Aarti Drugs Limited (AARTIDRUGS) Q4 FY23 Earnings Concall Transcript

Aarti Drugs Limited (NSE:AARTIDRUGS) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

Adhish Patil — Chief Financial Officer

Harshit M. Savla — Joint Managing Director

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

Harit Shah — Whole-Time Director

Analysts:

Rashmi Shetty — Dolat Capital — Analyst

Chirag Dagli — DSP BlackRock — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Pujan Shah — Congruence Investment Advisers — Analyst

Tushar Manudhane — Motilal Oswal — Analyst

Ronak Chheda — Awriga Capital Advisors — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Zain Gulam Hussain — Dolat Capital — Analyst

Ankur Kumar — Alpha Capital — Analyst

Nikhil Upadhyay — Securities Investment Management. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Aarti Drugs Limited Q4 FY ’23 Earnings Conference Call. This conference call may contain forward-looking statements about the Company, which are based on the beliefs, opinions and expectations of the Company, as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Adhish Patil, CFO at Aarti Drugs Limited. Thank you, and over to you, sir.

Adhish Patil — Chief Financial Officer

Thank you. Good morning, everyone. Hope everyone is doing well. On behalf of Aarti Drugs Limited, I extend a warm welcome to everyone joining us today to discuss our financial results for year ended March 31st, 2023. On this call, we are joined by Mr. Harshit Savla, Joint Managing Director.

Harshit M. Savla — Joint Managing Director

Hello, good morning, everyone.

Adhish Patil — Chief Financial Officer

Mr. Harit Shah, Whole-Time Director of Aarti Drugs Limited; and Mr. Vishwa Savla, Managing Director, Pinnacle Life Science Limited; and SGA, our Investor Relations Advisor. I hope everyone had an opportunity to go through the financial results press release, and we’ll be posting the Investor Presentation very soon for your reference on the stock exchange and also on the Company’s website.

In the year gone by, we are pleased with our financial and operational performance amid a challenging business environment. API segment revenue grew 12% year-on-year for FY ’23 with good volume offtake for chronic therapies. Specialty Chemicals in which the company manufactures niche high-margin chloro-sulphonation products continued to witness a high growth. Specialty Chemicals grew about 38% year-on-year for FY ’23.

The Company reported a good set of performance in Q4, FY ’23 with a top line growth of around 7% year-on-year on a consolidated basis. The Company’s performance improved considerably on a sequential basis due to ease in the input cost and efficient working capital management.

On a sequential basis, the EBITDA margins improved by around 190 basis points due to operating leverage driven by improved capacity utilization, with high inventory cost of raw materials and finished good almost getting over, we expect improvement in the margins in the upcoming quarters. The margin expansion will be further accelerated by the upcoming foray into dermatology product segment and backward integration in the second half of FY ’24, and in addition to that, with stable input costs.

Our dermatology products are import substitute and the Company already has good inquiry inflow from the customers for this product. Once we take the validation batches, we are capable to scale up this capacity immediately.

The balance sheet position, as on 31st, March 2023, continued to remain healthy with leverage remaining comfortably at around 0.51x [Phonetic]. We recorded the highest ever monthly sales in the month of March 2023, as a result, the receivables, as of 31st, March 2023 have increased by some extent on a temporary basis. The receivables are expected to normalize by the end of Q1, FY ’24.

Coming to overall standalone performance of the quarter, the revenue for Q4, FY ’23 stood at INR697.2 crores, as against INR642.1 crores, a growth of approximately 9% [Phonetic] year-on-year. The stand-alone business contributed approximately 92% to the consolidated revenue for the quarter. Around 62% of the revenues came from the domestic market and 38% from the export market for Q4, FY ’23 for a stand-alone business. Domestic revenue grew approximately by 13%, while exports grew by around 7% year-on-year for Q4, FY ’23.

With the API business, the antibiotic therapeutic category contributed around 45%; antidiabetic around 15%; antiprotozoal around 16%; anti-inflammatory around 13%; antifungal around 8%; and the rest contributed around 3% to the total API sales for Q4, FY ’23.

Formulation segment revenue stood at INR56.8 crores for the quarter. The Formulation segment contributed around 8% to the consolidated revenue for the quarter. The Company has substantially increased the share of exports on a year-on-year basis. The share of exports is expected to improve further going forward, driven by various filings the Company has filed especially in the semi-regulated and the regulated markets. The Company will also continue to invest in new product launches, filings and capacity enhancements.

The Company has incurred — on a consol basis, the Company has incurred a capex of around INR315 crores in the last two years, which is approximately 50% of our INR600 crore capex target, mainly towards capacity expansion, backward integration and new product launches. As communicated earlier, the Company will finish almost entire capex by the end of FY ’24. The only remaining capex would be a brownfield expansion of antidiabetic facility at Sarigam. And as a result, the capex is expected to be in the range of INR250 crores to INR350 crores for FY ’24. The capex will be funded through internal accruals, as well as some long-term debt.

Tarapur greenfield capex for dermatology is expected to be completed by the end of Q2, FY ’24. Tarapur Specialty Chemicals capex is also expected to be completed well within time then [Phonetic] by the end of Q1, FY ’24. The majority of the Company’s INR600 crores capex is expected to be completed by FY ’24. These initiatives are expected to reduce the cost, along with expansion in the profit margins via backward integration and the top line growth.

The Company is also investing in process improvement and R&D to further reduce the cost along with improvement in efficiency. The Company will be also investing in the renewable energy for the upcoming years. Over and above the capex undertaken, the Company continues to evaluate multiple opportunities and will make strategic and tactical investments, if required.

