Aarti Drugs Limited (NSE: AARTIDRUGS) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Adhish P. Patil — Chief Financial Officer and Chief Operating Officer
Harit P. Shah — Executive Director
Analysts:
Rashmi Shetty — Analyst
Raj — Analyst
Chirag Dagli — Analyst
Ravi Shah — Analyst
Raj Malhotra — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Aarti Drugs Limited Q2 FY ’25 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.
As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Adhish Patil, CFO and COO. Thank you, and over to you, sir.
Adhish P. Patil — Chief Financial Officer and Chief Operating Officer
Thank you. Good morning and a warm welcome to everyone present on the earnings conference call of Aarti Drugs Limited. On this call, we are joined by Mr. Harshit Savla, Joint Managing Director; and Mr. Harit Shah, Whole-Time Director of Aarti Drugs Limited; and Mr. Vishwa Savla, he won’t be in the call; and SGA, our Investor Relations Advisors.
I hope everyone had an opportunity to go through the financial results, press release and investor presentation, which we have uploaded on the stock exchange and on our Company’s website.
Let me begin with the highlights of Q2 and H1 FY ’25 financial performance. During the last quarter, on a year-on-year basis, there is a drop of revenues and profitability, mainly due to lower realizations driven by negative rate variance and weaker market demand in the API business. The volumes have remained flat on year-on-year basis, whereas on quarter-on-quarter basis, we have seen a volume growth of 8% in API segment.
Looking ahead, we are optimistic about a further improvement in pricing, which should support continued growth in FY ’25. EBITDA stood at INR68.5 crores with EBITDA margins at 11.5%. PAT stood at INR35 crores. Going ahead, by the end of FY ’25, we anticipate an improvement in margins, mostly driven by upturn in selling price levels and an anticipated demand growth in export sales.
On a standalone basis, revenue stood at INR543.1 crores as against INR577.5 crores, down by 6% on Y-o-Y basis with 66% of the revenues coming from domestic market and 34% from the export market. For the quarter gone by it, within the API business, the antibiotic therapeutic category contributed approximately 40%, anti-diabetic around 18%, antiprotozoal around 17%, anti-inflammatory around 10%, antifungal around 10%, and the rest contributed around 4% to the total API sales.
Formulation segment’s revenue stood at INR65.6 crores for the quarter with exports contribution of around 53%. In H1 FY ’25, revenue from Formulation segment stood at INR136.6 crores. The greenfield project at Sayakha, Gujarat for Specialty Chemicals is on track, which we plan to commence in this quarter. With this, the operating leverage is expected to kick-in from the second half of the year with improved capacity utilization and more backward integration.
The production of salicylic acid had commenced at the beginning of this financial year. We are still to ramp up the capacity of salicylic acid to the full potential. Currently, we are producing roughly around 100 tons per month. There have been certain teething issues, and we expect to ramp up the production to 300-plus tons per month by end of this current quarter. In total, we have a capacity of 1,800 metric tons per month, which will ramp up in a phased manner throughout FY ’25 and FY ’26.
During H1 FY ’25, the Company has incurred capex of approximately INR90 crores, mainly towards capacity expansion and greenfield projects, backward integration and new product launches. We anticipate a total capex of roughly around INR200 crores for the full year. This capex would be mainly through internal accruals and partly through term loans.
In September 2024, the Company has completed the buyback of 6,65,000 equity shares at a price of INR900 per share, face value of INR10 each fully paid in, in September 2024. The Company continues to strive to maintain payout to the shareholders while continuing to invest in the next leg of growth.
The pharma API manufacturing industry is constantly evolving, and we are committed to staying ahead of the curve. We continue to expand our capabilities and enhance our offerings to meet the ever-changing needs of our customers. We also plan to invest in new technologies and equipment that will help us streamline our processes and improve the efficiency.
As we navigate through short-term challenges, our commitment to overcoming obstacles and achieving long-term success remain steadfast. Our journeys may be marked by uncertainty, but it is also defined by collective ability to adapt, innovate and emerge stronger.
I reiterate on the positive outlook for both our API and non-API business. Our ongoing projects coupled with optimized capabilities will serve as a cornerstone of steady growth in coming years. Importantly, we anticipate continued growth in exports within the Formulation business as well.
