Aarti Drugs Ltd. (NSE: AARTIDRUGS) Q4 FY22 Earnings Concall dated May. 10, 2022
Corporate Participants:
Adhish Patil — Chief Financial Officer
Ankush Mahajan — Axis Securities — Analyst
Harit Shah — Whole-time Director
Vishwa Savla — Managing Director
Analysts:
Rashmi Sancheti — Dolat Capital — Analyst
Rahul Jha — Bay Capital — Analyst
Ranvir Singh — Sunidhi Securities — Analyst
Aejas Lakhani — Unifi Capital — Analyst
Saravanan VN — Unifi Capital — Analyst
Ranjan Jain — Nirmal Bang — Analyst
Ravi Lodha — — Analyst
Presentation:
Operator
[Operator Instructions] Ladies and gentlemen. Good day and welcome to the Q4 FY22 Earnings Conference Call of Aarti Drugs Limited. 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 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, Chief Financial Officer. Thank you, and over to you, sir.
Adhish Patil — Chief Financial Officer
Good evening everyone, and thank you for joining us today to discuss our financial results for the quarter and financial year ended March 31, 2022. Before I take you through the performance highlights let me remind you that as communicated in the earlier earnings call, the financial performance on a year-on-year basis is not exactly stable especially in terms of realizations and margins because of elevated API margins driven by sudden supply disruptions due to COVID-19 related lockdowns during financial year 2021. The company reported resilient set of performance with improved product mix even though the entire group continued to face unparalleled challenges in the business. I will now take you through segment wise performance.
First, we will discuss standalone business performance and revenues for quarter 4, FY22 stood at INR641 crores as against INR452.9 crores, a healthy growth of 42% year-on-year. Standalone business contributed approximately 90% to the consolidated revenue. Approximately 61% of the revenue came from the domestic market while the remaining 39% came from the export market for Q4 FY22 for the standalone business. Domestic revenue grew approximately by 37% while exports grew by around 50% year-on-year for Q4 FY22. API volume grew considerably by around 23% led by healthy growth in chronic therapies, especially in anti-diabetic segment. Within the API segment, the antibiotic therapeutic category contributed around 43%, anti-diabetic around 17%, antiprotozoal around 14%, anti-inflammatory 12%, anti-fungal around 9% and the rest contributed around 4% to the total API sales of Q4 FY 22.
Going forward, the growth in chronic therapies is expected to outpace the growth in acute therapy, mainly driven by recently commissioned anti-diabetic capacity. Formulation segment performance. For the quarter, the revenue for formulations stood at INR69 crores, growth of approximately [Technical Issues] year-on-year. Formulation segment contributed around 10% to the consolidated revenue for the quarter. About 39% of the formulation revenue came from exports during the quarter. Exports continues to be a key focus area for the formulation.
Now we’ll discuss specialty chemicals and intermediate segment performance. For the quarter, revenue from operations for specialty chemicals and intermediate stood at INR56 crores which grew 17% on a year-on-year basis. For the FY22, the revenue from operations stood at INR210.8 crores, a growth of 28% year-on-year. The company’s strong chemistry skills along with a niche presence chlorosulphonation product led to this healthy growth. The growth trajectory for this business is expected to continue further driven by the recently commissioned brownfield expansion at Tarapur facility. On a consolidated basis FY22 revenue stood at INR2500 crores, a growth of 16% year-on-year basis. The company posted robust revenue growth of 39% in Q4 FY22 which was primarily 46% year-on-year growth in API business along with 17% in specialty chemicals, intermediate and others. EBITDA and PAT grew by 9% and 7% respectively. EBITDA margins were affected due to continuous [Technical Issues] in raw material prices and power and fuel cost especially the coal cost. The company’s overall product mix especially in API products improved considerably along with improved operating leverage which helped the company to partially offset the impact of higher raw materials. However, multiple headwinds such as ongoing Russia Ukraine conflict continued inflation in the input cost especially solvents which are related to the crude price, supply chain disruptions, recent China lockdowns due to spike in COVID-19 cases etc. and had an impact on margins and profitability in Q4 as well as for the entire FY22.
The company is closely monitoring the evolving geopolitical events. The company has undertaken multiple price hikes during the quarter to partially offset the impact. However, these price hikes were not sufficient as the velocity and volatility of increasing input costs due to the reasons just mentioned remain very high. The company expects [Technical Issues] in the margin once the input prices stabilize which we expect by the end of Q2 FY23. The company is also focusing to increase the revenue contribution from therapies especially from anti-diabetic product, anti-fungal product which would help the company to regain the sustainable long-term EBITDA margin level.
