

Thank you, Mr. Rohan. We would now request the moderator to open line for question and answer.

[Operator Instructions] Now on to the next question from the line of Jainam Galani from [indiscernible] Investments.

Congratulation on a good set of numbers. So I just wanted to know what is our current order book as of now?

The order book stands at INR 312 crores as of Quarter 4 ending.

And can we divide it segment wise, how much would be CRAMS, how much would be manufacturing.

We have not done that, but we can share that information with you.

And so what are the utilization levels for this quarter and for FY '23.

Total utilization is around 21% for the FY '23.

[Operator Instructions] We have a question from the line of Noel Vaz from Union Asset Management.

Yes. So I just had one question about the equity raise that we are planning for [indiscernible]. Could we have some kind of color as to what exactly the traffic would be going forward, present in which particular segment. I presume this would be for Site 4 and Site 5. And some more details on that plan.

So we are running the CapEx in 3 sites, Site 3 plus plus, which is recently acquired, which doubles the capacity of Site 3, Site 4 and Site 5. This will be in the tune of approximately INR 200 crores to INR 250 crores per site. We are talking about 3 sites at this moment, and it is a mix of contracts with exclusive manufacturing and large scale manufacturing. As we are working on the multi purpose plant, we do not differentiate between the last year and the contract manufacturing. And so it is hard to differentiate this whole investment in 2 terms. So we'll be investing in multipurpose plants in all the 3 sites. And as we see which products we'll be fitting into which site is what we are planning right now, and we'll be deciding and we'll be updating you in the coming quarters.

Okay. So just to confirm one more thing, just a follow-up. So the margin profile asset terms should be very similar to what we are doing.

Absolutely.

Yes. One other question I had with regard to the working capital. So working capital has still remains a bit on the stretch side at the end of FY '23. Could you add some more color on it.

Yes. So you are right that the data sales have gone up a bit, and that is because of the few customers, huge, very big multinational, they have delayed some payment which they've done in the past also and but then they will reduce the payments. Again, the payments which are pending in the March have come in April month and May month also. And we are hoping that the data cycle will subside and it will be within the range of 120 days, 122 days by this fiscal year-end. There are no provisions or no bad debt provisionings required because all those customers are good with us and payments are going properly.

Okay. So if we have received some payments in April, May, we have some kind of rough indication as to how much is it to reduced by?

Anyway, it is reduced by at least 10 days or so recently. Some customers also do not pay on 31st March business [indiscernible] and so payment in flow in the month of April. That has been the strategy we have seen since last 2, 3 years or so.

And lastly, just one specific question on the fourth quarter numbers. So OpEx for other expenses in fourth quarter has decreased potentially by a little it. I mean, is there any particular reason for this?

No. See, there is no specific reason for that, but I don't think is because the revenue, if you see in the fourth quarter was the highest of all the 4 quarters. [indiscernible] the expenditure have remained the same. There are no major, it will be very less deduction, that is because of the electricity because our solar plant started giving us full optimization in the last quarter, which [indiscernible] started in from July, but then it was coming up and it started giving more outputs in the third quarter and the fourth quarter, it was fully giving us output. So that is helped us reduce the electricity cost and also [indiscernible] prices, we were able to bring them down considerably in the last quarter.

We have our next question from the line of Niraj Tabke from Coriant Financial Services.

Sir, in previous calls, we have mentioned that we want to balance out all the 3 business models basically. So a specific question is with respect to CRAMS, where it is now 13% and at the highest margin. So sir, any idea like how much time it will get to scale CRAMS to around 33% of the portfolio. And second question was with respect to like do we need any additional investment for CRAMS to scale up our investment in Site 3 plus. And expansion in 4 and 5, we're also adding CRAMS business scaling up.

So Niraj can you repeat the last part of the question, please? Sorry.

So since we are planning to scale it to 33% of the portfolio from currently 13%. So current investment what we're doing in Site 3 plus and in 4 and 5. Will that investment also will aid in scaling up the CRAMS model or it will need any additional investment separately.

