Solara Active Pharma Sciences Limited (SOLARA) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Solara Active Pharma Sciences Limited due to FY27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference call over to Mr. Abhishek Singhal. Thank you, Vanuva, to you, sir.

Thank you, Ikra. Good evening and thank you all for joining us today for Solara's earnings call for the second quarter and half year ended September 30, 2026. Today we have with us Sandeep, MD, and CEO, and Sharad, CFO of the company to share the address of the business, and financials of the quarter, and H1 F527. I hope you have gone through our results release and quarterly investor presentation that have been uploaded on our website as well as Stock Exchange website. The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to our business. After the call, in case you have any further questions, please feel free to reach out to the InvestorMission team. I now hand over the call to Sandeep to make his opening comments.

Thank you, Abhishek. Good morning, good afternoon, good evening, and thank you all for joining us today for our Q2FI27 earnings call. I sincerely appreciate your time and presence on this call. To start with Q2FI27, surprisingly, it's been on all the profitability metrics. Overall, revenue The revenue grew 33% year-on-year, 118 crores. EBITDA more than doubled to 118% against the loss of the same quarter last year. The good part is we delivered this quarter as the West Asia crisis continued. We continued to face pricing pressures and raw material availability challenges, which led to intermittent production stoppages. But despite that, I think we recorded a good set of notes. Some commentary on our base business. Our base business revenue grew 37% year-on-year to 327 crores, number for the third quarter in a row. 68% with a margin up about 440 basis points, 3.6%. Regulated markets continue to contribute about 78% of revenues, which reflects a very heavy productivity. Some commentary on the ibuprofen better than expectations. Market dynamics to 21% year-on-year and 18% 91%. Price realizations from a lost margin of around 21% just. Having said this, I will reiterate that the overall environment around ibuprofen still remains challenging. And we haven't lost our focus on servicing large brands and marquee customers with whom traditionally we've had long-term associations. Other highlights outside of the Bayes business, other highlights on the regulatory front, we filed our second BMF of the year. If you remember, I had mentioned that we should be filing five EMS in this financial year. So we've filed one in quarter one, one now, and we're hoping to file three more before the end of this financial year. Our Mangler facility successfully completed an Angeza audit in August. If you recollect, we had a successful Angeza audit of our Kudlow facility in May. I'm also pleased to share that Crystal has upgraded our ESC rating from adequate to strong. That just shows about the improving health of our business. On a very important point, I'm sure a lot of you are expecting us to talk about the strategic review of the ibuprofen business, so I will address it up front. We estimate that we will be able to close this in 12 weeks. So, we will come back to you with an update on the outcome of the review and the next steps, as I said, in a period of 12 weeks. We sincerely appreciate your patience. You really supported us and been patient with us as we built our base business. And I will request a similar patience as we close out on the ibuprofen strategic review. Our balance sheet has strengthened meaningfully during the first half of FI 27, and Sarath will take you through the financial details. As always, I would like to thank our shareholders for your continued support and trust. I would also like to thank the Solara teammates for all the effort that is being put in. Before I hand over to Sarath's opening remarks, happy festive season to all.

