Aarti Pharmalabs Limited (AARTIPHARM) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Aarti Pharma Labs Q3 and 9 months FY26 Earnings Conference Call hosted by Dollard Capital Markets Private Limited. As a reminder, all participant clients 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 a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Zain from Dalak Capital Markets, Private Limited. Thank you, and over to you, sir.

Hi, good evening, everyone. I am Zain Gulam Hussain from Dalak Capital Markets, Private Limited. It gives me immense pleasure to hold 3QFI26, Aarti Pharma Labs Limited, Concord. From the management team, we have Mr. Rashesh Gogri, Chairman, Mrs. Hetal Gogri Gala, Vice Chairperson and Management Director, and Mr. Piyush Lakhani, Chief Financial Officer. Now, I pass it over to the management for their opening remarks. Over to you, sir.

Good evening, all, and welcome to ATI Pharma Lab's earning call for the third quarter of the financial year 26. Thank you for taking the time to join us today. I will walk you through our Q3 performance and share key developments and provide insights into the steps we are taking to strengthen our growth going forward. Let me start with the summary of our standalone financials for Q3 FY26. The revenue was Rs. 425 crores, which was earlier Rs. 471 crore a year back. The EBITDA was Rs.103 crores as compared to Rs.115 crores for the corresponding period of the previous year. The profit after tax for the Q3 FY26 was Rs.44 crores as compared to Rs.74 crores a year back. I am pleased to inform you that the board has declared an interim dividend of Rs.1.5 per share. Now let me present you a few business highlights. Ati Pharma Labs operates across three key verticals, Xanthine derivatives, API and Interminutes, and CDMO-CMO services. The Xanthine derivative segment contributed to 49% of our turnover in Q3. The volume split was 63% beverages customers and 37% others. In terms of geographical split, the export sales was 51% and resh was 49% was local sales. The API and intermediate business stood at 39% of the turnover. This sub-segment wise breakup is 52% regulated market, 34% ROW market, and 14% non-reg market. The API business continues to see some margin pressure. While early indications of recovery are emerging, we remain vigilant and are directing all our efforts towards patent expiry over coming years. The third segment, CDMO, CMO, has contributed to 12% of the revenue in this quarter. We are working with 21 customers and the number of active projects are 59 out of which 40 projects are in the commercial stage and 19 are under various stages of development, both at customer end. Apart from Q3 reported sales, another 49 crore worth of goods were in transit as of 31st December 25. These goods could not be booked as sales due to accounting norms. We are confident of meeting our CDMO revenue guidance for FY26. However, exceeding the target, which was earlier possibility, now looks difficult due to certain project deliveries getting pushed by a few months. Let me now discuss the update of the expansion projects. Atelier plans started production of qualifying bases in Q3 FY26. By ramping up phase 1, we have encountered some starting hiccups which impacted the production plan. And we have corrective actions in place, and we expect the resolution by end of the current quarter. The xanthine expansion is progressing as planned, and we are targeting the mechanical completion by end of March 26. The incremental capacity will become available for the production in Q1 FY27. However, utilization will increase progressively over subsequent quarters in line with the operation scale-up and the order inflows. Looking ahead for the full year FY26, we expect EBITDA to be largely in line with last year with only marginal growth. This revision is mainly due to the delay in Atari plant stabilization and relatively softness in API and intermediate business. While this reflects the near-term pressure, but our fundamentals remain strong and I am confident of mid-to-long-term growth trajectory of ATI Pharma Labs. Our efforts are dedicated to drive operational efficiencies and scale each business segment prudently to create long-term shareholder value. The moderator may now open the forum for Q&A session. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone 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. Our first question comes from the line of Ahmed Madha from Unify Capital. Please go ahead.

Yeah, thanks for the opportunity. My first question is, if I look at the CDMO business, the number of projects, the commercial has gone from 33 to 40 in the last 9 months, Does that give you any visibility for FI27 growth? I mean, next financial year, considering the way the projects have shaped up, would you like to give some comments? How is the outlook for the growth shaping up?

Yeah, I think as you have seen, the number of projects have increased on the commercial side, and we are working with our customers in the starting of this year to work on this number. But I think we will be able to give that guidance of CDMO, CMO growth post-hour budgeting exercise, which we will do in next month. So I think next financial year. But we are looking at good growth. I think we have a strong pipeline of projects with these 21 customers. And we are confident that we will be moving forward with very good growth.

And in the incremental projects that have come, are those products already commercialized and scalable and we are being added as a secondary supplier or some of these products are getting launched probably a year down the line or next year?

It is a mixture of everything. So, basically, we are getting added. In certain projects, we are primary source. Certain projects, we are getting added as a secondary source. But largely, I think it is more the products are getting launched or we are getting qualified in these projects as an approved source. So, with this happening, I think we will have the number of projects which are adding meaningful value to our sales are increasing, you know, every year.