I would also like to point out that this was the first year where we have published our sustainability report. It is published both on our website as well as on stock exchange. Please have a look at it because we strive to reduce our carbon footprint. In spite of having the leading capacities in manufacturing sector of API industry, we would still like to reduce our carbon footprint and contribute to the environment.
With this, we can now begin question-and-answer session. Thank you.
Questions and Answers:
Operator
Thank you. 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
Yeah. Thanks for the opportunity. Just want to know what was the negative rate variance in quarter two on Y-o-Y basis and how much was it in H1 FY ’25 in the API segment?
Adhish P. Patil
Hi, Rashmi. So on a Y-o-Y basis, we have seen around 70% negative rate variance for the quarter two. For the quarter one, it was little higher. But now as quarter-on-quarter, the rate variance is hardly 0.5% at a composite level. So we have seen some products going up, some products going down. So it has more or less stabilized. However, I would like to point out that in certain antibiotic products, we have still seen a slight decline in selling prices for — as we start current December quarter.
Rashmi Shetty
But can you quantify how much is the rate variance — negative rate variance in this quarter two, quarter one as well as in first half? And how much are you expecting that it should come off in the second half of FY ’25?
Adhish P. Patil
Yeah. So the quarter-on-quarter is approximately — there is no rate variance, frankly. On quarter-on-quarter, it’s hardly minus 0.5% or something, means June quarter versus September quarter, whereas September versus September ’23, there is around 7%, 8% rate degrowth.
Rashmi Shetty
And in first half?
Adhish P. Patil
Composite level, I don’t have the number right now.
Rashmi Shetty
Okay. How much are we expecting in H2, that this 7% to 8% should come off to what number on a Y-o-Y basis?
Adhish P. Patil
It should go down because last year from September month onwards, the pricing had started correcting as far as raw materials are concerned. And I think — and December also, lot of — December quarter, lot of price were corrected and which continued till, I think, month of January at max. Then it got stabilized last quarter — last year that is. So it will be, I think low-single digits probably.
Rashmi Shetty
Low-single digits, okay. And the salicylic acid, the sales which has commenced, it will be part of your API segment, right?
Adhish P. Patil
Yes, but the applications of salicylic acid is quite varied in the sense it goes in manufacturing of various salicylics, which have application in flavor and fragrance industry, perfume [Phonetic] industry as well as cosmetic industry. So it’s tough to classify as API because it also goes as an intermediate for manufacturing of aspirin as well. So it will be a mixed category.
Rashmi Shetty
Understood. So how should we look at the API segment growth for FY ’25, because in first half, we are showing a decline of around 10%, but your 8% variance would come off — the negative 8% variance would come off in second half. At the same time, volume growth is also improving. So for the full year, we will still see a decline or there could be some flattish growth? I’m just talking from an API segment perspective, excluding your specialty chemicals.
Adhish P. Patil
Okay. The API — the current utilization of the API segment is roughly around 78%, roughly for the quarter of September. So with 543 [Phonetic], if you subtract that specialty chemical segment, then that is roughly around 78% of the utilization. So it still has a scope to increase, whereas we are adding up certain capacities for antidiarrheal products of Metronidazole, then we are planning to increase the capacity of [Technical Issues] as well going forward. And we have added [Indecipherable] antifungal product in the product basket, so that will also use increasing EPS. And risk would come from the higher utilization of the current capacities.
Rashmi Shetty
So any sort of guidance which you can give like on FY ’25 and FY ’26 basis how this API segment growth should look like?
Adhish P. Patil
Actually, we’ll have to rework on these numbers based on current pricing levels, but I can give you one indication that with current pricing levels and our current capacities, it will roughly give now a potential revenue of around INR2,750 crores for the standalone business, which will include both API and Spec Chem.
Rashmi Shetty
API and Spec Chem, okay.
Adhish P. Patil
Yeah. This is excluding the greenfield projects, which [Technical Issues].
Rashmi Shetty
Okay. And this is we are targeting for this year?
Adhish P. Patil
No, we are not targeting for this year. Out of this only as of now around 78% is being done as far as quarter — September quarter is concerned.