Thank you, Sandeep. Good morning, good afternoon, and a very good evening to everyone, and thank you for joining our Q2FY27 earnings call. Sandeep had already covered the headline results and the highlights of the business, so I will actually focus on the broad-level financial metrics. For this quarter, due to FY27, the overall business has blocked a gross margin of 197 crores odd, which is roughly 28% increase over YOI as well as 9% improvement on a QOQ basis, and this gross margin came at a 47.2% gross margin profile, which is slightly higher than Q1, But, I'll bet it is slightly lower by roughly 200 basis points as compared to last year, which was predominantly driven by incremental raw material costs as well as input costs. Having said that, our base business has clogged gross margin of 50% plus. Again, we actually do acknowledge this is slightly lower than the previous quarters. A factor of product mix for this quarter, as well as incremental input cost, which I spoke about because of the West Asia crisis. On the other hand, IBU% gross margins has actually recovered to a 36% level during the quarter, driven by changing market dynamics, which saw a spike in demand, as well as slightly better pricing as compared to the previous quarters. But as Sanjit mentioned, this is something, commodity pricing market, and this is something which you have to watch for the next quarter as well. The operating cost front, we have been able to sustain our cost is roughly around 120-odd cost, which is predominantly flat over the previous few quarters, hence enabling the incremental gross margin flow through to the EBITDA. Our overall EBITDA margin expanded to 18.4% from 11% around last year, and it is a significant improvement of probably 720 basis points as compared to YOY. And also up by close to 200 basis points as compared to Q1 of FR27. On the depreciation front for the quarter, depreciation was close to 266 million, which was in line with the previous quarters. However, our net finance cost has actually dropped by close to 27 million odd, 27 odd million as compared to previous quarters. And that's a reduction of roughly 17%. And that has resulted because of a reduction of debt by close to 114 Watt cores during S1. We have recorded an exceptional loss item of 45 million, which was predominantly because of unutilized equipment lying at our Wysag SKD, which we have sold. And that is something which we wanted to recover cash. And because of this, our PAD, although it has been the highest in the last five years, we had recorded a PAD which is roughly 75% higher on a QOQ basis, resulting in an earnings per share of 5.92 per share. Adjusted for this exceptional item, EPS would have been further better by close to 1 rupee per share. For the first half of FY27, EBITDA was consolidated at close to 140 odd rows, up to 51%, and EBITDA profiled at 17.5% as compared to close to 15% last year. BAT is something which we have recorded close to 45 odd rows in H1. Again, this was something as compared to H1. H1 was almost at a break-even level. Net debt is something which we have focused on as a company, and we have been able to reduce net debt to close to 500 odd costs from 614 odd costs which were there as of March 26. Of this reduction, 100 odd costs came from the rights issue money, balance 14 gross was from the operation. Given this fact, net debt to EBITDA ratio multiple has actually improved to close to 1.8x as compared to 3.2x what we had last year. And this is something we should We will be able to be in the similar range over the next medium term. However, on a sequential basis, the net debt has moved up by close to 20-odd close as compared to June 26, since we had invested in additional working capital to sustain the growth in the business as well as some sort of maintenance capex. And going forward, we will continue to focus on operating cost leverage and margin expansion and on our working capital discipline. And we will try to find our growth capex while keeping our balance sheet strong. As always, we actually thank you for your support and patience as we continue to work towards turning around the company. And now we will be happy to take your questions.

Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sajal Kapoor, from Anti-Fragile Thinking. Please go ahead.

Yeah, hi. Thanks for the opportunity. Hi, Sandeep and Sarat. Congratulations on a very strong quarter, especially given the challenges the company has been navigating. I've got a few questions, please. First is, regarding this review, Sandeep, I mean, you said the Q2 results would set out the clear path last time around in July. What is still unresolved and has this quarter's improvement changed the options you are considering? And is the 45 million YZEG laws a one-off cleanup or the start of a wider reassessment of the 182 crore YZEG project according to the annual report? That's my first question. Thank you.

Good afternoon, Sajal. Nice speaking to you again. Thanks for staying invested with us. Regarding the iPhone review, I know we did make a mention in earlier calls that you would hear back from us in Q2. And as I said, we need many of you to have patience with us This is not an easy decision.

Nothing has changed that option, Sajal.

The options staring at us are the couple of options that we talked about. One is repurposing the plant from being a single product dedicated facility to a multi-product facility. And in that multi-product facility, among others, we can do intermediates as well, the intermediates that we use for captive consumption. And, of course, the other option is the eternal option of finding an appropriate buyer who can take the facility. I think nothing has changed in the options we have, but we just need a little more time to make a decision that's good for all our stakeholders. So I'm hoping that while there will be a lot of questions around it, I'm requesting everybody's patience for that additional 12 weeks to sort of come out with that final analysis. I'm sure that whatever we decide on will be extremely good for Solara as well as all the stakeholders.

And that Visek one-off claim, is that a one-off?