On the API side, I understand we had a few good launches last year, and the pricing pressure is the nature of the business. But going forward, for the new launches on the diabetic side, the glyphosines and the Onco side, do we have any new launches in the pipeline, or for the next year, do we have to rely on the existing portfolio?

No, no, we have new launches.

Yeah, definitely we are validating a couple of or quite a few APIs on Onco side and also improving more manufacturing processes on diabetic side. However, some of these APIs will have the patent expiry somewhere around 27-28 and we will see, you know, more and more customers getting into our kitty with the validation completion in current quarter. And in the next quarter as well. So, 2026 also, we will have a couple of new launches for the Onco APIs as well. And also, we have a new CSO who has joined. So, we are working very aggressive on, you know, revisiting our strategy and working on, you know, capturing the, you know, Onko pipeline early on.

My follow-up question on that is, does that mean FI 26, 27, this year obviously we'll have degrowth, but FI 26, 27, do we consolidate or we can grow from that base?

See, what we are doing is that we are trying to de-bottleneck the steroid line so that we can add more sales. Of course, we have space in our journal block where we are trying to get more projects validated, and that validation has been done in this year. So those will get commercialized. These are some of the old products that we have taken up because we had space. So all that effort, and of course, in 2026, we have few launches. Apexaban and a few other anti-cancer products that are getting launched in 2026. So with those launches, we will see, you know, 2026 to be a better year, 2026-27 to be a better year overall in terms of API. And also, API business numbers also consolidated the numbers of intermediates. So, there are few intermediates that we supply from our range of intermediates for these newer launch drugs also. So, those are also going to increase significantly going forward.

Sure, sure. That helps. Thirdly, on Atali, you spoke about the operational challenges. Can you just elaborate a bit what sort of issues we are facing? And when we say the result by Q4N, does that mean that we can shift some of our current intermediate from WAPI to Atali from Q1 and ramp up the utilization?

Yeah, basically, we were trying to validate several products there, and in the validation, there were certain challenges that the company faced at Atalifat because of the newer staff and newer nature of the plant. So those issues are getting settled, I think, with the operational team getting strengthened and the process team also being stationed there because all the entire new set of reactions and the equipment that we have commercially started in phase one are all large equipment. So, that's where, you know, we are taking much larger batch sizes. So, those challenges we anticipate to get over in the current quarter, and the batches have progressed well now. So, overall, that has led to, you know, some delays in the certain validation quantities that were supposed to go for the CDMO projects in the current fiscal, but they will get pushed a little bit to next quarter. From Atari.

Yeah, and in FY27, we will have more products range getting validated from Atari, and this will definitely help our intermediate capacity increase.

Sure. A couple of questions on the numbers side. So, gross margin.

But if you have a follow-up question, please rejoin the queue.

Sure. Thank you.

Thank you. The next question comes from the line of Rahul Jain from Credence Wealth. Please go ahead.

Hello. Am I audible?

Yeah.

Yes, sir, you are.

Yeah. Thanks for the opportunity. Sir, first question is with regards to the impact of this confinement which is in transit, where roughly we have cost to the extent of 30 crores and 49 crores could have been a revenue value. So, just to understand what exactly is the impact on the numbers which have been declared for December, how is that being accounted, and what is the impact in the December quarter with regard to sale, and what can be the impact in the next quarter coming in?

Yeah, so the impact is essentially what we have given in our note. So, if we had been able to book the revenue in quarter three, then our top line would have been higher by that amount, 49 crores, then the PVT would have been higher by, you know, by the same amount, so 19 crores.

Nineteen crores.

Yes.

So, currently, how is it accounted? Is there some impact in the current numbers?

Yeah. So, currently, it is being shown as a stock, stock in transit. So, that's why, you know, it is carried at 30 crores, 30 point something crores, which otherwise would have been 49 crores, if we had been able to book the revenue.

Okay. So, do I understand in the coming quarter, what would happen is, this 30 crores stock, that will be sold at 49 crores. So, that 19 crores will be booked in quarter four. Correct?

Correct, correct.

Okay. And secondly, sir, with regards to the Atali Capex, what kind of cost, incremental cost we have incurred with regards to this Atali Capex underway till now, and what is the further cost expected, and how do we see the ramp-up in the coming quarters?

No, so we have done the capitalization of around 300 crores and the total project outlay is around 450 crores. So that balance, certain second phase is getting, you know, completed and we will have that completion happening in next couple of months.

And I was asking also about the OPEX which has been because I can see some increase in Other expenses and depreciation, so what kind of OPEX has already been accounted in, say, quarter three, which has been flown through the P&L?