Rashmi Shetty
Okay. Okay. Thank you. That’s it from my side.
Operator
Thank you. [Operator Instructions] The next question is from the line of Raj from [Indecipherable] Partners. Please go ahead.
Raj
Hello, am I audible?
Adhish P. Patil
Yes.
Raj
Hello?
Adhish P. Patil
Yes.
Raj
Sir, how much is the price drop in quarter two?
Adhish P. Patil
With respect to last year, it is 7%, 8% same quarter. And with respect to September — June quarter, it is hardly minus 0.5%.
Raj
And sir, Q-on-Q price has dropped by 0.5% and year-on-year, it has dropped by 7% to 8%, right?
Adhish P. Patil
Correct. Correct. Correct.
Raj
In the earlier calls, you had guided for INR4,200 crores to INR4,500 crores of sales in next three years’ time. So I wanted to know the outlook for the full year FY ’25, FY ’26…
Adhish P. Patil
So the thing is with the total guidance, that was the potential guidance for coming two to three years’ timeline. So we would like to revise it down because of the current API prices. So what we feel that now I think the correct potential will be anywhere between INR3,500 crores to INR4,000 crores as far as current pricing levels are concerned. But if there is any increase in the pricing, that will definitely help us reaching that original number.
Raj
All right. And sir, about the EBITDA outlook for next three years?
Adhish P. Patil
So EBITDA, our efforts will always be to reach a target of around 14.5% to 15.5% because that is what we historically used to manage. Definitely, there were a lot of challenges in last couple of years in terms of volatility of pricing of raw materials, plus the coal was very high, but now that has also corrected, plus the power rates have gone up, but there also we are taking a step now to reduce our power rate by going into renewable energy. So with all those efficiencies back in place, we feel that we should be targeting around 15% to 15.5% EBITDA in the long term.
Raj
All right, sir. And sir, about the price drop in the API, so what exactly is the issue? Is it an oversupply situation? Yeah, like is it a demand issue or there is excess inventory stocking?
Adhish P. Patil
Yes, yes. So the primary reason would be the fall in the raw material prices. That is the primary reason. However, that is coupled with lot of secondary reasons. Like, in first quarter, there was a bit of overstocking issues and there was lack of demand both in domestic as well as export market — especially in the export market, which was also because of the fact that there were lot of elections going around in most of the export geographies.
So now the export demand should come back. We have already seen a little bit of uptick in the number of inquiry as far as export markets are concerned. So there are a lot of secondary reasons as well, that overstocking or in the elections, the broader macro conditions, but the primary reason continues to be the raw material prices.
Raj
Understood. So sir, do we see any sales growth for FY ’25 or will it be a year where sales will go down slightly?
Adhish P. Patil
Yeah, the sales — so it should be flattish because the thing is, earlier we had thought that even if at the — entire for the year, at a composite level, even if there is 7% to 8% negative rate variance, by having around 15% volume growth, which we should still be able to post a high-single-digit growth number as far as value was concerned. That was our outlook at the beginning of the year when we started the year. But right now, because the first two quarters, there was lackluster demand, so we were not able to recover that loss in value because of the negative rate variance.
So we feel that this FY ’25 might look flattish by the entire year, entire FY ’25 versus FY ’24.
Raj
All right. And sir, about FY ’26?
Adhish P. Patil
So FY ’26 should be a turnaround story because our salicylic acid plant, once it becomes streamlined, we — because of this teething issue, because that is a big project for us. So it does impact the bottom line quite heavily. So in fact, even this quarter, I would point out that around 5.80 — 5, 5.5 — to between INR5 crores, INR5.5 crores or somewhere around INR5.5 crore impact was there at the bottom line. Just because you can say we were not able to absorb those increased overhead because of the lower production has the potential. So once that is ramped up, the capacity increases, the operating leverage will kick in and that will help us reduce those losses.
Raj
All right. And sir, when do we expect to ramp up the production of salicylic acid?
Adhish P. Patil
So it’s going on step by step. So in October month itself, we had — we will be slightly ramping up. In November month, we are internally targeting at least to go beyond 200 tons to 300 tons per month and then we will sequentially keep on ramping it up. Once the problems are solved, then the ramping up would be quite faster.