In the upcoming year, we plan to continue expanding our capabilities and enhancing our offerings to meet the ever-changing needs of our customers in terms of regulatory environment as well. Recently, we got 2 of our key products from antifungal and antidiabetic therapy successfully audited by a regulatory body.

One of our key goals for the ongoing financial year is to increase our production capacity, allowing us to better serve our growing exports, as well as domestic customer base. We also plan to invest in new technologies and equipment that will help us streamline our processes, improve efficiency and also reduce the environmental burden of the manufacturing of these APIs [Phonetic]. With new facility for dermatology coming up in FY ’24, along with commencing the operations of the expanded brownfield facility of Specialty Chemicals at Tarapur, the Company expects growth in revenue, as well as profitability in a few years.

With this, we can now begin question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.

Rashmi Shetty — Dolat Capital — Analyst

Yeah. Thanks for the opportunity. So on FY ’23 basis, if you could now give what is the Ciprofloxacin contribution to the total sales and your top 10 products contribution now stands at what? And also your top 10 client contribution for your API business?

Adhish Patil — Chief Financial Officer

Hi. Yes. So the Ciprofloxacin has remained to be one of our top most…

Operator

Sir sorry to interrupt you, but your voice is breaking.

Adhish Patil — Chief Financial Officer

Can you hear me properly, Rashmi [Phonetic]. Is it okay?

Operator

No, sir.

Adhish Patil — Chief Financial Officer

Okay.

Operator

Sir, one moment, let me disconnect and reconnect your line, sir. [Technical Issues] Ladies and gentlemen, thank you for your patience. We have the line for Mr. Adhish Patil connected. Sir, go ahead.

Adhish Patil — Chief Financial Officer

Yeah. Sorry for the disturbance. So the Cipro remains our top — top most product, so contribution would be somewhere around 50% to 20% [Phonetic] for the stand-alone business from this antibiotic product. And the top 10 would be more or less similar like last year in mid-70s [Phonetic] to the stand-alone side and overall consol basis, it will be slightly better [Indecipherable].

Rashmi Shetty — Dolat Capital — Analyst

Hello.

Operator

Go ahead, Rashmi, you’re audible.

Rashmi Shetty — Dolat Capital — Analyst

Yeah. I’m saying the top 10 — sorry, I was not able to hear, top 10 product contribution on consolidated basis, how much is it?

Adhish Patil — Chief Financial Officer

Okay. The consolidated [Phonetic] numbers, I will tell [Technical Issues].

Operator

Sorry to interrupt you, but your voice is still not clear. Sir, your voice is breaking. Participants please stay connected while we rejoin Mr. Patil back to the call. [Technical Issues] Participants, thank you for your patience, we have Mr. Patil reconnected.

Adhish Patil — Chief Financial Officer

Yeah. Can you hear me now?

Operator

Yes, sir. We can hear you.

Adhish Patil — Chief Financial Officer

Okay. So the top 10 products contribution remains to be in the mid-70s [Phonetic] on a stand-alone basis and early 70s [Phonetic] on a consol basis.

Rashmi Shetty — Dolat Capital — Analyst

Okay. And what about your top 10 client contribution?

Adhish Patil — Chief Financial Officer

We will be posting our Investor Presentation very soon. So there we’ll be giving the exact numbers. Right now, I don’t want to make a mistake in telling that number to you.

Rashmi Shetty — Dolat Capital — Analyst

Okay. All right. And on this derma API, if you could give more color on it, like what is the capacity installation that we are doing for the Salicylic acid, what kind of demand we are seeing in this product, whether this would be more export-driven product or it would be more domestic focused in terms of potential sales also if you can give some color on it, it would be great.

Adhish Patil — Chief Financial Officer

Okay. So mainly this is an import substitute product, so domestic sales will be more for this particular product. But if you take the derivatives of this product, then it has more export potential as well. Then overall domestic import for this product is anywhere in the range of INR300 crores to INR400 crores. So that could be the overall domestic potential for this product. And we have already [Phonetic] spoken with a lot of customers regarding Salicylic acid, and they are pretty much interested in having an Indian source, as compared to the Chinese source.

Rashmi Shetty — Dolat Capital — Analyst

So as of now, for this, there is no Indian source, a lot of the competitor [Phonetic] is dependent on the export for this particular product, and that is why we have entered into this? Or if you can give any rationale behind entering into this product?

Adhish Patil — Chief Financial Officer

Yeah. So one of the rationale is, it is an import substitute product, and we had a good process for Salicylic acid, and we feel we can very easily compete with the Chinese sources. Earlier, this product was manufactured in India. But over the last 2 decades, slowly, slowly, the manufacturers of — the Indian manufacturers had closed down and Chinese imports [Indecipherable] substantial. So almost — we believe that almost more than 80% to 90% of the India’s consumption was being imported. Probably, there might be some — some Salicylic manufacturers, who are using [Indecipherable], but mainly the product is being imported from China.

Operator

Thank you. Sorry to interrupt you, Rashmi. I’ll request to join back the queue for a follow-up question. The next question is from the line of Chirag Dagli from DSP BlackRock. Please go ahead.

Chirag Dagli — DSP BlackRock — Analyst

Yeah. Sir, thank you for the opportunity. Sir, can you split the INR600 crore capex program in new products, capacity expansion for existing products and backward integration, just ballpark numbers will do, sir?