Coming to the important updates in the U.S. FDA inspection for Tarapur import facility. The company has successfully completed the third party mock audit recently. The audit was carried out by the U.S. FDA consultants, were the ex U.S. FDA inspectors. The final response will be submitted to the U.S. FDA towards the end of H1 FY23 most probably by the beginning of August month and the U.S. FDA inspection is expected to be done by the end of this financial year. The company remains confident of the positive outcome. Apart from this, the same facility has cleared Australian TGA inspection audit recently which will enable the company to expand the business further in Australia as well. The company incurred a capex of INr145 crores during the year. The company’s plan further invest INR250 to INR350 crores in FY23 after witnessing sluggish construction activity in H1 FY22 owing to prolonged monsoon, the pace has picked up in H2 FY22. For the Gujarat project the civil construction activity has picked up the momentum. It is expected to operationalize towards the end of current financial year. Expansion for Tarapur brownfield specialty chemical has commenced successfully, scale up batches have been undertaken since the start of the current month. For Tarapur greenfield API facility boiler and zero liquid discharge treatment plant will be operational by this month end and the company is planning to scale up the production by the end of FY 23.
Net debt to equity as of March 31, 2022 stood comfortably at 0.52 times. The working capital cycle however got elongated as the company strategically increased raw material inventory owing to high inflationary nature in the raw materials and probable disruptions in the supply chain. There is some increase in the finished good inventory as well due to anticipated pickup from the customer in quarter 1, FY23. As a company policy of rewarding the shareholders, the company has paid INR81 crores in FY22 in the form of dividend and share buyback. The company remains committed to create the value for the shareholders by enhancing the strategic value proposition through capacity augmentation, cost rationalization, backward integration, strong focus on R&D and optimal capital allocation.
With this, we can now begin the question-and-answer session. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ankush Mahajan from Axis Securities, please go ahead.
Ankush Mahajan — Axis Securities — Analyst
Hello, sir. I just want to understand the capex. Last year. our capex is INR145 crore. Can I get the breakup of this capex for in terms of the therapies. And what is another capex that we are looking for next year.
Adhish Patil — Chief Financial Officer
The main projects which are going on, one is already — has been started, the brownfield expansion of a chlorosulfonation facility at Tarapur. We’ve just commenced with that project in the month of May. Then, there are 2 main greenfield projects which are going on. One is going on in Gujarat, that is for the backward integration and intermediate space. So Tarapur greenfield project is focusing on dermatology-related API. So both these projects will [Technical Issues] mostly by the end of current financial year. And that is where the majority of the capex will be going and a very small portion, say INR40 to INR50 crores of the capex will be utilized for general brownfield [Technical Issues] the GMP enhancement and some bid for the maintenance capex.
Ankush Mahajan — Axis Securities — Analyst
So, we can say this year INR250 to INR350 crore capex, it will go for this brownfield expansion and–
Adhish Patil — Chief Financial Officer
Yeah, apart from that INR40 to INR50 crores of brownfield and maintenance capex. Apart from that, the major capex is for the same projects which we have highlighted before that INR500 to INR600 crores capex which we had. So it is going for the same project, mainly for the greenfield project, one at Tarapur and one at Gujarat.
Ankush Mahajan — Axis Securities — Analyst
Thank you. Sir, if you see that we already invested INR145 crore and we were looking some 5 times turnover on capex but this year, our incremental sale is on the lower part. How do you see the scenario next. And second question is related to gross margin sub or the raw material prices. How do you see the raw material — increase in raw material prices going onwards. I mean to say when we can expect that things could get stable.
Adhish Patil — Chief Financial Officer
Okay. To answer the first question related to capex, the brownfield expansions which we are doing, they are definitely giving that 5 times revenues to asset turnover but for the greenfield one it is somewhere in the region of 2 to 2.5 and other question regarding the raw material prices, I would like Harit bhai to answer your question.
Harit Shah — Whole-time Director
Yeah, it’s very difficult to give any guidance on raw materials because due to current–
Ankush Mahajan — Axis Securities — Analyst
I’m just trying to understand how the things are taking shape and what’s your view on it.
