Aarti Pharmalabs Limited — Q3 FY25 earnings call

for Xanthine currently we may be in spot for 30%, 40% of our total volume currently, and with increase in the capacity, our capacity will go up from 5000 to 9000 tonnes. So we are hopeful that we will still maintain contractual, not contractual but spot price number to that restricted level of 30%, 40% only. So that our better price, customer base will grow with the higher capacity that is what is the anticipation. ... we will be exceeding last year's number which was 170 crores. So, that will happen in the current quarter, and we hope that next year, we will be able to do significantly better sales of CDMO products.

Analyst inquired about the impact of falling caffeine prices on Xanthine margins and the expected growth trajectory and margin profile of the CDMO segment, which management addressed with specific capacity and sales targets.

Asked by Prakash Kapadia

As we mentioned, we will be doing the entire budgeting exercise and all guidance revision also, because normally we end up giving yearly and a three yearly guidance. So once we, on the next concall, next quarter we will be able to guide you in more detail so, but we will see significant growth in this segment... No, Atali will take two years plus to ramp up. And so we are anticipating those numbers, we will clarify in next call, we are just in the process of quantifying the same.

Analyst sought specific FY26 CDMO growth numbers and Atali's revenue contribution, but management deferred detailed guidance to the next call, indicating ongoing planning.

Asked by Rahul Jain

In the CDMO/CMO we have 56 ongoing projects, out of which this 28 are commercial. And few projects have this kind of possibility in future. And of course, they are in the launch phase and once they get launched, then the significant volumes can get triggered. So we are quite hopeful that we will have those volumes, and that's why the entire new manufacturing at Atali is being set up by us to meet the customers enhance requirement in this segment. ... I don't want to give you any futuristic number without waiting. So, we will give the guidance next quarter.

Analyst asked about the potential revenue per molecule in CDMO and the overall opportunity, to which management highlighted the pipeline and Atali's role but deferred specific future numbers.

Asked by Meet Katrodiya

Yes, overall this quarter we had significant CDMO/CMO sales, as in the previous two quarters, those numbers were not as much. Also, our solar energy project also got activated, and so we did some savings there also. We had overall 7 crore dividend income which got accrued in this quarter. So all these factors put together we got record quarter results in this quarter, and we are hopeful that we are able to replicate these kind of performance in future quarters as well. ... So, typically what has happened is, the expansion that we did in Tarapur API site, where we added a block five, currently is running at full capacity and that is the reason why we are able to see this kind of a growth.

Analyst questioned the sustainability of the high EBITDA margin and the drivers behind strong API growth, leading to management explaining the mix of factors including CDMO sales, solar project savings, and capacity expansion.

Asked by Nitesh Dutt

No, that was for the Tarapur unit four I said, that up to what level we can do on API side. So, those numbers have been mixed up, but we will be at that 1x plus asset turn on Atali. So 1 to 1.25 asset turn in Atali, once we occupy significant capacity.

Analyst sought clarification on the asset turn for the Atali project, which management clarified would be 1 to 1.25x once significant capacity is occupied, distinguishing it from other unit metrics.

Asked by Deep Gandhi

Yes, basically we are late phase and strong manufacturing backed organization so, what we are good at doing basically, is providing manufacturing services and partner with the innovators for long term supply security of their advanced intermediates as well as the KSM, RSM, APIs long term. So that is the differentiation that we have. We have strong chemistry skill sets and engineering skill sets which allow us to operate different kind of difficult to do reactions and difficult to do solvent recovery... Also, we can do backward integrated work also so, we can do four, five, six stages in-house. So we are able to give a proposal to innovators that we will try to do maximum steps in India only and having least dependency on China.

Analyst asked how Aarti differentiates its CDMO services, and management detailed their late-phase, manufacturing-backed approach, strong chemistry/engineering skills, volume availability, and backward integration to reduce China dependency.

Asked by Aryan Bansal

Yes, we see that now, with the current cycle, the kind of pricing that we are seeing have bottomed out and the margins have bottomed out basically. So, any raw metal reduction will trigger a reduction in prices. But otherwise, we see that we are operating on the spot market, not at a very thick margin.

Analyst inquired about the bottoming out of Xanthine realizations, and management confirmed that prices and margins have basically bottomed out in the current cycle, though spot market operations are not at high margins.

Asked by Kumar Saurabh