Adhish Patil — Chief Financial Officer

Yeah. So going forward, for this financial year, that is FY ’24, we believe that see apart from, say, INR40 crores, INR40 crores to INR50 crores of debottlenecking brownfield expansion from the existing products and the maintenance capex as well keeping aside that INR50 crores, the rest of the capex would be divided mainly, say, for example, 40%, 40% into two greenfield projects, which are happening in — one in Tarapur and other in [Indecipherable]. So one will be for the backward integration and intermediates that 40%; another 40% would be for the dermatology project, which we just talked about. And rest 20% would be in some other products, some new fresh launches, say, for example, in antifungal or probably in a new [Indecipherable] product.

Chirag Dagli — DSP BlackRock — Analyst

Okay. So your — the press release talks about 14% to 16% margin for FY ’24 in that range. So first of all, this range is for the full year, right, of FY ’24? Or is it towards the end of FY ’24?

Adhish Patil — Chief Financial Officer

No. So mostly, it is for the full year because we expect the things to improve in Q1, FY ’24 itself. Already for Q4, FY ’23, we had seen improvements in margins for a lot of products. But the gross contribution was subdued for one factor because of the fact that in March ’23, we had a lot of antibiotic sales in that particular quarter. And as of end of December ’22, that is the beginning of this quarter, we had a lot of high-cost inventory for antibiotic products, which has led to the squeeze in the gross margin because of the product mix. But across the board, we have seen that gross contribution improvement has already started taking place.

Chirag Dagli — DSP BlackRock — Analyst

Understood. So the point was that most of the capex that you’re going to do for backward integration is still not getting baked into this 14% to 16%, right? I mean the backward integration capex will kick in afterwards. So are you suggesting that FY ’25, margins can improve on this 14% to 16% basis [Phonetic]?

Adhish Patil — Chief Financial Officer

Yes. So if the backward integration projects go very smoothly, then definitely it can help us go beyond the 15%, 16% part [Phonetic] EBITDA margins.

Chirag Dagli — DSP BlackRock — Analyst

Understood. And you suggested about 40% of the 300 [Phonetic] or there is about INR120-odd crores kind of a number for backward integration, which is going to kick in into — which is going to be invested in FY ’24. That number is right, sir. About INR120-odd crores.

Adhish Patil — Chief Financial Officer

Yes. Yes. Right.

Chirag Dagli — DSP BlackRock — Analyst

Understood. Okay. And the press release talks about a 9% volume growth for API sir, this is for fourth quarter or for the full year of FY ’23?

Adhish Patil — Chief Financial Officer

This is for the fourth quarter only, especially we have seen a very high volume in domestic market for the fourth quarter, as I said, with all this antibiotic demand. And for the entire year, it has been low. It was approximately around 1.5%, but that was mainly because of the fact that we started with a lot of negative macro factors like the Russian war, very high inflationary crude prices and the raw materials have shot up very high, the selling prices of the APIs were very high. And because of this, the formulation players also felt a squeeze in the margins for generic products, which was up [Indecipherable] because their final selling prices are capped by the [Indecipherable]. So because of that, the demand was low in this. And now till December quarter, the prices have started coming off, and that is why we have seen further increase in the demand for antibiotic products, again, for the domestic market.

Chirag Dagli — DSP BlackRock — Analyst

Understood, sir. And sir, if you think about API prices and I’m talking about general sort of an price index kind of a thing, what was this number, let’s say, in the first quarter of FY ’23? And what did we exit like you said, in March, prices were very high. What did we exit the FY ’23 at sir? So let’s say — what is the right number…

Adhish Patil — Chief Financial Officer

No, no. Yeah. I understood. I understood. So if we compare from March ’22 versus March ’23, the rate variance is not much. It is just below 2% — below 2%. So it is — so this Q4 growth is entirely — mostly, it’s entirely because of the volume growth. So we are exiting the — if I say, the exiting quarter is more or less same, like last year’s March quarter, the rates.

Operator

Thank you. Sorry to interrupt you, Chirag, I’ll request you to join back the queue for a follow-up question. [Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hi. Congratulation, Rashesh bhai, Adhish [Phonetic] bhai, and full management team. Sir I have one question for — first on — for the Rashesh bhai, if he is there on the line. May I go ahead? Hello. Am I audible?

Operator

Yes, sir, you’re audible. Go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hello, Rashesh bhai.

Operator

Bharat, please go ahead with your question.

Bharat Sheth — Quest Investment Advisors — Analyst

Yeah. My question is like we have, say, in the whole Aarti Group, we have separated one, is Aarti Pharma and here Aarti Drugs also is — I mean, some pharma business. So as an investor, we would like to understand what is the rational and how the differentiation will be creating between these two company?

Adhish Patil — Chief Financial Officer

Yeah. Hi. See Rashesh bhai is not there in the call.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Fair.

Adhish Patil — Chief Financial Officer

So — yeah. So see, the Aarti Group, we started back in the 1980s. So these — the two main flagship companies at that time were Aarti Industries and Aarti Drugs. And Aarti Industries in, say somewhere around in 2000, they had invested heavily into CRAMS business. Then slowly, slowly, they started marketing very small volume, but very high-value niche APIs into highly regulated markets because of that CRAMS business and that is how slowly, slowly that expanded. And then it resulted into Aarti Pharma Labs, and that is how the two businesses evolve.

And Aarti Drugs is mainly into very bulk volume products, high engineering products, where you, along with chemistry, you also require very strong expertise in the engineering department, the way you manufacture the material, the way you handle the material [Indecipherable] high volume and that is where Aarti Drugs key focus area. So that is how — and right now, we do discuss means, which products are to be taken in which company, so that there is no unnecessary competition within the Group.