Yeah, so we had taken the complete depreciation as well as the OPEX numbers of Atali have also been accounted for for this validation program, whatever, that we had undertaken. So, the

depreciation on the entire 300 crores of capitalization has come in, and on top of it, about 1.5 crores of monthly OPEX that we are running that.

Okay.

Okay. Quarterly will be around, say, 5.25 depreciation on 300 crores. So, it will be 15, 16 crore depreciation in a year. Yeah, but then we will be capitalizing the additional. Yeah, yeah, additional, once the additional gets capitalized, then the depreciation will increase.

Yeah, and last question, sir, with regard to Ramp-In Ramp-Up, so how do we see the Ramp-In Ramp-Up over, say, next year with this mechanical capital acquisition?

Yeah, see, currently, as I have informed all of you in the last call, that we are currently running at around 500 tons per month capacity and slowly ramping it up. So, I think with the new capacities coming up, we are adding close to 300 tons per month additional capacity so that, you know, we will have that available. But I think quarter by quarter, you know, we will have in first quarter maybe 300-400 tons manufactured. Second quarter will manufacture more and then in a year, we should be at least able to utilize close to 50-60% of that capacity overall.

So, the exit rate will be 50-60%. Or overall average could reach 50-60%. Okay. Average for the year could be in the range of 50-60%. So, that's quite helpful. And so, just last thing with regards to the API. So, you mentioned in your initial commentary also and in the presentation also. Just to understand, you know, where are we in this cycle of... So, on one side, you have mentioned there are some green shoots which are visible. At the same time, the margin pressures continue. So, is it that the demand has started picking up, but the price variations have not yet moved up? So, is that what you should argue? And plus, how do we look it forward now?

See, API business, generic business, the prices never increase. They always go down only. So, ultimately, the game has to be played where you increase the capacity. So, what we have done in our generic block, also we have put the block 5 expansion a couple of years back. So that is available with us. And then we have also mentioned that in this year we are also going to do the de-bottlenecking of the steroid block and our onco block eventually we will in future also we will do the de-bottleneck. So, once we have the more capacity and the more products get off patent and to supplement our usage, you know, we have also undertaken a few older projects where we have our own raw materials produced, intermediate produced in-house, which are large volume trucks. So, those also have been sold for the validation funding. So, all these efforts, we see that gaining more customers for newer products or the older products, we will be able to do the growth in next year.

Sure, sir. Thank you so much, sir. Best wishes.

Thank you. Our next question comes from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Thanks for the opportunity. The first question is on the CDMO segment and two parts to it. If you look at the number of molecules that we have been working on, although we have seen a significant jump in the number of commercial molecules from around, let's say, 28 to almost 40, and most of them have transitioned from underdevelopment to commercial. But overall, the molecules that we have been working on have remained in the range of around 55 to 60 over the past six to seven quarters. So if you can elaborate, how do you see this pipeline increasing? And that was the first part on CDMO. And second part was on, if you look at our CDMO revenues currency, they are largely concentrated on two to three molecules. So, when do we see, you know, other commercial molecules which have increased from 28 to 40 contributing to our, you know, revenues and scaling up to, you know, 5-10 million dollar kind of thing over, so when do you see that thing happening and especially with Atali coming in, you know, next year in a full-fledged manner, how do you see this happening?

Yeah, as you know, you rightly mentioned that overall the list that we are maintaining is a dynamic list of 60 projects. So, we are reducing the number of projects which are not getting through as an approval. So, it's a dynamic list. So, what is important is how many are commercial and whether they are increasing or not because those who are not getting approval are getting off the list also. Okay. And, you know, we are getting newer projects in the commercial range where we are quite hopeful that in future we will have revenue ranging, significant revenue will come from, meaningful revenue will come from these projects in future. So, whatever you are able to track is only export data, right, largely, and that also quarter and quarter, I don't know how much that tracking is being done. This year, largely, in first three quarters, we have not done too much shipment. So, we have had total of only 120, 130 crores, which, plus, of course, this 50 crores. So, in the last quarter, we will have bulk of exports also happening, which will have these newer commercialized products getting exported. So, you will see that in the data. Yeah. So, going forward, you know, as we are putting people on ground, we have someone in Europe and someone getting shifted to US. So, more people getting on the ground. I think with the newer customers that we have been able to approach, I think, and with our new enhanced strengthening of our R&D team, I think in future we will have much more opportunities, and you will see this list to grow.

Sure, sure, sure. And then for some of the products which, you know, one of our products which got, you know, regulatory approval in this financial year, And one which is expected, hopefully, should get approval in Europe in second half of this current year and USFD approval next year. So, how do you see this molecule scaling up for us? Now, at least one of them has been commercialized, the other one is also expected to be a blockbuster drug. You know, so if you can tell us whether, you know, what kind of projections or what kind of indications is, are the, you know, some of our innovators or our CDMO partners are giving for these two products?