Sajal, currently there is something which is a purely one-off, and hence we have actually categorized that as an exception line term. Having said that, once we complete this entire review around the ibuprofen piece of the business, That is something at that point of time, we'll be having much more information in terms of if we have certain wider spread as well. Otherwise, at this point of time, from WISAC standpoint, we don't foresee anything further coming at this point of time.

So, this 4.5 crore is purely the IBU-related assets from WISAC, right? Correct, yes.

So, Sajid, we are just trying to monetize our assets, and we got a buyer for some of these iBu assets that we had in Bicay. So, we thought it's better to monetize it than have it just lying idle out there.

No, no, absolutely. That's, in fact, that's now positive. And, Sandeep, I mean, just to better understand, I know we have got Big Farmer relationship on ibuprofen, And it has been a very long-spending relationship. And with the same relationship, with the same customers, we may be having other products as well in one or more markets. So that is a significant dynamic. I mean, other than that relationship thing, what has changed structurally in ibuprofen, meaning cost position, customer mix or market share, As opposed to simply, you know, the market being benign thanks to the BASF-related supply disruption. And if, you know, everything normalizes, let's say tomorrow, we live in a random, chaotic, uncertain world, right? So if the BASF or some sort of a supply constraint, whatever we are facing, and that's why isopropen prices are high today, tomorrow that situation reverses. Abhi, then back to that 10 to 15 crore quarterly loss you guided in July.

So, let's speak about ibuprofen this quarter, and I think Sharap gave a view into this. A lot of it is macroeconomic conditions. I think the West Asia crisis continues, solvent prices are rising, raw material availability continues to be an issue. But thankfully, given the credibility we have with our customers, a lot of customers have really helped us by increasing the prices, right? So it's a mix of better prices and some macroeconomic conditions that has helped us break even in this quarter, okay? And so that's the piece of microphone. Will we get back to the earlier days when we had 10, 15 floors? It's very difficult to say that at this time. But I can tell you that the general health of the iPhone business has improved as well. But in this particular instance, it's more macroeconomic conditions that's driving the break.

Sure. And, Harat, one bookkeeping balance sheet question for you before I rejoin the queue. I see in the published numbers, the trade receivables have increased more than four-fold. Why or why? I mean, what is driving that increase? Is it primarily higher revenue, longer payment terms? Or is it something like customer concentration or some late shipment that has resulted in this unusually high receivables? Any color will be helpful.

So, as you rightly said, our praise receivables are slightly on the higher side. That is actually predominantly driven by two factors. One is, if you see our entire revenue base has actually gone up by as compared to last year by close to 50% plus. Okay. Second, so right at the quarter end, again, just like most of the other companies, we also have a challenge of linearity. Most of our billing happens in the last one with two, 10 days of the quarter. And because of challenges with respect to container availability, because of all this crisis, what's going on, all those shipments are actually not being able to move out by 30th of that particular month or something. So, because of that, whatever is getting moved, say, if my earlier SLS of billing to shipment was close to two or three days, now that is extending up to five to seven days plus. So, because of that, that entire chunk of one week billing plus increased revenue on an overall quarterly basis, that is actually impacting the particular credit issuables. Having said that, we have not extended any payment terms or something for any customers, or we have not changed our payment terms adversely.

No, that's helpful. I've got more questions. I will rejoin the queue. Thank you.

Thank you. Next question is from the line of Shilpa Sabu from Lotus Wealth. Please go ahead.

Thank you for taking my questions, and congratulations on the great set of numbers, sir. A small but important remark on our gross profit margin. In last three quarters, CPT, our GPM is calculated after sales and distribution costs, which is done by any company. And generally, for API companies, marketing costs are 3 to 4%. Distribution costs are 5 to 6%. So, I feel our gross profit margin is 60% and not 50%. And due to this, we might not be able to sell valuation.

We take your input on board, but that's the accounting methodology that we use. But we have noted what you have to say. Thank you. Thank you, Shilpa.

Okay, sir. And secondly, out of the amount that is increased in our net debt, how much has increased on behalf of Capex?