Bharat Sheth — Quest Investment Advisors — Analyst

Yeah. Okay. This, say, we are spending, say, our large capex of approximately INR600 crores will get over in FY ’24, out of which is several projects are for the growth related and some of is, say, for a backward integration. So without giving — and so — and in FY ’23, also our anti-infective did not operate at full capacity. So if things improve, I mean, and normalize at this level, so how much would be the additional say, on INR2,500 crores, this new capex, as well as anti-infective can add on the top line on a stand-alone number. And in your estimate, if raw material price remain, what is at [Phonetic] current level well, could be our EBITDA margin.

Adhish Patil — Chief Financial Officer

So the prices have already gone down, if you compare with FY — entire FY ’23, the prices for FY ’24 are expected to be lower than the [Indecipherable] financial year. So at a full scale, this is our current capacities, can give around INR2,800 crores to INR3,000 crores of [Indecipherable] in terms of stand-alone capacity. That’s the stand-alone company without including formulation. And with further capex, which we are having, we can go till INR4,000 crores of revenues with the current capex plan, what we have, and then Formulation division will add extra on that.

Bharat Sheth — Quest Investment Advisors — Analyst

So — and what could be the stand-alone EBITDA that you expect with this backward integration and higher margin product starts contributing?

Adhish Patil — Chief Financial Officer

So last year was quite subdued in terms of margins and bottom line. Going forward, we do expect means for FY ’24, we are aiming for around 25% to 35% jump in the bottom line from the stand-alone business.

Bharat Sheth — Quest Investment Advisors — Analyst

And can you share [Phonetic] for ’26, what kind of a — our budget, I mean, or your vision is or inspiration whatever you would [Speech Overlap].

Adhish Patil — Chief Financial Officer

Yeah. So — yeah. So historically, means, if you go back 6 years to 8 years back, so at — when we operated at a higher utilization of capacities, we were able to maintain this 15% to 16% EBITDA margins for a lot of quarters, a lot of financial years with the ROW markets. So now going forward, with more backward integration and more presence in regulatory market, we definitely — and also more exposure towards [Indecipherable] Specialty Chemicals, which are slightly higher margin products, we do hope to try to take our EBITDA margins to 18% in the next three years, four years, but that would be our aspiration.

Operator

Thank you. Sorry to interrupt you, Bharat, I’ll request you to join back the queue for a follow-up question. The next question is from the line of Pujan Shah from Congruence Investment Advisers. Please go ahead.

Pujan Shah — Congruence Investment Advisers — Analyst

Hello. Hi, sir. My question would be, first of all, on the formulation. So as we have seen that we are getting a traction on filings and we have seen now — like we have been making filings in regulated, unregulated. Can you just give the split between regulated, unregulated filings or what are the markets we are expecting to share for them? And plus, if you can share the formulation molecule size, if we are targeting that market?

Adhish Patil — Chief Financial Officer

Yeah. I think Vishwa will answer your question. Is Vishwa on the line?

Operator

Sir, Vishwa sir, line just dropped down. We’re going to reconnect sir’s line. [Technical Issues] We have line from Mr. Vishwa reconnected. Sir, you may go ahead.

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

Hello.

Operator

Yeah, sir, you’re connected.

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

Yeah. So on the split of formulation sales, [Indecipherable] as of now, as in till the last few quarters, our majority sales were coming from the domestic contract manufacturing business, which is now gravitated more towards the semi-regulated or the emerging market business, where we have invested over the last few [Phonetic] years in various registration. So mainly in Latin America, Asia and Africa, we are getting majority of our sales.

Whereas in regulated markets is where our — all our new filings are going to. So we are filing multiple products in Europe and North America and Latin America. And probably over the next 12 months to 18 months, those approvals will start coming in and the regulated market business would — would start contributing to a significant percent of the sales over the next 12 months to 18 months.

Pujan Shah — Congruence Investment Advisers — Analyst

Yeah. And sir, the market size for individual, if you can say, any formulation individual, like ballpark number will work for me?

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

The market size — which market size, right.

Pujan Shah — Congruence Investment Advisers — Analyst

About the formulation, so we have been filing that formulation. So what can be the market size for that molecule?

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

I mean, we are filing a lot of oncology, as well as diabetic and cardiac products, and most of them would be kind of day one launches post patent expiry. So the potential per molecule would be quite significant, but it will also depend on the competitive landscape. But with our new capacities increased with the new plant that we have set up, we at full potential, we can see from the new launches and new products, we can see about INR150 crores to INR200 crores revenue increase once it’s commercialized.

Pujan Shah — Congruence Investment Advisers — Analyst

Okay. And my second question would be on the — we have seen a spike in the March ’23 sales. So what could be that reason? And are we seeing the same — are we expecting the same lines for April or you can say, Q1, FY ’24?

Adhish Patil — Chief Financial Officer

Yes. So March, the thing is overall years, sales were subdued, especially for domestic market because of this very high inflationary pressure in input cost, as well as the API selling prices and because of which the offtake — the push demand was less for last year. And since December quarter, the prices have been going down. And now they are like at a very reasonable level, if we compare to historical numbers.

And that is why we believe that with the upcoming monsoon season, now the formulation companies have really picked up their production volumes, and hence, the demand has gone up. So we feel that whatever demand — subdued demand was there in FY ’23, that might have — that might be a history. And now going forward, it will be back to the original numbers. So we feel that the demand will continue. Okay. Got it. Thank you so much, sir.

Operator

Thank you. Next question is from the line of Tushar Manudhane from Motilal Oswal. Please go ahead.

Tushar Manudhane — Motilal Oswal — Analyst

Sir, while you — and thanks for the opportunity. While you already…

Operator

Sorry to interrupt you, Tushar, may I request you to speak through the handset, please?

Tushar Manudhane — Motilal Oswal — Analyst

Yes. Is it better?

Operator

No, sir. Hello, Tushar.