Okay. Understood. Thanks, Neeraj for the question. Let me clarify that a little bit. The CRAMS business model comes -- revenues come from the revenues of the projects done in the R&D and the pilot plant. And when the molecules and the products and projects from the CRAMS business model go into the manufacturing assets, these transfer into the contract manufacturing, [indiscernible] manufacturing business model bucket. And so as a whole, you can consider the CRAMS and the contract manufacturing business models as one, for example, because in the CRAMS, they are in the R&D and the pilot plant and the contract manufacturing, they go into the manufacturing assets. And so since the revenues were coming from different sites, Site 1, which is the R&D and pilot plant, we have bundled that into CRAMS business model and other sites for production sites into the exclusive manufacturing umbrella, we have bundled that into the exclusive manufacturing business model. So in terms of diversification of the pie, you should essentially consider large-scale manufacturing as one business model and the combined CRAMS and contract manufacturing as the second business model. In this case, we have already achieved the 50-50 split that we want because right now today, if you look at our numbers, 52% is the large scale manufacturing business model, and 35 plus 13, which is 48%, 49% are the combination of the CRAMS and exclusive manufacturing business model. So that is one aspect of looking at it. And the second aspect of looking at it is that since the CRAMS comes from the R&D and the pilot plant to which are typically smaller projects, higher value and higher EBITDA margins as you have pointed out correctly, but the top line revenues, the larger revenues come always from the per kilo large scale manufacturing. And so the CRAMS business model will never be able to compete with the contract manufacturing and large scale manufacturing business models in terms of the top line. And so our ultimate goal is to have a 40-40-20 split of the large scale manufacturing business model, contract manufacturing business model and the CRAMS business model. In essence, we want to take the 13% gradually up over the next few years to 15%, 17% and 20%. And for which to address the second part of your question, we will be looking at maintaining the R&D spend as a percentage of the overall revenues as the revenues go up to be consistent at the 7% to 8% level, typically and we'll be investing the R&D and pilot plant assets, which will help to grow the CRAMS business models in the 13% rate [indiscernible] to 20% in the future. Hopefully I answered your question, Niraj?

Yes.

We have our next question from the line of Pratik Osa from Systematix.

[indiscernible] does that have application in the oncology segment in Pharma?

No. Currently not. We finished advance intermediates that we make have no direct application in the onco market. We do have a back pipeline, which I would like not to diverge at this point. But the current manufacturing assets not have any applications in oncology.

We have our next question from the line of [indiscernible] from an [indiscernible] Ventures.

I just have one question. As I'm looking at your past performances, we were growing our top line like more than 30%, 35% and we were really at the nascent phase, so that was it was easier us to grow at a faster pace. But now looking into FY '23, we have grown just 10%. So I just wanted to know like why is this happening? And what would be the growing -- growth rate for both top line and bottom line.

So thank you for this question. What we have grown over a period of time since last 3, 4 years is the cost of the assets which are already on the ground. The second, we were using capacities close to 80% previously, and we have new bottlenecks and currently using the assets at 70%. The Site 3 came online in December, January period, so we only had 3 months to deliver out of that product, and we had to stabilize the site also. So going forward, you will see site 3 in full action and it will had give its -- attain its mature state in 18 months period from now. So we were not able to grow in essence because we do not have assets on the ground, and that is the reason why we are going for a CapEx plan as we speak. Also looking towards the business segments, Pharma was not performing well so we lost quite a few top line in the pharma intermediates also in this current year and which has also again regained shape as we see. And so pharma was globally down and hence, this result was also affected in a way. So our targets was slightly ambitious this year, but we were not able to perform as per our internal expectation.

Okay. And one more question I wanted to ask, sorry, continuing with existing question, what is the growth we are expecting for next 2 years then?

For the next 2 years, we'll be looking at interesting growth. So we have invested on Site 3 plus close to INR 200 crores, which will attain [indiscernible] efficiencies during this period of time. And also, pharma is already showing expense so I believe you can guess estimate this number by yourselves and figure is out. I mean, I'm sorry, I would not like to put the number on this. But the results for the next year would be far more better than this year. And in terms of the EBITDA impact, we have already shown a nice PAT number, in terms of percentage and in terms of the EBITDA percentage, and we would like to build it up from here.

And the second question, which I wanted to ask was just a clarification. You said INR 200 crores to INR 250 crores of CapEx for a site, right, so total 3 sites. So we can assume around INR 600 crores of CapEx in how much time?

So we have put up enabling resolution of INR 7,500 million and looking at this CapEx to be deployed in 2 financial years, this financial year and next financial year.

Okay. And what would be the asset terms we can assume for this CapEx.

We have been able to deliver asset turn of 1.8 to 2x and we'll look to [indiscernible] and we'll target a minimum of 2x and we'll like to build it up from here.