Harit Shah — Whole-time Director
It’s very difficult to see any view but looks like inflation is at top and everybody, all the governments are trying to control inflation. So demand may come down overall on commodity cycle, commodities, and we expect price to come down by another 3 to 4 months but not at the original level but it will come down. Yeah, we expect price to come down.
Ankush Mahajan — Axis Securities — Analyst
Thank you, sir.
Operator
Thank you. The next question is from the line of Rashmi Sancheti from Dolat Capital. Please go ahead.
Rashmi Sancheti — Dolat Capital — Analyst
Yeah, thank you for the opportunity and good evening to everyone. So, Adhish, one question again on gross margin front. So, you know, with this kind of pressure, are we believe — I mean, can we believe that know our operating margin can be sustained at around 12% or you believe that there is a scope of improvement with these brownfield capacity coming in place, I mean with the better product mix.
Adhish Patil — Chief Financial Officer
Okay. Are you asking for the first quarter of the coming financial year or–
Rashmi Sancheti — Dolat Capital — Analyst
So, yeah, so the quarter 4. I think we reported around 12% operating margin. So I’m asking regarding that. Is this kind of margin, we’ll be able to sustain because I think you all mentioned that till another 2 quarters, there is a likelihood of seeing higher raw material prices pressure. So are we going to sustain this or there is a scope of improvement in the overall operating margin.
Adhish Patil — Chief Financial Officer
For the next 2 quarters. Yeah, API, the standalone margins were — EBITDA margins were around 13.2% for the March quarter. We believe at over its level also, we can easily improve around 0.5% to 1% but apart from that at a gross margin level, definitely the current commissioning of chlorosulfonation plant brownfield expansion that segment is more profitable for us. So the product mix will be favorable in terms of settlement of the gross contribution for the first quarter. Definitely it will help more in the second quarter because the production has just started. And as far as the price hikes are concerned, so we were doing the analysis, I mean in the March quarter, if we see, we definitely have taken price hikes about 85% of our products have maximum prices in the March quarter compared to all the 4 quarters of last year and even in the March quarter itself if we compare 3 months; January, February, and March then around 50% of the finished goods were having higher prices in the month of March. So definitely price hikes will also help us regain some of the gross contribution. So, but then because the situation is so dynamic though it will become better but then it is not easy to forecast as of now.
Rashmi Sancheti — Dolat Capital — Analyst
Okay. So I understand there is still uncertainty regarding that but whatever growth that we have seen in API segment during this quarter around 45%, 46%,that is all because of the price hikes or there are new products that is anti — gliptin products and all have been commercialized or have started supplying.
Adhish Patil — Chief Financial Officer
The gliptin means we launched those but they’re not significantly impacting our turnover as of now but we expect them to do that in coming — however what was your other question
Rashmi Sancheti — Dolat Capital — Analyst
So basically wanted to understand that all the growth which is coming in the API is mainly because of the price hike only.
Adhish Patil — Chief Financial Officer
Okay. So in the domestic market, we recorded a growth of around 36% to 37% in value terms out of which 50% of the growth was due to volumes whereas in exports where we recorded a growth of around 50% in the last quarter around 30% or 32% of the growth is because of the volumes and rest 18%, 19% is because of the rate [Phonetic]
Rashmi Sancheti — Dolat Capital — Analyst
Okay, thanks, that’s it from my side.
Operator
Thank you. The next question is from the line of Rahul Jha from Bay Capital. Please go ahead.
Rahul Jha — Bay Capital — Analyst
Yeah, hello.
Operator
Please proceed with your question.
Rahul Jha — Bay Capital — Analyst
So in last year’s presentation, you had said that you have around 1500 plus employees. In this year presentation, you are saying you have around 1,000 employees. So around 500 employees less but your employee expenses are higher for the year. So what is the discipline.
Adhish Patil — Chief Financial Officer
I think there may be some mistake. We will — there might be some mistake in it. We’ll get it corrected.
Rahul Jha — Bay Capital — Analyst
Okay.
Adhish Patil — Chief Financial Officer
We haven’t reduced the workforce actually.
Rahul Jha — Bay Capital — Analyst
Yeah, but this year’s presentation has around 1,000 employees, so 500 employees less. So I think–
Adhish Patil — Chief Financial Officer
There is some error in that. We will get it correctly. Thank you for pointing out.
Rahul Jha — Bay Capital — Analyst
Okay. Second, on the — like capacity. So you have done some around INR150 crores of capex but your installed capacity has increased by just about 0.5% even less than 1%.