See, I think we are not speculating on these names. We are bound by the confidentiality agreement with our customers. So, but the project's success depends on how well they are marketed and how well they are getting penetrated because for the same segment, there are many drugs which may be there. But luckily for us, the drugs which are there have a very segment which is differentiated segment where there are not too many competitors operating in this space. So, we are keeping our finger crossed and hoping that our innovator partners are able to grow these products and of course we are there to support them. So, in future, we could see healthy growth in all these projects which we are doing with our partners.

Sure. Second question was on the API part. Last year in second half, we had touched almost a quarterly run rate of 200 crores. We had, in fact, exceeded that. And this year, we have been in the range of 150 to 160. Of course, you have alluded the reasons. Given the launches which are happening in the coming financial year, how do you see we might end up this year around 650, 660, 660, 670, So kind of run rate for the full financial year, given how the trend has been for the past three quarters. And last year, we were almost around 770 crores. So next year, should we be looking at going back to that 770, 780 crore kind of run rate? Or, you know, we should also see some growth on that number or at least at this juncture, we are just looking to go back to the FI25 API numbers.

Yeah, I think the first milestone is, as you rightly mentioned, quarterly 200, and then the next milestone will be higher than that, quarterly. So, these are the milestones, I think, yeah. So, that is what we will try to scale it up to.

But when do you see this happening, let's say, you know, going back to 200, quarterly run rate on APN?

As we get more and more, you know, commercialization of our products and the new launches happen. So, that will happen across next few quarters. So, I think it's not going to happen in next quarter, but I think it will take a couple of more quarters to come to that.

Sure, sure. And this last question on the gross margin part.

I didn't talk to you, sir, but if you have a follow-up question, please rejoin. Sure, I will.

Thank you.

Thank you. Thank you. Our next question comes from the line of Madhav Marda from FIL. Please go ahead.

Yeah, on the xanthine derivatives business, if my understanding earlier was correct, we had 5,000 tons capacity, and I think you, if I heard it right, you said we're running at 500 metric tons per month run rate right now. So, just trying to clarify, like, that could be 6,000 tons volume. So, what is the, basically, what is the current installed capacity and sort of volume run rate that we have in Xanthine today?

Yeah, so, basically, in Xanthine segment, we are running two manufacturing sites. So, what we have done is the current mother site that we have there, also, we did some deep bottlenecking exercise. So, that capacity increase has happened as phase one. And the new site that is 300 tons per month, that is getting installed mechanical completion by end of this financial year by March. And next quarter we will start the trial production and everything. So that's how the production will reach to 800 metric tons per month. So that's why we are saying that currently we are at 500 because that's what we are operating.

Okay, so, effectively, sir, you're saying we're at 500 metric tons per month, including the de-bottle necking, and at peak, including the expansion, we can get to 800 metric tons of volume from Zantin.

Yeah, that is 9,600 over installed. Around 9,000, considering 25, whatever.

Okay, got it, understood. And how is the pricing trend right now in Zantin across, you know, In the various end markets which we sell, and the incremental volume, will we be selling it more in, you know, pharma grade, or will it be more beverages, or, you know, any market picks you can give us, because I think it can vary, so I just wanted to check.

Yeah, so I think there is an interesting development, is that China has announced that they will withdraw the benefit, rebate benefit on caffeine and its salts. So, with that rebate withdrawal, I think, overall, 13% benefit that is getting accrued to the Chinese manufacturers when they export the API, that will go up. And we are hoping that this will push the prices of the product up by at least 8 to 10% in future. We are seeing some increase in the pricing. Overall, I think, in the spot market, we have seen around 5% increase in the price from lower level. So, we are seeing that the overall pricing has bottomed out. Secondly, for the U.S. market, now with the overall trend, I think there is a duty of 20% which is applicable on Chinese product, whereas India has a duty-free status currently because caffeine is in the annexure list which is free from this Trump tax. So, with this, I think we are in a favorable position to do the exports to U.S. Imports will, and that other markets also, we will have a higher overall pricing should improve, I think, going forward.

Is there a fair assumption that in FY28, we could, you know, run at full capacity, like the 9,000 metric tons can be full capacity for us?

I think the efforts are, you know, going to basically achieve to 85 to 90% of that capacity by that. We always want to have some free capacity.

Yeah, and we wanted to reach a top three in the world with this kind of capacity. So, have a good position across.