Okay. And this CapEx will take like how much time to reach to its optimum utilization levels like after 2 years, when will it reach the utilization in -- 18 months.

18 months.

[Operator Instructions] we have our next question from the line of [indiscernible] Vikram, an Individual Investor.

My question is the CapEx which you are planning for the next 18 months. Now will it be in the short term create [indiscernible] current year growth rate, it has come down compare to really 3, 4 years.

Thanks. Sorry, we were not able to clearly listen to you sir. Can you please repeat the question.

At current CapEx, you are planning to INR [ 750 ] crores of capital rising in various [indiscernible]. And that CapEx will take 18 months to materialize.

I'm sorry to interrupt. Can you use your handset, sir?

Yes, that would be great. We would also help you with the e-mail address. We'll connect with you immediately.

We have our next question from the line of Priyank Chheda from Vallum Capital.

Sir, I wanted to clarify the INR 750 crores CapEx that you said, can you split it up between site plus site 4 and 5, would it be INR 200 crores each?

Yes. So in the range of INR 200 crores to INR 250 crores each. That is what the plans are, Site 3 plus plus is in the range of INR 200 crores as of today. Site 4 and Site 5 are being designed and being formalized as we speak. And so it would be in the bulk up of INR 200 crores to INR 250 crores. Then that would be the [indiscernible] of Site 4 and Site 5. However, Site 3 plus plus would be completely closed for further CapEx after investing INR 200 crores.

Right. So now we have gone online with Site 3, right? So yes, there was a Site 3 plus also, right?

Yes, Site 3 plus and plus plus, both are right now being expanded further, which will double the capacity of Site 3.

Got it. Got it. So we have spent INR 200 crores in Site 3 plus, and we are spending another INR 200 crores in Site 3, 3 plus plus. I hope my understanding it correct.

Let me just correct you. We have invested INR 200 crores-odd on Side 3 only. And Site 3 plus and plus plus. [indiscernible] So Site 3 is equal to INR 200 crores of investment, which we have already completed. Site 3 plus plus and Site 3 plus which will enable the capacities on the land sale to be doubled up. We'll maintain a further investment of INR 200 crores and Site 4 and 5 are being currently planned in lockdown, but the approximate first phase of investment in Site 4 and Site 5 will be in the tune of INR 200 crores to INR 250 crores each.

Got it. Got it. That was clear. And so we added 3,500 tonnes in Site 3. So with Site plus and plus plus coming up, we would add another INR 3,500 crores.

Yes, typically, yes.

Mr. Priyank Chedda, are you through with your question. We move onto the next question from the line of [indiscernible], an Individual Investor.

One question on the bookkeeping. The inventory numbers for fiscal year '23 are roughly up by [ 15% ]. Any flavor on why this is and how can be clear this and do you plan to take in inventory write down next year? Or how should we look into this?

Yes. So the inventory has increased because we have continuously launched new products [indiscernible] in financial year '23. And for the new products, we always -- also for the old products, we keep inventory of critical raw materials in our [indiscernible] for at least 5 months plus. And the new products have been launched so we are putting more inventories on that. And that is the only reason. And we'll bring down inventories gradually once the products are properly launched in the market, and we stabilize them to at least 4.5 to 5 months down the line.

Okay. Another question -- on the 5q molecules you guys launched in Q4. Can you throw a bit of flavor on what kind of molecules, what kind of APIs, these are [indiscernible] APIs and how should we -- the market for these molecules.

So these molecules were written down in the RHP also. The [indiscernible] intermediate and another one was a [indiscernible] intermediate. So [indiscernible], another was the fifth one was agrochemical intermediate [indiscernible]. [indiscernible] 5 chemicals for which we have launched a intermediates for. I mean the APIs and agro end product, which we have launched intermediate for.

Okay. And then the last question that I had is the relationship with Otsuka Pharmaceuticals, which has been mentioned in the presentation as well. If I read it correctly, you guys have mentioned roughly INR 51 crores of revenue per year, around 300 metric tonnes, so that's around INR 1,700 per tonne. And then what I also read is this is a 10-year supply agreement. Any flavor on what kind of chemicals this is this amongst the ones that you just mentioned and whatever you can mention about this agreement would be helpful.