Tushar Manudhane — Motilal Oswal — Analyst

Is this better?

Operator

Slightly, okay.

Tushar Manudhane — Motilal Oswal — Analyst

Right. So thanks for the opportunity. While you’ve already highlighted on, let’s say, the pricing with respect to, say, the start of FY ’23 till now, but now with this volume getting normalized and to some extent boosted with the seasonality factor, how do you see the price trend, let’s say, for next 12 months to 15 months? Is there a scope for increase in prices or there is more scope for growth through volumes rather than prices?

Adhish Patil — Chief Financial Officer

So whatever budget we are building in for the upcoming financial year, that is purely based on the volumes means, in fact, we have factored in negative price growth. What we see — what we have seen observed that the April month, for example, the Q1, Q1 selling prices might be slightly lower, slightly lower, not much, say for, I would say, around maybe 5%, not more than that, slightly lower as compared to the Q4. And so that would be — I think — but that would be the bottom because the raw material prices have stopped going down since the month of February. So because of that lag now by April month, the prices will stabilize on the sales side as well.

Tushar Manudhane — Motilal Oswal — Analyst

Understood. So sir, subsequently, but you don’t see scope of price increase, so to say, but at least it will get stable now.

Adhish Patil — Chief Financial Officer

Yes, yes. Correct.

Tushar Manudhane — Motilal Oswal — Analyst

And these stable prices, maybe product to product, it would vary subject to their own supply demand, but where do they stand like in the overall life cycle, say historical prices, where would they be like compared to, say, two years, three years or five years, prices are more or less at that range, let’s say, three year average? Or it will be — there is still scope to go down?

Adhish Patil — Chief Financial Officer

Okay. Okay. Slightly difficult to answer in current times reason being in FY ’20, the prices shot up because of COVID, then it came down and then again because of coal and other factors, again, it went up, then it came down and again went up because of this Russian war and crude and again came down. But just to — before COVID, the prices of Ciprofloxacin were somewhere in the range of, say, 1,800 to 1,950 [Phonetic] or something like that. And even now, as of today, they are in the same range. So we don’t feel that it will go down since it is, as per the pre-COVID levels. So — but generally, the prices stabilizes based on the input cost. So it will all depend means, the basic raw materials — and on those factors.

Tushar Manudhane — Motilal Oswal — Analyst

Understood, sir. This is helpful. Thanks a lot.

Adhish Patil — Chief Financial Officer

Okay.

Operator

Thank you. The next question is from the line of Ronak Chheda from Awriga Capital Advisors.

Ronak Chheda — Awriga Capital Advisors — Analyst

Yeah. Hi. Am I audible?

Operator

Yes, sir.

Ronak Chheda — Awriga Capital Advisors — Analyst

Yeah. Hi, Adhish. I have two sets of questions. One is on the capex, which are being on the derma side. You said we should complete it by the first half? And then so, can you give tentative time line on ramp-up of the capacity, let’s say, in your estimates, when do you see the ramp-up in the capacity going forward on this capex?

Adhish Patil — Chief Financial Officer

Yes. So we are — the way we have planned we will be ramping up every 15 days based on the [Indecipherable] delivery and that will go hand-in-hand with the gestation period as far as demand means, capacity utilization means, in a regular way also for — when we expand capacity, it takes time for sales, for demand to pick up. So it will go hand-in-hand with that. What we feel is that around March or April ’24, the entire — the full 100% capex, the capacity will come in. But anyway, whatever we will need for the initial sales, initial demand, that would be operational mostly by towards the end of second quarter.

Ronak Chheda — Awriga Capital Advisors — Analyst

Got it. And my second question is on the exports market, so basically, now we hear a lot of Chinese competition has come back in a lot of other products. So can you talk about the competitive scenario in your products in the exports market? And whether we are at par in terms of pricing. Can you just talk about the environment?

Adhish Patil — Chief Financial Officer

Harit bhai, would you like to answer this?

Harit Shah — Whole-Time Director

Yes. Most of the products we are competing with China, and we are able to compete them in the export market. So we are not unduly worried. And the cost of raw material for Chinese source, as well as us is more or less same. Efficiency wise also, we are more or less good compared to China. So we don’t expect any price pressure on that front.

Ronak Chheda — Awriga Capital Advisors — Analyst

So Harit bhai, my question is what we hear is Chinese players are dumping a lot of the products that they had capacity on hand, which was already built up. So are we seeing any signs of that?

Harit Shah — Whole-Time Director

No. As far as our products are concerned, we are not seeing a similar situation in our range of products, actually.

Ronak Chheda — Awriga Capital Advisors — Analyst

Okay. Thank you so much for answering my questions.

Operator

Thank you. Next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

Hi, Adhish. Good morning. So the first question is we had a low volume growth last year, so we had a low base and a lot of capacity is coming in this year. So are we expecting mid-teens or high teens kind of volume growth on the FY ’23 base? And to tie in with that, I think Q1, FY ’23, Q2, FY ’23, the prices were quite high, so on a Y-o-Y basis, the realization would be lower. So in terms of revenue, how are we looking at — are we looking at flattish revenue? Or are we looking at revenue growth of double-digit kind of a number?

Adhish Patil — Chief Financial Officer

Yes. So internally, we are keeping targets high. So in spite of all this negative price variation, we still hope that we want to touch this double-digit value growth. So definitely, as you suggested that for achieving that, we will require means, high teens kind of a volume growth in upcoming year. And we feel that it is quite possible, I mean, because last year was exceptionally dull in terms of volumes in a few of the acute therapies in domestic markets.