And in the API business, you know, although the reported revenue obviously seems like there's a decline, but just wanted to check, like until last year, we had a subsidy, you know, where the revenue used to be booked in the top line. Now it's moved to the associate line item, the JV, which we had. So is there a decline in API business because of that change in the reporting? Because of that, or there's actually been a decline of what you know?

See, you have to look at the standalone business and standalone to standalone, what is the gap? That is what is important. See, in this current quarter, we have added a 5 crore pat below the line for that entity, which had negative numbers in the last two quarters have become positive. Even this quarter, it has added 5 crores in this, you know, results, consolidated results. And we are hopeful that in the future also we will see similar positive numbers from that joint venture that we have.

Just want to clarify this, 167 crores, a prop API intermediate business which we booked in quarter 3. What was the like-for-like number last year? Like, if I compare Apple to Apple for this business?

That number, I think, in the percentage you will have to see, last year, Q3 was 40% of, I think, the breakup was around 44% in the Q3.

On what top line is that? I think it was around 180. 180. Yes, so the decline is more like 5-6%, right? Rather than...

Yeah, it is fine.

The larger number which comes because of that. On 18th, it will become 160, 158, 160. Okay, fine. That's the last question on the CDMO business. I know that it's...

If you have a follow-up question, please rejoin the queue. There are a couple of participants waiting in the queue. Thank you. Our next question comes from the line of Shikha Mehta from Time and Tide Advisors. Please go ahead.

Good evening, sir. Am I audible?

Yeah, yeah.

Congratulations. on a recent set of numbers. I wanted to understand the gross margins a little better. So, of course, this quarter we've seen, you know, superior gross margin. So, is this something we can maintain going forward? Is this sustainable or is there some kind of one-off? And along with that, on our other expense side, there is a significant rise. So, is that just the Atali, you know, operational expenses that we were mentioning earlier or is there anything else part of it?

Yeah, the first one, I think now quarter to quarter, the gross margins will vary a little, but if you see nine months, it's basically trending at the same, almost the same level. If you look at gross margin as well as EBITDA, they are around the same level. And second question about the expenses, yes, mainly the increase is contributed by the Atari site, and there is one more site that we have taken on rent, on lease, where we are paying conducting fees. So, there also, there is some contribution also coming in and there are corresponding some expenses also that is getting good. So, that particular disclosure we had given in the Q1 that we have entered into a conducting agreement with one of the players who had some extra capacity and empty plant.

So, the other expense should broadly normalize once we start seeing revenues coming in from, you know, Atali, etc., right? It should move back to that 21-22% of sales that it used to be.

Yeah, it will move more in tandem with the growth in the top line, and as you rightly said, it would move, basically, it will increase once the operations are stabilized and ramped up at Atali.

Another thing, sir, in our presentation and in our opening remarks, we've mentioned that we're looking to end FI26 on a flat to moderate growth on EBITDA basis for FI26. So that would suggest a very large quarter-on-quarter jump in the Q4 numbers for EBITDA. It would lead to almost 50% to 55% of an EBITDA jump quarter-on-quarter. Is that understanding correct? And are we, you know, geared towards doing that?

Yeah, as we have mentioned in today's presentation also, that one revenue we had to defer, the 49 crore sales that we had to take at 30 crore COGS. So, with that and the normal increase, I think, whatever that we are projecting, because a lot of CDMO sales are still going to happen in the last quarter. So, with that, we are anticipating good growth in the last quarter.

And so, lastly, on the API side, I understand a lot of participants have asked this earlier as well. But I'm just looking to understand. So, you know, last year Q3 and Q4 obviously were tremendous quarters for us. In the near future, maybe Q1 or Q2 and FI27, can we expect that kind of revenue and, you know, margin? Or is that something to look at as a one-off and might not happen going forward?

No, we are increasing the capacities now. Which quarter we will be able to grow will be, you know, whatever we are looking for.

No, so I'm just trying to understand that was Q3, you know, we had margins of EBITDA margins of almost 27% last year Q3, sorry, last year Q4. So, is that margin a one-off, or is that something that, you know, in the imminent future, we can expect at some point?

I think Q4 margin was driven by the CDMO, CMO as well. So, in the Q4, we had CDMO, CMO almost going up to 27% of the sales. So, overall, I think the last year, Q3, Q4, both, you know, we had good API sales, you know, overall, as well. So, but the bump was largely due to CDMOCM.

Understood. So, again, as that continues to grow at this 30-40% rate that we planned for, So, it should possibly come back.

Yes, yes.

All right. So, thank you. I'll come back in the queue.

Thank you. Our next question comes from the line of M. Atma Dha from Unify Capital. Please go ahead.

Yeah, a few questions on the numbers. So, did we have any Forex loss in quarter three? Last quarter, we had some.