So, again, as we had previously said, we are committing to close to 40-50 odd close of Capex on an yearly basis. So, out of that, on an average, every quarter, we normally spend close to 10 to 15 crores kind of a range in terms of capex. So, some part will be that because of 10. And then, balanced 10, 15 crores is, if you see our inventory numbers, our inventory numbers are slightly higher by close to 20 odd crores during this quarter. Because again, because we are seeing so many challenges in terms of raw material security or say supply issues, we want to have sufficient stocking so that we have the entire flexibility of manifesting what we want.

Thank you so much.

Thank you. Next question is from the line of Khusel Goenka from Mangal Keshiv. Please go ahead. Yeah.

Hello, Sandeep and Sharath. Congratulations on a good result. My question is that Solara derives 328 crores of revenue in FY26 from strides itself. That's like a quarter of FY26 revenue based from a related party. And also the receivables from strides have increased from 63 crores to 160 crores at a time when our balance sheet really needs some juice. A little follow-up to this, what Sajan Kapoor also said, that the receivables in Q2, FI27, is around, I think, 506 crores. So, is that a majority of it from a related party? So, how do you see into these transactions and what plans to maintain the most proven receivables?

So, again, so from a related party transaction point of view, Stripes, on an average, contributes to roughly 25% of the business only. So, that business contribution has actually not changed drastically over the period. But, however, for each subsequent quarter, depending on the individual product mix, because, again, Stripes also considers certain billings on a production campaign basis, And we also supply those strides based on whatever production campaigns which we run. So depending on that particular thing, certain quarters, that number can be slightly more than 25%, up to 30-35% as well. But average for the full year will not be beyond 25-26%.

Thank you. Next question is from the line of Amiya Deo Sethali from Value Equity. Please go ahead.

Hi, I'm an audible. First of all, congratulations on a good set of numbers, and the plan on the base business and DMF filing seems to be doing very well. So, I had a question along those lines. So, on the recent filing, right, of Val Benazine, what is the kind of outlook we have here with the customer in the U.S.? What are we targeting here? Are we the sole supplier? So, I would appreciate if we get some more dynamics from this filing and way forward in the R&D side.

We filed a DMF in this quarter, and I would not like to get into the dynamics of how that market goes, but we can, of course, take the question offline, right? I mean, needless to say that we do our analysis before we pick a product, and there are certain reasons based on number of DMF files or the patent expiry horizon or the market size, the kind of players Right, right.

Well, I understand that and I think I just want to highlight that as a positive gesture because as you see DMS filing picking up, it's going to contribute further on as the business goes post ibuprofen as well, right? So, I just wanted some more outlook on this. So, on the R&D side, do we continue this trajectory of filing two to four DMS per year over the next three years, as I say?

That's right, Amir. I will comment on this year first because I keep saying if we can get this year right, we will get the future years right as well. This year, we believe that we can do five DMS filings. We've done one last quarter, we've done one this quarter, and I'm hopeful that we can do three more by the end of this financial year. Coming from a space where we didn't file a single DMS in the last three years, I think we have a good trajectory on the R&D efforts and the DMS filings.

Thanks. This is great to hear. Thanks and all the best to you. Thank you, Amaya.

Thank you. Before we take the next question, a reminder to all the participants, if you wish to ask a question, please press star and 1. We will take our next question from the line of Ayush from Vardaman Family Office. Please go ahead.

Hello.

Can I hear you?

Yes. We can hear you, Ayush.

So, just a small request on the ibuprofen side. So, is that ibuprofen business is doing great in this quarter? So, we are reassessing the question, the reassessing the something, the plan which I have done because we have delayed from, I think so, from Q3 that you have told. So, it's from now Q2, I-527. So, it's been four quarters. Would you like to throw some light on the scene?

So, is the ask that has the timeline of our review been extended because of this iGo performance? Is that the question?

No, the question is that are we really actually setting the things that this quarter the iGoProfin business is doing good? So, we are analyzing the plan again or something like that?

No, no, no, Ayush. We are reviewing our strategic options that we have, and some of these feedbacks, including the one that people mentioned about one of the big ibuprofen manufacturers trying to exit, will play on the decision that we take, right? But in these strategic reviews, we are not looking at one-off Thank you.