Raj
Understood. So sir, how much is the sales per ton and EBITDA per ton in this product segment?
Adhish P. Patil
So the sales potential with the reduced prices would be anywhere between INR275 crores to INR300 crores market potentially is there for salicylic acid. However, there are a lot of derivatives of salicylic acid like methyl salicylate, octyl, hexyl and benzyl salicylate. They are also in a lot of — and in fact those derivatives go for export market, whereas salicylic acid if you want to sell, we’ll be selling in the domestic market.
So with the fall in prices in the salicylic acid, that has mainly come because of the dumping from China, earlier the prices were in the level of INR150 per kg to INR160 per kg, which has now come down to INR125 to INR130. But because of this fall now the salicylates are looking more attractive. So we are thinking of going ahead to have a fair capacity for salicylates. In case we are not able to make money in salicylic acid, then definitely salicylates would definitely make more money.
Raj
All right. And sir, you have an outstanding CWIP of around INR300 crores. So when exactly all this capex is expected to come on stream?
Adhish P. Patil
Yeah. It is slightly lower than that now, but — so this mostly should come by this December quarter because our Sayakha plant, the big greenfield project, will be online. So once we do put to use, then it will get transferred to fixed assets.
Raj
All right. So we are expecting around like INR300 crores of capex to come on stream by Q3 FY ’25 and…
Adhish P. Patil
Roughly, mostly Q3 itself, but if not, then at max Q4. But this year itself.
Raj
All right. And sir, do we have any further capex plans for FY ’26?
Adhish P. Patil
So we have been doing small brownfield expansions like [Technical Issues] putting more production. So we do have land parcel for Cardioprotectant and for antidiarrheal we have already taken the steps. Antidiarrheal will come online in the month in fact. We already got the CPU as well. We continue to operate for that facility and plus we do have some plan for brownfield expansion and then we — the plan for future growth means, I would say beyond INR3,500 crores to INR4,000 crores of turnover. The plan is still on paper and once we decide — finalize the products which we want to go ahead with, and then we will start launching those in the land parcels, which we already have in the industrial sector.
Raj
All right. Okay, sir. Thanks. All the best.
Adhish P. Patil
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Chirag Dagli from DSP Mutual Fund. Please go ahead.
Chirag Dagli
Yeah, sir, thank you for the opportunity. How is the Metformin production scaling up?
Adhish P. Patil
So Metformin demand has picked up well, frankly speaking. So we are selling around 1,000 — up more than 1,000 tons per month — 1,200 tons per month for the last quarter.
Chirag Dagli
Understood. And here, if I remember correctly, we could have been — we can be at the 1,800…
Adhish P. Patil
So right now, we do have a capacity of around 1,350 tons to 1,400 tons per month in between. So the plan was to scale it up to 1,700 tons to 1,800 tons in a very short time. But for that we also have to go through the amendment of EC and everything.
Chirag Dagli
But that seems to be — I mean there is no hurdle on that one.
Adhish P. Patil
Not right away, but there is one challenge that we were supposed to get the land parcel adjoining that facility. So that was little bit delayed because of other reasons, the governmental — government reasons, that is a little bit delayed. Once we get that, then it will be much easier for us to scale up quickly.
Chirag Dagli
And Adhish, is there visibility beyond 1,800 tons for this product or do you think…
Adhish P. Patil
Definitely. So once we get that land parcel, frankly speaking, we have a visibility of around 3,000 tons per month. It is possible. We have to go — probably forward integration is needed probably for this product because most of the competitors in this line are going that way. So probably — because fortunately, we do have a — our 100% subsidiary, Pinnacle. So that support is there. So ultimate potential, the long-term game is about 2,000 tons to 3,000 tons per month kind of activity.
Chirag Dagli
Understood. And this product is fundamentally more profitable than the rest of the business?
Adhish P. Patil
So see, so in a bad business cycle, the other products have done better than this. But on a steady state, we still feel that this — because this is anti-diabetic segment, so it should be like growing product. Even now, it is growing at a good pace. So we are committed to this particular product. So we think the future is better than rest of the product.
Chirag Dagli
Understood. The CWIP — the second one is on the capital work in progress of slightly less than INR300 crores, does that include the derma facility? The derma thing is already online, right?