Yeah, yeah. So, basically, you know, that gets parked in the other income. So, basically, you know, we have gain on the exports and we have loss because the rupee is depreciating, obviously. So, loss on the imports and on top of it, you know, the part of the interest on the current currency loan, which is over and above the normal rate of borrowing in India or INR, also gets net off against the export gain. So, basically, the net impact which you are seeing in other income is because of that.

So, total will be 5 crore? 5 crore. 5 crore is the total impact debt.

So, whatever gain we had, almost, you know, similar kind of loss we had.

Okay. Sure. And in terms of the capital structure, how much gross debt we have, 9 month ending? 650. 650 crore. 650 crore. Okay. Okay. And post all the KPEGs are done, I mean, the balance of Atali and Zenty and everything, what number should we end by Q4?

I think we should look at the net net equity of around 0.3, between 0.3 and 0.35, you know, depending upon how Q4 goes.

Yeah, 0.3, 0.4.

0.3, got it. And on the Atali, you spoke about 450 crore KPIs of which 300 is commercialized and 150 is the balance remaining. For Zhenthin, how much will be your block, which will be capitalized?

Zhenthin, in total, the project that we have approved is around 150 crore with both the sides together.

Lastly, on the CDM...

Follow-up, please join the queue. Sure. Thank you. Our next question comes from the line of Ankit Gupta from Bamboo Captain. Please, go ahead.

Thanks for the opportunity again. Sir, on the rent-in side, you know, we will have the entire capacity of 9,000 ton per annum by end of Q4, and we, as you have been indicating that, you know, we are looking at, we should end FY27 with a decent capacity utilization of the incremental, of the new plant as well. So, you know, new capacity addition as well. So, are we looking at a scenario next year and that, you know, our volume growth in the Xenthine should be, can be around 25 to 30 percent? Plus, given how things are there on the China because of this anti-involution thing, we should also have some 5 to 10 percent kind of jump in realization in Xenthine?

Yeah, so I think every overall, as I have indicated that the new plant will start up and we'll see how that goes. Overall, target we have set of what we want to commercialize from that. But what we did is that from the current site itself by debattlenaking, we are anyway operating at 6,000 level today for this quarter. So, that really gradual thing also helps us in pushing the number because you are not taking a certain shock of increase from 5,000 to 9,000. You already are at 6,000. So, it's easier to reach 7,000 or 7,500 going forward. Yeah. So, another thing that I think everywhere we don't compete with China. So, wherever we are competing with China, you know, definitely we will have this advantage of marching. But I don't think that we'll have a substantive because we have certain contracts which have locked in on the pricing.

So, yeah. Sure, sure. Okay.

But depreciation definitely helps us overall.

I think on the CAPEX part on, you know, for the FY27 and FY28, you know, we were also looking at incremental blocks coming in Atali. So, given some visibility on the CDMO part, are we looking at some expansion coming in for the new block at Atali in FY27?

Yeah, yeah, we will have at least one block coming up in Italy in next year. So we will get that capex approval going forward.

Okay, and it should not be a large capex even?

No, it won't be a large capex.

Okay, so does it also imply that, you know, that huge capacity is coming up and we are also looking at, you know, a new block coming in for the CBMO. We have very good visibility on how CDMO should ramp up post the first phase comes in, the first block comes in.

Yeah, yeah. We have good visibility. Of course, you know, we have to keep our finger crossed. Our partners have to make sure that their launch drugs are being successful and they don't have any hiccups. So everything is contingent to how they are performing post-launch. So that's what we are waiting to see. And I think because everyone prepares for the launch and the first year, there is always a dip post-launch. And the second, third year, again, it picks up because, you know, they are certain about the market targets and they are actually trying to expand the market. So that's where I think we will be in different phases with different drugs. Thank you, Vishal.

Incoterm being a DAP, delivered at place. So basically, you know, we deliberated, you know, the possibility of booking it in the last quarter itself, but then, you know, we deliberated with the auditor also and internally also, and it was basically as per the accounting terms, it gets booked at the time of delivery itself. But normally, we do not have too much sales with this incotum. So, normally, it is not that high. As far as FG is concerned.

Yeah, so it will be around 10-12, which is typically, which is at the... At the dock.

Okay, that helps us. And secondly, so you have revised down the EBITDA growth guidance from last quarter to this quarter. So, besides some push-out in the CDM sales, any further negatives that you had been to see for this year?

I think, as I have mentioned, API overall growth that we were seeing that there would be some growth, but there has been degrowth, okay, in the API sales segment that we have seen, so that is also one of the reasons why, you know, overall we have not been, but the engine segment has done as what we were targeting. CDM or CMO, a little bit of pushback, and API is a little slow. So, I think these are the three factors, and then we had capitalized the tally, and then all the expenses have started coming in. So, we have depreciation and all that also. The running expense of active also come in. So, whereas the initial hiccups that, of course, will get solved going forward.