Next question is from the line of Mollikwadia from 361 Capital. Please go ahead.

Hi, sir. Thank you for the opportunity. I hope I'm audible. So, just wanted to understand on the base business, our gross margin is slightly under pressure.

So, what would be a sustainable We have been always maintaining that we are very comfortable to sustain a gross margin of close to 52% to 55% kind of a range. So, adjusted for the raw metal price increase, which we have not been able to fully recover as a pass-through mechanism due to this West Asia crisis. So, once we adjust to those numbers, our reported gross margins of roughly 50.5% will be close to 53+. So, this is something which we are comfortable in terms of retaining those.

Understood, sir. Also, is there any lever for our EBITDA margins to expand further?

So, from a cost perspective, I believe we will be more or so flattish in this particular range, maybe a plus minus 2%, 3% here. But at the same time, now going forward, any gross I think two things

that we are also working in the background is how do we manage our OPEX and create meaningful capacity. So all the operational excellence initiatives we are taking up and all the incremental debottled, all the debottled necking that we are doing with incremental CapEx for high margin products will only help us better than EBITDA now.

Understood, sir. Thank you so much.

Thank you. Next question is from the line of Sajal Kapoor from Anti-Fragile Thinking. Please go ahead.

Yes, thanks for the follow-up again. Sandeep, how was this CPHI different from previous years from your perspective? I mean, what stood out for you and team this time around?

To start with, our stall was much bigger, brighter, and better. So that's the first observation. I think it was a very productive CPSI. I think we had a full team out there. We had a lot of customer football as well. And we could get that feel of reaching out to newer markets and finding newer customers for our products. So that's a market perspective. I think customers in some countries could not make it to CPSI, so they were sorely missed. Right, but in general life, I think I saw all the big Indian and Chinese manufacturers out there at CPHI, and the Europeans as well.

Dr. Sandeep, this trend was quite big. I had to go around several angles. I had to use some pictures just to get the evidence, right? Right. CPH, I think the key theme was AI-led manufacturing. So, I mean, as AI accelerates research and more molecules move from discovery into manufacturing, that may not happen tomorrow, but maybe next year or the year after. I mean, do you see that creating a structural increase in demand for physical reactor capacity and, therefore, a larger opportunity for cramps for us?

Definitely, Sajal. As the product development timeline shrink and more molecules make it to the patients, I think there is a bigger role for API companies to play. So, if AI helps in reducing development time, that is helpful for API companies as well. But I think there is a lot of play for AI, even on the manufacturing front, in terms of reducing cycle time, improving yield, reducing cost, and so on. So, AI has got a big role to play within the API companies as well, not only putting new products on the table, but also helping connect the organization.

Thank you. Next question is from the line of Bhavika Singhvi from Niveshaya. Please go ahead.

Yeah, thank you for the opportunity. First of all, you have a good set of numbers.

So, first question I have is on the WISEG plan for which we are evaluating the options. Just want to understand what view we are making, like, once we have the decision to sell it. Where are we expecting it to use? Because in the last call, you have mentioned that you have been evaluating a few high potential API manufacturing capabilities. So, just wanted to understand that are we on the path to do that or have we started doing the approval process and all for that? And the second, as we are planning to, like, diversify from that business, have our customers started approaching us for the, like, they are ready to give us more volume so that we continue the business? Like, just wanted to understand from the WISEG business, which we are evaluating.

So, Bhavitha, a couple of questions you asked us. The WISAC facility, as you know, is not mold. We are not currently manufacturing anything there. Okay? So, the question of customers giving us additional products for WISAC today does not arise. Regarding the first question about selling of Ysac, I don't think we've made an announcement to that effect anyway. All we said is we're looking at strategic options for Solara, and those strategic options sort of revolve around the Kranz piece, the Ysac piece, and ibuprofen. But we have never explicitly stated what we are going to be doing on Ysac. So I request Just your patience, and wait till we complete the review, and we've asked for 12 weeks, and we will come back to you with a final answer.

Yeah, yeah, understood. But you mentioned before that you have, like, some assets might you have sold, like machinery or maybe like that.