Yes. So -- if you read the RHP, again, there's a hint over there, we have formed our association where we are competing with each other, and now we have formed our association of that. And other product was identical product on the same line, on the same chemistry, and that was also given to us. So this agreement is for a period of 10 years and then it will automatically be renewed every 1 year, after 10 years of completion. And the revenues are INR 51 crores to start with per annum and which will enable us to grow beyond that as the demand grows of the second molecule also.

We have our next question from the line of [indiscernible] in from HTC Securities.

Congratulations on good set of numbers. A couple of questions I have on Site 3. Can you just tell us what was the kind of utilization in Site 3 in Quarter 4 and by FY '24 and what we think would be the stable state utilization rate in this site.

Currently, we are in quarter 1, we started in January, middle of January and stabilized. We have reached a capacity utilization on the total stream as 30% only, where we have seen. And by the end of this financial year, we look at 60%, 65% would be our target to utilize all the streams at 65%.

So was there a meaningful contribution in top line in quarter 4 from Site 3 and can we can quantify it?

We can quantify it, But we have not quantified it at the moment, but it was approximately INR 30 crores, INR 35 crores. INR 30 crores, lets assume that.

Got it. Got it. Third is that the realization on Site 3. Is this similar to what we are kind of making on a full year basis of around 1,700-odd levels or this is higher than our average numbers.

This will be higher in number for sure.

Got it. Got it. And coming to your expansion plans -- is it safe to assume that the Site 3 plus and plus plus would start to kind of contribute to revenues from early FY '24?

Yes, That will be the target to start towards end of '24 so that we can have some benefit in terms of the top line contribution for FY '24.

And we have products already kind of in the pipeline for that.

Yes.

Last question from my side is, if I look at our R&D expenditure as a percentage of sales, we are already one of the highest in the [indiscernible] industry at 7.5%, would this continue to increase? Or now it stabilized at these kind of levels, given that our revenue is also likely to come back on a very strong growth over the next couple of years. So in absolute terms, even at stable 7.5%, that would entail a fairly significant rise in R&D.

We have already budgeted 7% this year also in terms of the [indiscernible] 10% of our total revenue. So that's going to increase also.

We have our next question from the line of Yash Shah from Investec.

Sir, my first question was regarding our realization. Just to clarify, did you see that our realization for FY '23 was INR 1,766.

Yes.

Okay. Sir, sir, last quarter, we had mentioned that for 9 months, our realization was around more than INR 1,900. So this quarter, have you witnessed a significant fall in our selling price?

No, no, the last quarter, the realization was around INR 1,600, not INR 1,900.

It was INR 1,600. So this quarter, have you basically taken price decrease. Have we like passed on the lower prices to the customer?

The correction of the prices have already started. So as the raw materials have decreased, we will be seeing the original levels of before which were prevailing before 1 year, I mean, so that will happen. But also the margins will remain intact and in fact, the margins will start growing because of that. So you'll see a sudden correction, but it will not affect the overall business of Aether because we have not shown a great increase in terms of the margin in the last 1 year also, in terms of the pricing. So it will only come to the original level, it will not dip beyond the original level.

So it is safe to assume that even if the price increases in the future, we should be able to maintain more than 30% of the margins.

Yes.

Right. Got it, sir. Got it. Sir, my second question was regarding the 3 bid contracts we've gotten in the last financial year from Aramco, from Otsuka and from Polaroid. So are we going to have dedicated plans for all of them. My understanding is that we'll have multipurpose plant, but then for a bigger contract like Aramco, are we going to have a dedicated plant?

Yes. So interesting question. So Polaroid is more towards the CRAMS, which is the R&D and the Pilot Plant segment. The Otsuka is more towards existing products in our portfolio and the Saudi Aramco is towards commercialization of our new technology. And so the Polaroid will most likely come from a share of the current assets in the pilot plant and new assets that we have already planned for. So in essence, from the multi-purpose new pilot plants coming in. The Otsuka will be some of the existing assets. And the Saudi Aramco as it progresses forward will be dedicated production assets built for the Saudi Aramco technology. But anything that we do take up in the manufacturing assets is focused on our core competencies. And across the core competencies, all plants are fungible and multipurpose nature. And so even the Saudi Aramco plant that we did will be [indiscernible] the core competency involved in that technology.

Got it. Got it, sir. Sir, another question which I had was -- last quarter, we announced that we are going to basically make 3 agro intermediate products. What will be the realization of those products, blended realization. Will it be in the same range as the 5 pharma intermediates which we had announced?