Yes. And in the API segment, is the pricing pressure across the board or how is it like two specific molecules? And how is the volume growth overall for API and intermediates?

I think we are seeing pricing growth happens. That is the nature of API business. I think overall that is always the pricing growth. So, we had few launches last year which have, you know, the partners with whom launched, they took significant quantities, and this year they are a little bit slow in taking up more quantities from us. So, that's one of the reasons. Second thing, you know, in terms of intermediate capacities, you know, we did not have too much intermediate API capacity because we were running the CDMO

operations in our intermediate and CDMO combined facility.

So now with the Atali coming in, I think we will again focus on these intermediates. Of course, as the launches happen of the APIs which are getting expired, we will start supplying this interface. So those sales also will get added into the API segment. So, both these will happen. So, that will drive the number towards growth.

Perfect. Thank you. Thank you.

Thank you. Our next question comes from the line of Shubham Agarwal from Burman Capital. Please go ahead.

Hi, sir. Thank you for the opportunity. Sir, I just wanted to understand that Bayer got an approval, USFD approval, in October of 2025 for one of their, you know, key products in the menopause and hot flashes category.

Yeah, we are not commenting on specific molecule because of the CDA that we have with various customers. So, unfortunately, I won't be able to answer this question.

Understood. No problem, sir. So, you know, just want to understand on the general CMO part, like, you know, from the time you ship a product from India to the, you know, receipt of goods at the customer's end, what is, you know, the general time lapse and, you know, between that shipment as well as the revenue recognition?

See, generally, most of the products which are more than a lakh rupees a cage, we do mostly air shipment. So this is being delivered in 5-7 days, whereas the sea shipment takes 30-40 days. If it is going to Europe or if it goes to US, then it will be 60 days. So by sea shipment. By air, it is 7-8 days. But I think the failed shipment was C. So, that's where the issue came up.

And in most of the cases, we are able to book the revenue at the time of shipment itself. Yeah.

So, this is the one-off case. One-off. That's why we have to disclose. And it moves the number significantly, you know, over this quarter. Because it's a very large shipment that we did for one of our customers.

Yes, sir, but you said earlier that there were a lot of shipments that, you know, might be flowing in there, but, you know, that usually happens later on. So, just, you know, understanding from that perspective that, you know, is there like a one million average, sorry, one month average kind of, you know, math between shipments and revenue recognition?

Not really, because most of the shipments are air shipments. So, I think there is only few days of delay, but not all are DAP terms. So, some of them are only DAP, most of them are CIF, FOB, and stuff like that. So, it depends on the INCO terms.

Understood, understood. Sir, just one last question, if I can squeeze in. Usually, sir, So when you, when an innovator is, you know, kind of receiving an USFD of Google, is there like a buildup of an inventory that they would see on their end? And, you know, then obviously that will follow a normalization period. You're not possibly destalking of that in the, you know, that one year kind of range or usually it's more, you know, stable. Just wanted to understand that perspective.

I think every innovator has a different plan, and if they are getting approval of different market at a different date, then anyway, the launches are deferred. But once they have key approvals in key markets of Europe, UK, and US, and other important markets like Japan or whatever, so then I think they are at a full potential of sales, and that's where it depends on how they are prepared for each launches. So, they don't get a day one approval for all the markets. So, all the regulatory agencies have a different clock for approval.

Understood. Thank you, sir, and all the best for the future. Thank you.

Thank you. Our next question comes from the line of Mohamad Patel from Edelweiss Public Alternatives. Please go ahead.

Am I audible?

Yes. Yes, sir, you are.

One question is related to the CDMO business. So, the number of customers were 21 at the start, at the end of FY25, and the number is same currently in the nine months. So, are we expecting addition of customers in the near term?

Yeah, yeah. We expect this customer number to go up in calendar year 26.

Okay, and a follow-up question on that. So, can you give some color on the current CDMO inquiry pipeline?

No, I think starting this year, we are having a good number of new inquiries that have been generated by our BD team. And, you know, our team is really responding to these inquiries, and we hope to win a few of these RFPs going forward.

We are expecting 1,000 crore of CDMO sales, so then we should expect FI27 growth also to be similar to FI26 number?

Yeah, that is the target that we have.

Okay. One bookkeeping question. So, what was the net debt? You mentioned the gross debt. What was the net debt Q3?

Net debt around 650 crore. We don't keep too much cash.

Okay, last question. On the Zen thing, one of the previous participants where you were discussing the lock-in thing, so I just wanted to understand what percentage of our business will be lock-in?