Yes, that was just equipment. There was certain equipment that we had purchased for ibuprofen in Vizag. Since Vizag is not manufacturing iGTOS, and this is fairly new equipment, so we decided to monetize it because we had a buyer for it. So sometimes, as I was telling somebody, it's better to monetize an asset than this, just let it collect dust on the shelf. So that was the context behind selling specific equipment related to iGTOS and manufacturing, but it's the site as a whole.

Got it. And so the other thing I want to understand on the base business, like as we are doing quite good growth in that, Can you make me understand which particular molecule or the therapy area leading this growth for us and where we are seeing major growth coming in near term from the base business, which molecule we can expect to be a major growth driver for us?

So, Bhavita, as an EPI manufacturer, we are largely therapeutic area agnostic. Our product selection is driven more by chemistry fit, regulatory complexity, and customer demand, rather than by our therapy area. So, anti-infectives, cardiovascular, neurology, necrology, anesthesia, and CNS are some of the areas in which we have products. And together, they would probably account for 70% of our product offerings. But I again read to it. As an API company, we are therapeutic area agnostic.

Okay, that's all. Thank you. Thank you. A reminder to all the participants. Anyone who wishes to ask a question, may press star N1. Next question is from the line of Pranav Chawla from JM Financial AMC. Please go ahead.

Hi, good evening, sir. Congratulations on a relatively good set of results. Sir, a couple of questions from my end. One, can you break up your base business as well as IP-proofing business growth into value and volume?

Base and IP-proofing business on value and volume. Value you are given. So, Pranav, I think in our report out, we have given individual numbers for the base and the isofen business, so value you can get from there. Volume, we don't disclose, Pranav.

Volume, by value, I mean what is the price-driven growth and what is the volume difference?

So, again, so, specifically when I talk about base business, just because of this particular increased pass-through, that cost is roughly close to 20, 22 odd crores in terms of base business. And in terms of ibuprofen business, something which is an increased pass-through that is close to 10 to 12 crores odd in terms of price increase. So, on a consult basis, if you have reported 418 odd crores of revenue, out of that, close to 25 to 30 odd crores It should be because of price increase balance is something which is a bit of volume expansion.

Got it. And so, intimately, how has it been your ability to pass on, say, whatever price increases that would have happened or the rise in inventory cost as well as shipment? How have you been able to manage it so far? And do you see upcoming headwinds, say, in the third quarter or so? So, we have been

facing these headwinds almost since Q1. And if you recall, we have been reporting since Q1 a slightly lower profile as compared to historically what we have been reporting. Even for this quarter, we have reported only 50% cross margin for our base business as compared to historically wherein we have also reported close to 53-55% kind of a number. So, most of this 3% is something. Although we are having an effort to have the price increase passed on, but we are not able to pass on to customers at every stage or, say, with every customer and every product. And this is a headwind which, based on the current industry dynamic, probably this is something which we will have to leave with for at least one to a quarter more.

And that depends on how long the crisis lasts. So, that's beyond us, but we have learned to live with the crisis and make the most of the situation.

And, sir, for your base business products, how backward integrated are you? And if you procure KSM or anything from outside, which are the key geographies from which you procure these? Can you just give some color on that as well? And that is my last question.

We buy these KSM's from vendors, from manufacturers in India. We buy them from manufacturers in China. Of course, China and India account for a bulk of the KSM purchase. Besides that, we also purchase some strategic KSM's from Europe as well.

Can you give a breakup of how much put the India plus China together between the five and how much?

So roughly China would be close to 20-25% of the procurement value what we purchase broadly. And predominantly it is out of India, but it might be possible that our KSM vendors' starting module can be out of China. So, that is something which we actually don't keep track of where exactly that is coming out of from to a very great extent. But, so, broadly from our procurement perspective, 20 to 25% from China, roughly 60-70% in India, and then balance will be in Europe.

Got it. Perfect. Thank you so much, sir.

Thank you. Next question is from the line of Apoor Pramehata from AM Enlusment. Please go ahead.

Sir, congratulations on a great set of numbers. Sir, can you just let us know the demand scenario, how is you currently looking about demand for the API? And one more question, is it possible we become profitable on the agro-proofing side in the current quarter?