North of INR 2,000 for sure. So it would be an interesting set of numbers in terms of per kilo. But we would only like to [indiscernible] that it would be about INR 2,000 a kilo.

Okay. About INR 2,000 a kilo. Got it. Last question, sir for FY '24, how do we our business mix changing? I mean, this year, we had 42% coming from pharma and 35% coming from Agro. Do we expect it to remain the same for the next financial year as well? Pharma will slightly increase for sure. Yes, because we are launching 5 products in it. Out of that 4 products are in the agro, in the pharma side. So hence, Pharma will take a lead again. However, in the long term, it will again balance out with the 3 new -- 3 new products in the agro [indiscernible].

We have our next question from the line of Noel Vaz from Union Asset Management.

Actually, a very small follow-up. Do we -- has there been any specification as to what kind of form the equity raise will be taken. Regarding the [indiscernible] equity raise, do we have any idea as to how we are -- I mean what exactly is the instrument under which we are trying to do [indiscernible] or what is the case?

So we have to reach minimum level of 75% in terms of the dilution. We have already diluted 13% as of today. So 12% is still due, which have to be done -- which has to be done in next 2 years' period approximately. And so we'll be looking for the addition in the -- for the semi guidelines back ratio by going for a primary race fully. We do not want to go into any OFS at this moment because we are seeing a lot of expansion plants at Aether, and we are upbeat of the opportunities out there. And so we [indiscernible] addition in the company.

We have a next question from the line of Sanjesh Jain from ICICI Securities.

I got a few of them. First, from the CapEx guidance and the revenue opportunity which we see, we have already spent INR 200 crores on the Site 3, we plan to spend another INR 600 crores, INR 650 crores in 3 plus plus, 4 and 5. So all put together, what we are looking at is close to a CapEx of INR 900 crores to INR 1,000 crores. And if put it 2x kind of an asset turn at the peak of it, which you said we will achieve during 18 months once this plant are up. So 2 years for the plant at 18 months. So what we are basically looking at is FY '27, we could potentially be able to generate a revenue, which is in excess of INR 2,500 crores to INR 2,600 crores. Is that the right understanding?

Yes, that will be -- I think you are right [indiscernible].

Just to understand this because this is quite a steep chunk. Can you help us understand which all the segment in terms of application we are looking at. I know it's very difficult, and it's way too far, but just -- at least have an intent in terms of mix between the pharma, agro, material science, including photography and everything. How would you intend to have this mix, say, 3, 4 years down the line?

Yes. Thank you for the the excellent questions. So the mix, which we try to bring off we want to achieve is 40% pharma, 40% agro and 20% material size, 20% material size would include oil and gas high-performance photography, electronic chemicals and so and so forth. It is the top part of it, yes. So Mr. Jain, you are -- we would prefer a 3 equal business on these business models. However, 40-40 and 20 would be the right target for at this moment.

You were telling that material is slightly difficult and can you elaborate on that? I think industrial dropped off.

No, Material Science is not difficult. Material Science would -- we would prefer that Material Science also grows at equal pace but that segment is quite an interesting segment, and it takes slightly more decision time as compared to pharma and agro.

Got it. On the pharma and agro side, do we intend to remain at, say, intermediate fees or we are also intending to say, move in the value chain in terms of producing the API and AI, which have a much larger realization when you compare it to the intermediate space, do we intent or are we working to move up in the value chain [indiscernible]?

No. So our focus is specialty chemicals and it's intermediates only. So we do not want to go into the AI or API segment of formulations in the near future.

Got it. Just drilling a little bit more there on the agro and pharma. Have we really identified the number of products, [indiscernible] and how many products are in the pipeline, say, for the next 2 to 3 years? And at what stages are the increased products and -- how does it look like in terms of portfolio versus what we have to the higher realization, lower realizations. And particularly in the pharma side, what are the key areas of pickers in terms of diagnoses or the therapeutic area.

Right. So in -- we have a pipeline of the products in R&D is 29. We are going to scale up and into one bottom class that is in R&D. So that is the pipeline. It is a mix of agrochemicals and material science and pharmaceutical intermediates only. We are looking at this pipeline in the terms of next 2 years of commercialization, 2 to 3 years of commercialization. So will be commercializing these products that if they are successful and scale up in the large scale manufacturing. This is under the last business model in the next 2 to 3 years. What was the second part of the question, sir?

So this 29 product, what will be the addressable market size today, what will be this 29 product in terms of market today to understand the scale of this product.