Adhish P. Patil
Yes, but the thing is in derma, probably one or two plants, means one or two sections that has to go online.
Chirag Dagli
Understood.
Adhish P. Patil
But most of the derma is put to use.
Chirag Dagli
On that, we are already taking the depreciation?
Adhish P. Patil
Yeah. We are taking the depreciation.
Chirag Dagli
Understood.
Adhish P. Patil
In fact, we are taking almost around between INR3.5 crores to INR4 crores per quarter, we are taking a hit in interest plus depreciation put together.
Chirag Dagli
You said INR5.5 crore impact on — that was on PBT level, is it?
Adhish P. Patil
That was on PBT level, correct.
Chirag Dagli
PBT. So of that PBT, INR4.5 crores is depreciation interest and about INR1 crores is…
Adhish P. Patil
No, INR3.5 crores to INR4 crores.
Chirag Dagli
INR3.5 crores to INR4 crores is interest depreciation and the balance maybe INR1.5 crore, INR2 crores is…
Adhish P. Patil
Yeah. Around INR2 crores is EBITDA.
Chirag Dagli
Understood. Understood. And the INR600 crore capex that we embarked on starting FY ’22, it looks like most of that is already including the…
Adhish P. Patil
Yes. Correct. Correct. Most of it will be done by this year itself.
Chirag Dagli
So we should broadly be done with that capex?
Adhish P. Patil
Yes, we should be done. Correct.
Chirag Dagli
Understood. And so INR300 crore resides in the CWIP. The other INR300 crores, which has already been capitalized, is that — when you think of profitability on that piece, is that optimal, suboptimal, how should we think about what is already in the ground and commercialized?
Adhish P. Patil
Whether it is already running at optimal level, that is what you’re asking?
Chirag Dagli
Yes, yes, because I mean INR300 crores is…
Adhish P. Patil
No. So the derma is not — right now, it is not optimally working. So once we streamline the production, by November, then definitely it means the negative thing will go — first of all go to breakeven level and once we go to 700 tons, 800 tons per month kind of thing, then it will turn profitable as well. So this INR6 crores will go and plus some additional profit should come.
Chirag Dagli
So how much of the INR300 crore capex that we’ve already commercialized is on the derma piece, which is suboptimal?
Adhish P. Patil
It could be roughly around INR200 crores, roughly.
Chirag Dagli
INR200 odd crores. Understood. And the balance INR100 crores is optimal in some sense?
Adhish P. Patil
Yes. So the thing is not entire INR600 crore — so the INR600 crore plan was like one of the projects got delayed, so mainly it was — then the INR400 crore plan, the two greenfield projects roughly INR200 crores each. So the INR200 crore one [Speech Overlap], yeah, the Sayakha one, and the derma one has come online, but it has to perform optimally.
Chirag Dagli
Sorry, I didn’t get catch this comment quite. The derma and specialty piece were INR200 crores each and derma is obviously still not optimal, but the specialty piece is also not yet optimal.
Adhish P. Patil
No, but that we have to still put to use, which…
Chirag Dagli
It’s part of the CWIP?
Adhish P. Patil
Yes, yes.
Chirag Dagli
Understood. Understood. Okay. Fair point. And this revised guidance of INR3,500 crore to INR4,000 odd crores, this is by when?
Adhish P. Patil
FY ’27 mostly.
Chirag Dagli
FY ’27. Understood. Understood. And just conceptually, we’ve been in this INR65 crores INR70 crores kind of EBITDA run rate for almost nine, 10 quarters now. When do we move out of this range? I understand the long-term guidance, but when you think of the near-term business, with all these things, how should we think about the near-term next two, three quarters kind of — I know it’s a tough question to answer.
Adhish P. Patil
Yeah. Yeah. So this quarter will tell lot of stories. Probably may not — I would say probably may not look very good. I’m not saying, but it will bring a lot of clarity to the table that how things will shape up in future. I’m talking about this current December quarter because a lot of things are happening. I mean, salicylic is almost like — we are hoping now that November should be very good for salicylic.
In fact, October itself we have ramped up little by doing few steps. Now November hopefully will be doing one step better. And then Sayakha 1 also starts in November. So then we will get a lot of clarity. And plus, another positive aspect on the existing business is that at least the export markets have started showing some demand uptick.