For API, as you can see in our numbers, our volumes, our revenues have gone up significantly because our customer base has increased and we are manufacturing more of the products. So as far as we are concerned, there is a good demand for the API. As far as profitability of ibuprofen is concerned, I don't have a crystal ball, Apoorwa. I am hoping that we can produce the same magic that we did in Q2, But a lot of it depends on macroeconomic factors, a lot of it is outside our control. So we are trying our best, as Farah said, to try and see how much of these costs we can pass on to customers. Can customers help us with increased prices? How do we manage solvent price increases? How do we manage raw metal availability? But very difficult to guess whether we can keep up the same break-even performance in Q3 as well.

And any possibility that, you know, quarter three, quarter four, the gross margin will be a little bit higher because of now we should have negotiated for price division and everything. So there is a possibility that the gross margin can inch up like one or two percent in third and the fourth quarter.

This is specifically for ID proofing that you're asking?

No, no, no, no, no, on the base business.

Like, possibility of increase of gross margin is always there. But having said that, this is something because in an API environment, we normally don't have the privilege of multi-quarter contracts or say multi-quarter POs in place. And then most of the POs are normally on a kind of revolving basis for each quarter. And then because of all this changing price dynamics, we are also experiencing changing price dynamics both on the supply front as well as on the input cost front. So, obviously, there is a possibility that is what we are actually working for, but to put a finger on something saying that we will improve by 2% surely for next quarter or going for two quarters will be very difficult at this point of time.

And there is any seasonality in the business, like normally we have seen like Q4 and Q3, Q4 are much stronger than Q1, Q2. Is there any seasonality or no?

So, part of our product portfolio, normally we actually don't have a seasonality to our demand, but yes, based on our production campaigns what we run, because to actually optimize our manufacturing capabilities what we have in terms of capacity, We do have campaign productions. One that is aligned with the campaign demand of the customers. That might impact slight product mix for each quarter, but we don't have a seasonal demand for a certain product or something except one product, which is Oseltamaver. But again, having said that, although we have this flu season which actually runs from Q3 to Q4, there are formulators who have a practice of procuring Q1 as well, Q2 as well, procuring Q3 as well. So, this is something, as a product, Oseltama wave has a seasonality factor, but from a purely commercial demand and supply perspective, I don't think that weighs too heavily on the portfolio.

Okay, thanks a lot, and wish you all the best, and hopefully we see some news for selling our IP proofing plants. Yeah.

Thank you. Next question is from the line of Rahul from ACE. Please go ahead.

Thank you for the opportunity. Sir, I wanted to understand that, you know, we have been trying to, you know, turn around this business for a long time. I mean, we as in like, you know, the leadership team before that was there before you as well, right? But now it seems that by the numbers in the last one or two quarters, actually we are able to turn around the business. So, just wanted to understand what have we done differently than the previous management team that was there. So, just wanted to understand on that part.

I'm so sorry to interrupt you, sir.

Your voice is cracking. We are not able to hear you properly.

Can you hear me now?

Can you hear me, sir?

I can hear you.

Yeah, did you get my question, or should I repeat it once?

No, no, we got your question, Rahul. Okay. So, let me go to your first question. You talked about turnaround, cautiously optimistic. I would say we've turned around if we can get another two quarters in line with the current quarter or better than the current quarter as a turnaround. So, again, differently, US management did a brilliant job with the platform. I think what Sarath and I have, and the whole Solara team has done differently, is we've been very judicious, we've been very focused on execution, we've been very focused on generating cash and financial discipline. We've sort of put a lot of efforts on trying to create high-margin products that really need that capacity. So, in general, I think we've just tried to help us make the platform.

I'm so sorry, sir. We are not able to hear you if you're speaking.

Can I take the next question? Yeah, sure, sir.

Next question is from the line of Vishal Verma from Quintilian Global LLP. Please go ahead.

Hello, and thank you for taking my question, and congratulations for a good set of numbers. Sorry, actually, I joined a little late, so I don't know if this is

being asked, but my question is, on any new chemistry platforms that Solara is researching on, as well as, what are some key therapeutic areas that we are working on?