Dhwanil Desai — Turtle Capital — Analyst

Okay. And second thing Adhish, this U.S. FDA thing has been lingering for a very long time. So I think we had appointed consultant and done modification. So any idea what is kind of — what is hindering the resolution of this — any updates on that?

Adhish Patil — Chief Financial Officer

Yes. So the last response, what we had given to — final response to FDA was back in September 2022. And then in February ’23, a couple of months back, U.S. FDA wrote a later back to us, highlighting that they need certain clarification on the response in certain aspects and some additional information as well. And for that, they had given one month’s time line. So that also we’ve worked upon. And that also we have sent — we also — obviously, we took help of U.S. consultants as well for this.

And then in the — by the mid-March, we had submitted additional — furnished additional information to U.S. FDA. So now it is like I don’t think it will take time for them to go through that reply. And — as of now, we are planning to send a reminder to them for the follow-up inspection or action because we feel that we are hoping that there might be unannounced audit any time because we have submitted the final response as well. And the good part is the file is active because they wrote from their end to us in February itself. So that means that they’re actively looking into it right now.

Dhwanil Desai — Turtle Capital — Analyst

And last question, so on this, I think I saw INR50 crore [Phonetic] of addition RO — WIP on the formulation side, and I assume that we had enough capacity to kind of grow in that segment. So can you elaborate on that, what is that capex regarding?

Adhish Patil — Chief Financial Officer

Yeah. Vishwa would like to answer.

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

Yes [Indecipherable]. So we have added the capex. We have added a new manufacturing facility in [Indecipherable] for an oral oncology manufacturing site, basically, which will cater to regulated markets, as well as emerging markets. So that capex project has just very recently been completed. At the same time, we are investing into building up portfolio, so a lot of product development investment. So this site will operate duly as we will be marketing our own developed products, as well as other contract manufacturers. And we expect revenues to kick in from this project in the next 12 months.

Dhwanil Desai — Turtle Capital — Analyst

Together, current formulation capacity that you have with this capex, we should be able to go to INR500 crore kind of a revenue?

Vishwa Savla — Managing Director – Pinnacle Life Science Private Limited

Correct. Yeah. We can expect about INR200 crore growth from new capex. So we can look at a INR500 crore plus revenue with all the capex fully utilized.

Dhwanil Desai — Turtle Capital — Analyst

Got it. Thanks. That’s it from my side.

Operator

Thank you. Next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital — Analyst

Thanks for the opportunity. On the greenfield capex that we will be completing largely in — by end of FY ’24 or in fact, Q1 and Q2 of FY ’24. How do you see the ramp-up of these projects happening in — so when are we expected to reach optimal 73% capacity utilization in both API and Specialty Chemicals side?

Adhish Patil — Chief Financial Officer

Yes. So as far as the API is concerned, we feel — because our full [Technical Issues] 100% capacity will be online by next financial year, that is FY ’25. So towards the end of FY ’25, we definitely hope in the second half of FY ’25 that we should cross that 70% mark in terms of utilization.

And as far as the Spec Chem and — Specialty Chemicals and intermediates are concerned because we have our own captive consumption, we expect that ramp-up to happen very fast. So 50%, in fact, we are hoping to achieve in the second half of this year itself.

Ankit Gupta — Bamboo Capital — Analyst

Sure.

Adhish Patil — Chief Financial Officer

And then 100%, that will also depend on further expansion of our own API products, so which will further increase the demand of this intermediate.

Ankit Gupta — Bamboo Capital — Analyst

Sure. And like the combined revenue potential from post expansion from our API and Specialty Chemicals facilities will be INR4,000 crore is what you said?

Adhish Patil — Chief Financial Officer

Yeah. For the stand-alone business, yes.

Ankit Gupta — Bamboo Capital — Analyst

Stand-on business. Yeah. And on the Specialty Chemicals side or the intermediate side, the new product that we’ll be launching post the commercialization of our new greenfield plant. So how has been the competition from the China existing product — as sir said that there hasn’t been much competition, but for the new product that we’ll be launching from our greenfield facility, how is the competition from China because we have been hearing that there has been a lot of dumping, which is happening on intermediate and Specialty Chemicals side from China over the past few months. So how is the situation with our product, which we plan to launch?

Adhish Patil — Chief Financial Officer

Yeah. So the thing is right now, we feel that — because right now, they don’t have any competition for that particular product in India. So there was no reason for them to dump as such. Though the prices have gone down for that product as well, which we are planning, but then even with those selling prices, we can compete with China pretty well.

Ankit Gupta — Bamboo Capital — Analyst

Perfect. So how many products will we be launching from a greenfield facility post its commercialization?

Adhish Patil — Chief Financial Officer

So say, around 1 and 1 API and around 3 to 5 intermediates and Spec Chem.

Ankit Gupta — Bamboo Capital — Analyst

Okay. Thank you and wish you all the best. Thank you.

Operator

Thank you. Next question is from the line of Zain from Dolat Capital. Please go ahead.

Zain Gulam Hussain — Dolat Capital — Analyst

Hello. Am I audible?

Adhish Patil — Chief Financial Officer

Yes, sir.

Operator

Zain, we can hear you, but there is echo from your line. May I request you to speak through the handset.

Zain Gulam Hussain — Dolat Capital — Analyst

Sure. Yeah. Is it proper now?

Operator

Yes. Go ahead.

Zain Gulam Hussain — Dolat Capital — Analyst

So I want to know [Phonetic] that what is the demand right now for the API prices and [Indecipherable] prices and how they’re affecting the gross margins?

Adhish Patil — Chief Financial Officer

API prices right now?

Zain Gulam Hussain — Dolat Capital — Analyst

Yeah.