Chirag Dagli
Understood. Understood. So this — so from the fourth quarter onwards, we probably move out of this zone is how you’re thinking about?
Adhish P. Patil
Probably, yes. Yes.
Chirag Dagli
Understood. Understood. Just a last question on the U.S. FDA status, if you can just update what is happening overall?
Adhish P. Patil
Yes. So we had an audit as expected in the month of September because we were expecting that the financial year for U.S. FDA is from 1st October to 30th September. So we had been telling that we were expecting an audit before that and it happened just like that since in the last month. In fact, they came very late for us. [Technical Issues] seven, eight days.
We got seven observations, but we see — we are quite confident about this observation. In fact, in the closing meeting, they did ask about the industry what they feel about the API facility. [Technical Issues] So that way he was not negative about it. So — but nevertheless, they did tell us that you give a very strong kappa for this within 15 days and it might be through. That is what they said.
Now we have already submitted the response within working so that response has gone in the last — only last week or so — two weeks back. We have sent that response. So now we are waiting, means they will come back to us after that, and we have taken the help of U.S.-based consultants as well for making the response. So we hope that the response is quite holistic. It will give positive results.
Chirag Dagli
Understood. And this — were there any repeat observations?
Adhish P. Patil
The repeat observation was not there. They did say that you have to improve the documentation part of the investigation. So that was there. And I think that it will be there on the U.S. FDA website.
Chirag Dagli
Correct. But none of the observations were what they already called for at the time of the importer.
Adhish P. Patil
No. No. No. In fact they — in fact, the way the audit started was first of all facility round, they check all the scrap area and everything is there. And just a day before the audit, they said that, okay, the audit is done. And then suddenly, last day, in the morning, they again say, okay, we again want to see that E21 facility which is adjoining and they went there also and they checked that unit also, again the adjoining unit. It was like another surprise, but then there was absolutely no point regarding that in the Form 33.
Chirag Dagli
Understood. Understood. So assuming this improves for the better, Adhish, what happens in the first six months as that market opens up for us? How should we think about the financial impact of…
Adhish P. Patil
Financial impact for the first six months might be a little difficult. However, it will help us at the company level as well to improve our image in the export market, especially in the European market because of the U.S. FDA problem, even though we have ED10 approval for that particular plant, we were not able to sell certain products in the Europe market because of this U.S. FDA hurdle.
So before — even the U.S. business kicks in, our European business also will show some signs of improvement from that particular plant. So first three months, I don’t expect anything that way, frankly speaking. Next three months, that is from four to six months, probably some approvals, more approvals will be on the way, because in the regulatory market to get approval and start supplying at commercial level, it does take around five to six months, frankly speaking.
Once the project is initiated by the quality people of the customer for getting the vendor approved, it takes time. But at least the old projects which we have, should — will start in six months’ time. But for six months, very unlikely to show any significant impact on financial.
Chirag Dagli
Understood. Understood. And conceptually, like you’ve said in the past, U.S., Europe are higher realization market…
Adhish P. Patil
Definitely higher, much higher rate.
Chirag Dagli
So the lowest-hanging fruit is essentially to divert some of your current volume from the less realization markets to some of the…
Adhish P. Patil
Correct. Absolutely. And that way also is underutilized, so the utilization will also be higher.
Chirag Dagli
Understood. Okay. Thank you so much, Adhish.
Adhish P. Patil
Thank you. Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ravi Shah from Opal Securities. Please go ahead.
Ravi Shah
Hello. Am I audible?
Adhish P. Patil
Yes.
Ravi Shah
Yeah. Hi, sir. Sir, actually just two questions. The first — the first one is, can you provide some insights on the current state of the entire API industry in India as of now? That’s number one.
Adhish P. Patil
Okay. Okay. Harit bhai? Can you just explain the current demand scenario of API industry in India?
Harit P. Shah
Yeah. India market looks very stable. We — there is — there are lot of new producers in Gujarat and Hyderabad came in recent last two years, but overall demand looks okay. There is no issue on demand. Yeah.