Yeah, that's my question.

I think I answered this a few minutes back, but I'll keep it concise. As an API company, we are therapeutic area agnostic, and we really select products based on chemistry, regulatory complexity, and the next question is you spoke about new chemistry. I think we have our hands full right now based on the products we have, but typically we look at products that have difficult chemistry. As you know, we have a very strong position in polymers. So polymers is one area which we are focusing on. But in general, we look at chemistries which lead to products that are difficult to...

Okay, that's my question. Thank you. Thank you very much.

Thank you. Next question is from the line of Vandeep Dharmashi from Memora Advisory, Private Limited. Please go ahead.

Hi, sir. Thank you for taking my question. Despite the drop in gross margins, we were able to hold our EBITDA margins when, in fact, EBITDA margins have improved. So, keeping everything straight to score, would we have some more low-hanging fruits where we could work on some low-hanging fruits by which we could improve our EBITDA margins from here on?

So, Mandip, like, we would not like to categorize something as a very low-hanging fruit or something because, but having said that, obviously, there is a scope for improvement of EBITDA margin because we are working on certain territory expansion as well as expansion in volumes or, say, in terms of getting higher wallet of share from our existing customers. So, once this expansion of volume plays through, and since we had already spoke that our cost is something which we don't significantly expect it to go up in tune with our revenue expansion, so that incremental gross margin should actually flow into EBITDA. So, EBITDA expansion, surely we have a scope, but these are not something which are low-hanging fruit. This is something which the teams are working on, and some things will take a few quarters, some things will take a few months in terms of a timeline.

And the next question is on the demand environment for ibuprofen. In the last three or six months, maybe this quarter and next six months, some changes that you've been observing on ground, both locally and globally. If you could just share your thoughts on that.

The question, is there an increase in demand on ibuprofen? Well, I would say...

Not increasing, not, it is not regarding demand increase, I think, so it would not be more than 3-4%, but in terms of competitive landscape, in terms of supply, maybe, maybe everything together, not just demand.

Okay. I mean, there are players in India who are increasing their capacity, right? I mean, it's a public domain. And then on the other side, you have players in the Western world who we hear are shutting down their facilities. So this is a time where we are just waiting and watching a number of the marquee customers worldwide. And we are very particular about whom we do business with. So, typically, we do business with marquee customers where we have long-term association of the business is very sticky. We try and keep away from businesses where the gross margins are very low. So, like you asked, I think there's so much changing on the ground in terms of capacity expansion, some formidable players we here are leading that we really need to see how this whole thing pans out.

And this is true. Thank you so much. I'm wishing you all the very best.

Thank you. Thank you.

Thank you. Now, we will take the last question from the line of Nishan Bhatt from Equity Works Summit. Please go ahead.

Am I audible?

Yes, we can hear you, Nishan.

Yeah, first of all, congratulations on a great set of numbers. We know that currently our grants platform is quite small. So, I just wanted to, you know, know some, like, what are your plans or strategy to grow this Kranz platform over the next three to, you know, five years, long term, and could you share any three to four, you know, measurable KPIs? Let's go back.

It's small today, so this is an offering of chemistry, and given the scale at which we operate, both small and large, as well as the accreditations we have, you know, Japan, Brazil, U.S., Europe, I think we make a very strong case of somebody who can be a CMO, CDMO partner. So we are going out there. I'm hoping that we will be able to build this traction over the next few years. But for now, we are focused on more immediate priorities is to get the best out of the existing products we have because that's a near-term opportunity. So, the focus today is on de-bottling networking, operational excellence, gas generation, expanding the reach for our customers, integrating our R&D engines. So, perhaps it's happening in the background, but the focus today is on what we have on the plate today.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I now hand it back to the management for closing comments.

Thank you. I'd just like to again wish everybody a happy festive season. Thanks for staying invested in Solara. Thanks for your support. Thanks for your trust. And appreciate all the patience you have shown as we go about building our company. Thanks a lot.

Thank you very much. On behalf of Solara Active Pharma Sciences Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.