So, basically, we have, you know, certain commitments which are quarterly and annual nature. A percentage of logged in may differ for customer to customer for different quarters, you know.

On an average, what would that number be? On an average, very approximate number is fine.

See, the capacities are increasing. The sales is also increasing. So, that number is a dynamic number. I wouldn't like to comment on that.

Not even directionally?

Around 50%.

Thank you.

Thank you. Our next question comes from the line of Madhav Marda from FIR. Please go ahead.

Yeah, thanks for the follow-up. So, I just wanted to check on the CDMO business. I think this year you've got it for 30-40%. I missed the comment, so you said, SI-27 also could be similar to it. Is that what you indicated in one of the earlier questions?

No, I think we will formulate the, we will have the budget prepared by March. And I think once we have the results of this financial year, we will be able to do the proper guidance.

But that will be the growth. Okay. But it's not a CDMO business. You know, it's the basis, So if you get like one or two good commercial opportunities, the growth can be pretty substantial, which is why I was just trying to understand if you had, you know, good projects in the pipeline.

Yeah, but see, it is dependent on, so now January, February, March is a good time to understand what customers will buy in the current January year, and that's what will get projected in the numbers, and, you know, that's how every year it works. So, that's why we gave a guidance last year also that this is what looks.

Just last question, in quarter three, you know, versus the reported margins, we did allude to some initial OPEX that we booked for Atali, maybe some of the Xanthine plant also, maybe some cost would have come in. So, any cost which is upfronted in quarter three for some of these new expansions, if you could clarify how much that is. So, we have some sense on the basis of margins.

I mean, we may not have that breakup, so probably we can get you that breakup later.

Okay, thank you.

Thank you. Our next question comes from the line of Deep Gandhi from iThought PMS. Please go ahead.

Hi, sir. Am I audible? Yes. The first question is on the CDMO side. So as you have indicated in the past that you've been trying to increase wallet share, And even in this call, you made a comment that some of the new commercial products are going to be significantly larger in the pipeline. So can you, I mean, broadly help us explain that in the last two years, how the wallet share has improved with the innovator part? If you can try to quantify that.

Yeah, I think, see, we have good 5-7 projects where there are multiple number of intermediates, which are meaningfully adding the cross turnover of this business, and others are shaping up, basically, in future. So, that's how the current nature of the business is. 80% sales is anchored by these few projects, seven, eight projects, and the balance is by the other projects that we have.

Sure. But, sir, can you, I mean, say, quantify, say, for example, can a single product, do we have such products in the pipeline where a single product can be more than 100, 150 crores turnover? I mean, that has happened, and even much larger for other CDMO companies, single product scale. So, do we have such products in the pipeline, which gives you the confidence also to reach the thousand crore turnover from CDMO? Is that a fair understanding, and if you can help us quantify?

Yeah, see, we have got single POs, which are in millions of dollars. So, in single digit millions of dollars. So, we are in that range of products, yeah.

And so, the second question I have is, so, I mean, in the past, you've tried to explain that you are also trying to bypass, you know, work, I mean, you are trying to directly work with the innovator companies and the CDM and bypassing the partners. So, how has been that journey in the last one minute and a half? If you can give us some explanation, I mean, are we seeing any new products where we are directly working with the innovators now instead of working with the innovator partners?

See, I think we are working with whoever wants to work with us. So, we are agnostic, you know, we have a lot of chemistry strength where we can do the regulatory starting material, key starting material, GMP intermediates and API. So, with different partners, we are working with different things, and we have innovators also, we have CDMO partners also, and we have some traders also, not largely, but I think smaller biotech companies also with whom we work on APIs as well. So, it's a mixed basket, but there are, yeah, there is no deliberate attempt to bypass any of the CDMO partners, because in the early phase of patent, I think all the innovators which work on these blockbusters have to have the supply chain secured in the U.S. and Europe. And they have to work with those who don't have their own manufacturing capacity have to work with CDMO partners. And, you know, we don't have capabilities of doing this production in this geography. So we have to work with the large CDMO partners.

Sure. And so this last question, just again coming back to the wallet share question. I mean, if you can't quantify in terms of value, but can you help us understand, Are there any new products where you are doing almost, say, 60-70% of the intermediates for the innovator partner? I mean, are you taking WalletShare more in that sense? Is that a fair understanding in the last one and a half years compared to what it was in the past? If you can quantify that, even that will be helpful.

Yeah, we have a few products where we have that kind of WalletShare. 70-80%? So you stick to one number, 60-70% we may have. Okay, sure. That was it. Thank you.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

I would like to thank all the participants for taking the time and joining the call. Good evening. Thanks.

Thank you. On behalf of Dolat Capital Markets Private Limited, that concludes this conference. Thank you for joining us and you may now disconnect your line.