Adhish Patil — Chief Financial Officer
So most of the capacity was in — capacity as in the cash outflow was in capital WIP. That is the reason why the capacity enhancement was not seen to that extent. But now in the month of May, we have the chlorosulfonation capacity and in the last quarter of this financial year, we will come up with 2 more capacity. So that is the point when you will see the result.
Rahul Jha — Bay Capital — Analyst
Okay, thank you.
Operator
Thank you. The next question is from the line of Ranvir Singh from Sunidhi Securities, please go ahead.
Ranvir Singh — Sunidhi Securities — Analyst
Thanks for taking my question. My question relates to that U.S. FDA inspection we are awaiting on Tarapur facility. So if successful, what kind of the scope we can expect from this facility.
Adhish Patil — Chief Financial Officer
So there are couple of indirect benefits as well other than the fact that a couple of products, our ANDAs are still active, so for those products from commercial [Technical Issues] can be started. Definitely in the beginning. It will be slow, then it can pick up but apart from that there are lot of indirect benefits in the terms that the facility also has huge GMP approval and CEP approvals for a few of the big products which we manufacture and we are pretty strong in. So there is lot of those products in the European market but because of this import alert, cracking that market has been little difficult. So if import alert is cleared even for the European market from that facility, we can achieve lot of growth.
Ranvir Singh — Sunidhi Securities — Analyst
Can you highlight the number of products currently we can readily we can start supplying for the U.S. or Europe.
Adhish Patil — Chief Financial Officer
There are 2 — for Europe. Okay. For Europe, we have products like we have 3 good products like Ciprofloxacin, [Indecipherable] from that facility. There are other products as well like zolpidem tartrate which are doing quite well for us.
Ranvir Singh — Sunidhi Securities — Analyst
So this is for the Europe or U.S.
Adhish Patil — Chief Financial Officer
So same products we’ll be doing for U.S. as well.
Ranvir Singh — Sunidhi Securities — Analyst
And earlier when imports alert came, that time there was 2 facilities and one of the facility was already delisted as per your press release and once facility had got import alert. So that another facility, what is the status of that facility, whether we got it enlisted [Phonetic]
Adhish Patil — Chief Financial Officer
So that facility was never intended to be a U.S. FDA facility which got inspected at that point of time. So that was the reason why we delisted that facility. However, that is a very big and important facility for us for rest of the market which include Latin America as well. But going forward, we are planning to get GMP certification for that facility but that facility is never intended for the U.S. market. So there are no plans to convert that facility into U.S. facility for Europe, we do have that.
Ranvir Singh — Sunidhi Securities — Analyst
Okay. Thanks. And for this year, we have a capex of INR145 crore. as you mentioned some projects but I think some of these projects are not complete. So for
Up to FY22 that INR145 crore on what projects actually you have expanded.
Adhish Patil — Chief Financial Officer
That — we had done lot of debottlenecking, so in that and in couple of greenfield projects, so that money is still lying under capital WIP and there was one big brownfield expansion for chlorosulfonation which is also going up as of 31st March but that project has now been completed. So it will be put to use in the month of May.
Ranvir Singh — Sunidhi Securities — Analyst
So just help me understand–
Adhish Patil — Chief Financial Officer
It was in the greenfield.
Ranvir Singh — Sunidhi Securities — Analyst
Okay. So, one was the intermediate project which was under PLI scheme. Is that project complete.
Adhish Patil — Chief Financial Officer
That particular project, we opted to not go for PLI but we still have expanded the capacity for that particular product. The reason we did that was because at the time when we applied for PLI, there was a commitment of some around INR17 to INR18 crores for implementing that project but then due to advancement in the technology, we were able to complete that project at a very, very nominal cost. So that is the reason we had requested Government that we will implement the same projects, same capacity at a lower cost but then they said that no, you will have to meet their capex requirement, which we thought that unnecessary spending money upfront there is no point and then apply for the PLI scheme. So that is the reason why we opted to go for that capex without PLI and we have already — the first stage of expansion for that particular product has already been done.
Rahul Jha — Bay Capital — Analyst
Okay. And so what is the capex in that INR70, INR80 crore, isn’t it?
Adhish Patil — Chief Financial Officer
Yeah, it will be less than that, correct.