Adhish Patil — Chief Financial Officer

Okay. So the API prices, I mean, we have seen quarter-on-quarter, there was a decline in the prices, which was obvious because the raw material cost was coming down. What we have seen is for the — for Q1, Q [Phonetic] means the current ongoing quarter, that is Q1, FY ’24, there might be slight decline means, say, for 2.5% to 5% — up to 5% as compared to the March quarter prices. But then more or less, we have seen that now the fall in both input, as well as the selling prices have stopped.

Zain Gulam Hussain — Dolat Capital — Analyst

Hello.

Adhish Patil — Chief Financial Officer

Yes.

Zain Gulam Hussain — Dolat Capital — Analyst

Okay. So do you see gross margin improvement from the current level?

Adhish Patil — Chief Financial Officer

Yeah. We definitely hope that the gross margin will improve. So let’s see, means, for this Q1, FY ’24, let’s see how the numbers pan out, but we definitely are very hopeful for that.

Zain Gulam Hussain — Dolat Capital — Analyst

So any ballpark number or any guidelines?

Adhish Patil — Chief Financial Officer

See that way — ideally, we believe that it should come back to historical numbers. So obviously, it should means, when everything is played out, we see that around 2% to 3%, definitely, it should improve very easily. But in Q4, what that number would be, we are slightly hesitant to comment right now, but it should definitely be in a positive manner.

Zain Gulam Hussain — Dolat Capital — Analyst

Okay. And can you give — you utilized high cost in Q4, you said, which you guided that you’ll utilize it completely, but you have not utilized it completely. So can I have the number for that? Any ballpark — any approximate number, how much utilized this quarter and how much remaining?

Adhish Patil — Chief Financial Officer

See — that see — I will roughly tell you, it’s not exactly what you’re asking, but our raw material inventory, which was in early 50s [Phonetic] back in December end, it has gone down by 10 days. And then even our FG inventory has gone down by around 8 days, finished good inventory. WIP is more or less similar because that depends on the operations. So overall, means, it’s around 15 days to 20 days reduction is already there in the inventory days. So that definitely helps us — will put us in a better position, as compared to what we were in as of March quarter.

Zain Gulam Hussain — Dolat Capital — Analyst

Okay. Thank you.

Adhish Patil — Chief Financial Officer

Okay.

Operator

Thank you. Next question is from the line of Ankur Kumar from Alpha Capital. Please go ahead.

Ankur Kumar — Alpha Capital — Analyst

Hello, sir.

Adhish Patil — Chief Financial Officer

Hello.

Ankur Kumar — Alpha Capital — Analyst

Congrats for good set of numbers,

Adhish Patil — Chief Financial Officer

Thank you.

Ankur Kumar — Alpha Capital — Analyst

Sir, my first question is, as you are [Technical Issues] raw material price decrease, and we will be passing that on some to — think more on — in terms of first half, how should we think in, as in will it be like 20% volume growth kind of and will depend — how much will be the realization decrease, sir?

Adhish Patil — Chief Financial Officer

Okay. So realization decrease overall see last year, last year, we had around 10% to 11% positive rate variance means FY ’23 versus FY ’22, 10% to 11% positive rate variation. Now as we are exiting the March quarter, the selling prices are more or less similar, as compared to March ’22. So we feel that anywhere between 8% to 10% might be the decline in the rate growth, rate variation.

Ankur Kumar — Alpha Capital — Analyst

Okay, sir. And sir, in terms of volume, you’re — as in press release also talked about some good things and things are improving. So what kind of volume growth can we expect like 20% or 25% [Phonetic]? Or will it be like lower in terms of volume growth?

Adhish Patil — Chief Financial Officer

So we are hoping, at least internally, we are targeting around 15% to 20% volume growth. That is what we will be trying to achieve. But let’s see how it pans out.

Ankur Kumar — Alpha Capital — Analyst

Sure, sir. And sir, we used to do buyback earlier, but now we are talking about capex also. So any plans on buyback. Do — have we — has that been postponed or like Company has decided that they will not go for buybacks because we have done 4 or 5 — 4 buybacks in last seven years, eight years?

Adhish Patil — Chief Financial Officer

So — yeah, so as a Company policy, means, we have a Company policy of having a shareholder payout. We’ll see [Phonetic] that through the way of buyback or dividend at around 25% of the PAT. And so if at all means, we have missed anything in last year, we will definitely cover up. So that you don’t worry about. So we do segments, how much shareholder payout we have done and we might complete that whatever is remaining in the current financial year.

Ankur Kumar — Alpha Capital — Analyst

Because sir — and dividend has been lower in the last [Speech Overlap].

Adhish Patil — Chief Financial Officer

Correct. Correct. So whatever is the balance — whatever is the balance we will cover.

Ankur Kumar — Alpha Capital — Analyst

So that means we can expect some buyback.

Adhish Patil — Chief Financial Officer

Yeah. Some sort of shareholder payout, yes.

Ankur Kumar — Alpha Capital — Analyst

Sure, sir. Thank you and all the best.

Adhish Patil — Chief Financial Officer

Thank you. Thank you. The next follow-up question is from the line of Rashmi Shetty from Dolat Capital.

Rashmi Shetty — Dolat Capital — Analyst

Yeah. Thanks for the opportunity again. Adhish, if you can update on Metformin, what is the current capacity because we had added some capacity in that molecule. So what is the current capacity it looks like, I mean, the utilization and all? And whether we have launched into the European market or we are still yet to do that?

Adhish Patil — Chief Financial Officer

As far as numbers are concerned, means, we are already — almost our capacity is almost utilized whatever we are manufacturing. So we are coming up with a very small incremental expansion. Though small, means, it will be around 40% increase, but still small from what we are targeting. So that expansion will complete in this quarter itself, the current ongoing quarter that is Q1. And then definitely, we will plan a bigger jump later on towards the end of the financial year.