We don't have that number on hand at the moment, but it's north of INR 3,000, INR 4,000 crores at the market price.

Got it. Got it. Fair enough. Last question from my -- switching a little bit here. On the near term, we said that we anticipate to run this plant at 60% utilization in FY '24, and we also anticipate some growth in the pharma side as well which normalizing from the low base of FY '23. If I [indiscernible] to it, we are looking at the top line in FY '24 anywhere in the range of INR 950 crores to INR 1,000 crores. Will it be a fair assumption. I would not like to comment on that, but automatically, how it comes, I hope, automatically, I'm right?

We drive [indiscernible] number.

We have our next question from the line of Rohit Ohri from Progressive Shares.

A few questions from my side. Post these expansion of Site 3 plus plus and 4, you will still be having quite a lot of ample amount of free land. So is it that this is just a Phase 1 of expansion of around INR 800 crores or something. And should we be looking at another round of expansion maybe in the same numbers or so?

Yes, you are right.

Would the same kind of asset turn that we should see in FY '27, '28.

Yes, we are envisaging the same asset turns on all the products [indiscernible].

In that case, what would be the debt profile like because you're almost debt free today. So will you be looking at some sort of fundraising? Or will it be consistently maintaining the debt-free status?

Rohit, we are -- we have to achieve minimum of shareholding pattern of [indiscernible]. So we have to further dilute by 12%. We have put up an enabling resolution of INR 7,500 million only at this moment. So we still have a chance to further dilute in the next 2 years' time. And so to reach the 75% holding level. And we prefer to put all this 12% as a primary in April. So we have a good opportunity over here to invest all this amount whatever we get into this this land parcels which we are owning and build up from there.

So any thoughts on the board with the dividend distribution policy as a reward to the shareholders. Any thoughts on that.

Currently, we are growing -- in the growing mode, we are in the investing mode. So we would not prefer to give dividend at the moment.

Last question, it's a pair for the new product that is related to [indiscernible] with the 2 products. So will you be maintaining the blended margins of 29%, 30% kind of a range that we have or you will be aiming at something higher than that with the new product profiles.

Absolutely, we'll be maintaining the margins or will try to grow about this margin [indiscernible].

Okay. And last question on the Saudi Aramco, the -- the converge on the case of [indiscernible] volumes. If you can just elaborate a little bit on what exactly Aether will be doing? And what will be our contribution as to what sort of products are these? Or what sort of processing is required for the case products or for the polyol if you can just elaborate on just 2, 3 lines a little bit that.

Yes. So this is a joint partnership -- joint development as for that has been going on for quite a few years. We had consent from them to publish their names as a customer and so this is a joint technology development that we have done for the process to manufacture these converged polyols. And going forward, this will involve the manufacturing at Aether commercialization of the converted polyols technology and the applications would be differentiated and applied polyols [indiscernible] industry. And so not going after the base polyols that form the fundamentals of the [indiscernible] industry, but going after the applied and differentiated polyols, which as a function of the polyols that we are making from this technology [indiscernible] potentially enhanced properties as well as up to 40% carbon dioxide by rate. And so it makes -- potentially, it could be very interesting from a sustainability perspective and also give differentiated and applied properties in the case industry.

And have we identified some more clients or customers to whom we intend to sell these products to.

Absolutely. If you look at the letter of intent that we have made, there's a potential another joint press release coming up in the next few months with another multinational company partner who is going to potentially launch new product base in this technology. And so it would be a 3-way joint [indiscernible] between Saudi Aramco at and this customer -- multinational customer X on the launch of this new technology product new product -- a new product launch involved in this technology.

So this target, which the previous participant was talking about of around INR 2,000 crores, it seems to be slightly more conservative and you can grow more aggressively if all things fall in place for you, probably reach at INR 4,000 crores or something by '28 or so.

Sir, I'll send a block of treats to your [indiscernible]. Jokes apart, we have -- as we have always said, the fundamentals of the company are very sound. We are expanding in the right manner and approach in the R&D pilot plant and production with a practical fragmented approach and the [indiscernible] have been set quite well. And so we are quite upbeat and positive in our outlook for the quarters and the years to come. The year is to come will be much more interesting.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you.

Thank you, everyone, for joining the call. We hope that we have covered most of your questions. If you still have any further questions, please feel free to reach us. Stay safe, and have a great day ahead. Thank you.

On behalf of HDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.