Ranvir Singh — Sunidhi Securities — Analyst
And other product like gliptin related products you have been, chlorosulfonation you mentioned–
Adhish Patil — Chief Financial Officer
So, that capacity we have implemented and it is already online.
Ranvir Singh — Sunidhi Securities — Analyst
That’s it from my side.
Operator
Thank you. The next question is from the line of Aejas Lakhani from Unifi Capital. Please go ahead.
Aejas Lakhani — Unifi Capital — Analyst
Yeah, hi. Am I audible?
Operator
Yes, sir. You are audible. Please go ahead.
Aejas Lakhani — Unifi Capital — Analyst
Okay, sir. Could you just repeat the amount you spent for the capex on the PLI. I couldn’t catch that number you mentioned. What was the capex.
Adhish Patil — Chief Financial Officer
No. It was less — I said [Technical Issues]
Aejas Lakhani — Unifi Capital — Analyst
Sorry, sir. INR20 crores. Is that what you said?
Adhish Patil — Chief Financial Officer
Much less than that, means we are not giving giving out the exact number.
Aejas Lakhani — Unifi Capital — Analyst
Okay, got it. So my questions are the follows. The first is, could you give the broad gross margin guidance or range for the APIs for the spec chem and intermediate and for the formulation for the — for Aarti Drugs as a company.
Adhish Patil — Chief Financial Officer
Yes. So the thing is guidance is for the long term definitely for APIs we would like to actually — right now we have a composite gross margin for API and specialty chemicals.
Aejas Lakhani — Unifi Capital — Analyst
Yes, I mean, I’m just asking that–
Adhish Patil — Chief Financial Officer
It was around–
Aejas Lakhani — Unifi Capital — Analyst
No, sir. I’m sorry to interrupt, but I’m just asking that broadly the API basket, what is the broad gross margins that you have. What is the broad gross margins on formulation and spec chem and intermediates. The reason I ask this is so that we get a sense of how your gross margins may move into the future.
Adhish Patil — Chief Financial Officer
So taking is the maximum, but then again since you’re asking only for the gross margin, will be much higher, it’s almost in some cases if be as high as 3% [Phonetic] as well, higher in those particular products. As far as APIs are concerned on an aggregate level, I would say it is in the — it should be somewhere in mid-30s to late ’30s, the targeted gross contribution, whereas in formulation, it is slightly lower. Vishwa, would you like to answer that.
Vishwa Savla — Managing Director
Yeah, sure. Currently formulation gross margins would be about 25% between 25% to 28% depending on the quarter and we do see in the coming quarters, the company has an improvement in that because our gross margins are quite lower on the domestic front and substantially higher on exports. Right now we have about 38% to 40% revenues which we foresee to grow to a larger number and that will improve the overall gross margin and take it any way closer to early 30s
Aejas Lakhani — Unifi Capital — Analyst
Got it, sir. That’s helpful. Sir, my next question is that you’ve done a INR145 crore capex. You mentioned 5 times asset turns. How much of that should we expect from a capacity utilization in ’23.
Adhish Patil — Chief Financial Officer
I would like to clarify something that 4 to 5 times asset turns is for the brownfield expansion, not entire project.
Aejas Lakhani — Unifi Capital — Analyst
Yes, did the INR145 crores as a brownfield, right?
Adhish Patil — Chief Financial Officer
No. see, in INR145 a lot of it has gone for the greenfield project as well which are still in cash flow WIP.
Aejas Lakhani — Unifi Capital — Analyst
Okay, so how much of this — could you quantify went for the brownfield and for the greenfield.
Adhish Patil — Chief Financial Officer
So, very roughly around half of it must have gone for the greenfield and half would be for maintenance as well as brownfield and some bit I think went for the, I think, land parcels which we procured.
Aejas Lakhani — Unifi Capital — Analyst
Fair enough. So, sir, also the other thing is you mentioned that there is more capacities which is coming on stream at the end of FY ’23. So are you referring to the Greenfield capex which is for the intermediates of which you’ve already spent INR70 crores, give or take and the 250 crores, which you are going to spend in this year, all of that will come on stream in FY ’23 end.
Adhish Patil — Chief Financial Officer
So, yeah, so the Tarapur facility will — seems like it come onstream say couple of months or 3 months before the Gujarat facility. So the Tarapur facility we are hoping that we’d be able to come in the trial production by last quarter of this financial year. However the Gujarat facility by the end of this financial year, we should be able to complete the project. So maybe immediate start of the next financial year, we should be able to start the trial production.