And you’re asked — you had another question, right, regarding Metformin, what was that?

Rashmi Shetty — Dolat Capital — Analyst

Yeah. So Metformin, as of now, total capacity stands at per month?

Adhish Patil — Chief Financial Officer

So as of now, we are manufacturing around 1,000 to 1,050 [Phonetic].

Rashmi Shetty — Dolat Capital — Analyst

1,000 to 1,050 [Phonetic].

Adhish Patil — Chief Financial Officer

Yeah.

Rashmi Shetty — Dolat Capital — Analyst

Okay. And we have around 1,100 installed capacity, right?

Adhish Patil — Chief Financial Officer

Yes. So we are planning to expand it by 40% in the current quarter itself.

Rashmi Shetty — Dolat Capital — Analyst

Okay. So my another question on Metformin was that 70%, 75% we were catering to the domestic market only. So with the increase in the capacity, has the export share increased? And what about our European launch?

Adhish Patil — Chief Financial Officer

Yeah. Europe. Yeah [Indecipherable]. So Harit bhai, would you like to answer that about the Europe…

Harit Shah — Whole-Time Director

Yeah. The current turnover — current volume in export, as a domestic is about 50%, 50%, not 75% in domestic. It is 50% export and 50% domestic. And we expect the same ratio once we expand the capacity to 1,400 tons or 1,500 tons [Phonetic] in percentage of export, as in a domestic market.

As far as Europe is concerned, we have — we are talking to three or four big companies and I’ll say, approval process is going on, but it will take some more time, yeah.

Rashmi Shetty — Dolat Capital — Analyst

Okay, sir. Understood. Thank you. That’s it from my side.

Adhish Patil — Chief Financial Officer

Okay.

Operator

Thank you. Next question is from the line of Nikhil from Securities Investment Management.

Nikhil Upadhyay — Securities Investment Management. — Analyst

Yeah. Hi. Good morning. I hope I’m audible.

Adhish Patil — Chief Financial Officer

Yes.

Nikhil Upadhyay — Securities Investment Management. — Analyst

Yeah. Three questions, Adhish. One is on — you mentioned that the end prices for — so in one of the questions, you mentioned that Ciprofloxacin end prices are back to what it was pre-COVID. But if you have to generalize for our top 10 products, would it be like 70%, 80% of the product, the pricing would be back to pre-COVID or what would that percentage be where prices have completely normalized?

Adhish Patil — Chief Financial Officer

See, there are a few products like in antidiarrheal space, where the inflationary part is that, that has factored in. So the new — so those prices are high, but then, high means, they are quite stable, I mean, they are not fluctuating much. So that is built in.

What happened is in the API business, usually, it is a cost-plus formula. So see, the overhead part, that has also a certain inflationary pressure built into like salaries and like power and fuel, etc. So whatever gross contribution gap, all the API manufacturers expect, say, four years back, now that gap, that expectation must have definitely increased as of today.

Nikhil Upadhyay — Securities Investment Management. — Analyst

Yeah.

Adhish Patil — Chief Financial Officer

So that will be covered. So typically, it happens in long term, the mean — in terms of percentage margins, the long-term mean, it comes back to that. So that is the reason why we feel that once everything is stable, it is not moving for three months, four months, five months, then definitely, we feel that our EBITDA margin should come back to 14% to 16%.

Nikhil Upadhyay — Securities Investment Management. — Analyst

Okay. So for most — so for our portfolio of products, that means inflation adjusted mean is stable now, and that is why where we are — think [Phonetic] our 11% should be around 14% to 16% for ’24?

Adhish Patil — Chief Financial Officer

Yeah, sir. So right now, means, for the last outgoing quarter, as far as our stand-alone performance is concerned, so we already neared that 13% mark, 12.84% on a stand-alone EBITDA margin. So we are inching towards that, means, and in the December quarter, it was lower almost by 1.8%.

Nikhil Upadhyay — Securities Investment Management. — Analyst

Okay. Second question was you mentioned that in March quarter, we had a high sales of antibiotics, and I think over the last two years because of COVID, the inventory at the customer or the formulator side and even in the market has been fluctuating. If you have to look at now, would you say that the inventories in the marketplace at the customer level, the formulators and even in the end channel is largely stable? Or do you think there is some more pain on the inventory side, which can happen broadly for the whole portfolio, not for some specific products?

Adhish Patil — Chief Financial Officer

Okay. So this kind of things we did not suffer in antidiabetic space. So that remains stable throughout the last financial year as well and even now it is okay. In antidiarrheal space also, we saw that the demand was quite good for the entire year. It was mainly the antibiotic space, which suffered a lot in last year. And at least for our portfolio, that is. And what we feel is that — see, because March quarter itself was so good, so which means that, that issue of inventory pile up has should be gone away. Otherwise, they would not have bought so much in the March quarter. So it seems like the things are stable right now.

Nikhil Upadhyay — Securities Investment Management. — Analyst

Okay, Thank you. And sorry to interrupt you, Nikhil, due to time constraint, ladies and gentlemen, we will take that as a last question. I will now hand the conference over to Mr. Adhish Patil for closing comments.

Adhish Patil — Chief Financial Officer

Okay. Thank you, everyone, for joining us today on this earnings call. We appreciate your interest and all the questions you asked regarding the financial results of Aarti Drugs and about our future. If you have any further queries, please contact SGA, our Investor Relations Advisor, or you can reach us to us directly as well. Thank you.

Operator

[Operator Closing Remarks]