Ravi Shah
Okay. Understood, sir. But sir, my understanding is why are we seeing the revenue growth even though demand is stable, prices are stable, our revenue degrows [Phonetic]. So I’m not understanding that.
Adhish P. Patil
Revenue degrowth is coming because of the lower realization per unit, means lower selling prices as compared to last year.
Ravi Shah
Okay. So, sir, basically just pricing when you expect it to stabilize, any idea on that?
Adhish P. Patil
Yeah. So see, what happened was, the prices have been falling every quarter since last 12 months, 15 months. So if you compare this current September quarter versus June — previous June quarter, the prices are almost stabilize, means hardly around 0.5% of price decline is there on an average level. So prices look stabilized. But however, if we look at October months data, we can see that certain antibiotic products and one of the antifungal product prices has still further gone down, but then the raw material pricing of the product has also gone down. So a little bit here and there will be there, but more or less, it seems that prices are — have stabilized at a composite level on an average basis.
Harit P. Shah
Understood, sir. Thank you, sir, and all the best.
Adhish P. Patil
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Raj Malhotra from JL Financial Advisory. Please go ahead.
Raj Malhotra
Hello, am I audible?
Adhish P. Patil
Yes.
Raj Malhotra
Yeah. Thank you for giving me the opportunity, sir. So sir, I had only two questions. So the first, it is for the project of specialty chemicals, when is that — when are we planning to actually start that and what kind of benefits are we expecting from the plant in the coming like two — say, two years?
Adhish P. Patil
Yes. So the specialty chemical plant at Sayakha is a — we have already started trials in one of the derivative plants and the main plant will be starting trials in the month of November after Diwali, by the mid or end of November mostly. So once that trial is successful and we [Technical Issues] the production, most of the production will go for captive consumption. Some of it may go for external sales as well. Nevertheless, roughly — if you talk about potential, means final potential, around it will — it might have a potential of adding around INR40 crores to EBITDA in a long term — in a long-term level.
Long term, I’m talking about long term…
Raj Malhotra
Yeah, yeah. Yes, I got that.
Adhish P. Patil
So that is one. And nevertheless, good that you asked about specialty, we forgot to mention one point that in this particular quarter, our spec chem segment did not do that well because of some less offtake of campaign based products from a few of the MNCs because their demand was little low. So because of that also, we feel that we have lost around 0.25% to 0.3% in the gross margin at the Company level for this current September quarter.
Raj Malhotra
Got it, sir. Got it, sir. And sir, one more question. Like how do we see the Formulation business growth in like coming few years, like you can elaborate a little on that?
Adhish P. Patil
Yes. Yes. So at Formulations, we are doing a very good job in terms of registering more and more products across different geographies, even though subsidiary is doing quite good. This particular — so for the first half of this financial year, there were two major audits at our Formulation plant in Baddi. First one was the U.S. FDA audit for the new oncology block, which we have put in. So that audit is through and we got U.S. FDA approval for that oncology block.
That was in first — towards the end of first quarter. And then we had — in the beginning of the second quarter, we had another U.K. MHRA audit for the OSD facility. The OSD is the first facility which we had for Pinnacle. So that also got approved. So — and because of that, those two big regulatory audits, some system changes were being done and we had lesser output production from the plants. Also, from demand perspective also, it was — slight impact was there, but mainly because of these two audits.
Though we — though we’ve made very nominal sale of around $2 million to $2.5 million in the quarter of September, but we have a very strong order book of around more than $12 million for the Formulation business. So the export potential is very much there. We have lot of orders in hand. So it will pick up, the Formulation business in coming quarters, in coming two, three, four quarters.
Raj Malhotra
Okay. Got it, sir. Got it, sir. Thank you so much. That’s it from my side and all the best, sir.
Adhish P. Patil
Thank you.
Operator
Thank you. Ladies and gentlemen, we’ll take this as the last question. I now hand the conference over to the management for closing comments.
Adhish P. Patil
Thank you, everyone, for joining us today on this earnings call. We appreciate for your interest in Aarti Drugs Limited. If you have any further queries, please contact SGA, our Investor Relations Advisor. In advance, we would like to wish you all a very Happy Diwali and a prosperous New Year ahead. Thank you. Bye.
Operator
[Operator Closing Remarks]