Aejas Lakhani — Unifi Capital — Analyst
Got it, and sir, out of the INR70 crores that has already been incurred and INR250 to INR300 that you’re incurring this year, how much of that block is towards Tarapur and how much is towards Gujarat in terms of cap.
Adhish Patil — Chief Financial Officer
Coincidentally the allocation is almost equal, brownfield and greenfield projects, they are both equal.
Aejas Lakhani — Unifi Capital — Analyst
Got it. And sir, you generated about INR70 crores of operating cash flow this year, give or take your run rate for the coming year. Basis that, given the high amount of capex that you are incurring along with the dividend payouts you’re doing, how much will be incremental debt and how will you fund this capex really if you could give some more color on that.
Adhish Patil — Chief Financial Officer
So the major reason why the operating cash flow is looking less in this financial year is one of the major reason is the fact that we have done historically, I guess sales in the last quarter about INR697 crores and typically our debtor cycle being somewhere in 19. So all of that has went in fact in the receivable portion. So that is the reason why suddenly the increase in receivables is more. And that is why the cash flow from operations is looking less. However what we are foreseeing is that debt to equity would be — will go as high as 0.7 for the upcoming greenfield projects when we implement that partially through [Indecipherable] but the targeted debt to equity number is around 0.7 and once the project start giving revenues then it will again come down.
Aejas Lakhani — Unifi Capital — Analyst
Got it, sir. That’s helpful. And sir, you had mentioned that you have a contract with an MNC for the specialty or intermediate products. So is my understanding correct that the recently concluded brownfield expansion that you have done of which you spent about INR70, INR75 crores as you indicated it’s also the capacities that are going to be used for this contract.
Adhish Patil — Chief Financial Officer
So a very small portion of that went for debottlenecking for incremental expansion of that product. Whereas some other portion also went for big brownfield expansion for another chlorosulfonation product, so there are 2 products involved in the brownfield expansion.
Aejas Lakhani — Unifi Capital — Analyst
Got it. And sir, you mentioned the guidance you mentioned I think in last call the aspired guidance of EBITDA being around 18%. Do you see that target being hit in probably 3Q, 4Q of this year.
Adhish Patil — Chief Financial Officer
So yes, the first — the problem is that we were hoping that 17%, 18% EBITDA margin should be sustainable however the increase in the input cost is so high, almost we were doing an analysis of FY22 versus FY21. So the rate variance in the raw materials is as high as 25% in terms of the increase in the prices year-on-year basis for the entire year. Because of that, now we are taking high price at the selling end but then the thing is, for many of the products formulation people, they have a cap at which they can sell their products in the market. Those cap may increase by 10% or so in the year but nevertheless, the increase, the hike in the chemicals and the APIs has been more than that. So definitely we will face some hit as far as demand is concerned. However, once the prices ease off from this level, then everything should be back at normal. So in short, so by Q4, Q3 18% would be little too optimistic but first, we will try to achieve that 16% EBITDA margin by Q3 and then from there onwards, the the introduction of this new product more intermediate then probably we can look forward to increase it further.
Aejas Lakhani — Unifi Capital — Analyst
Got it. And sir, the chronic APIs that you’re having, are the gross margins say 300, 400 bps higher than the acute therapy API.
Adhish Patil — Chief Financial Officer
So that’s a good question but then the thing is the margin, the situation has been so dynamic. So the margin changes, I mean usually chronic products had a better margin but if there is change in market dynamics as in some of the intermediate of a particular product goes high suddenly then suddenly in one particular quarter some other products look more profitable than this product. So it keeps on changing. The situation is very dynamic but I would say before all these macroeconomic factors, before that the margins in the chronic segment were [Technical Issues] but then in the current scenario, it is all up and down, sometimes one product looks better, sometimes other product looks better.
Aejas Lakhani — Unifi Capital — Analyst
Got it. And sir, competitive intensity in chronic APIs is lower or higher and who are your key competitors here.
Adhish Patil — Chief Financial Officer
So for — there are Indian, a lot of Indians in the metformin market, there are more than around 8 players or so, 6 to 8 players who are operating in metformin. The bigger would be, I would say 3 or 4 and the rest would be smaller, so we expect that there will be some kind of consolidation in coming couple of years. The smaller players ideally will exit. It will also depend on the fact how fast we scale up the capacities further and how fast the market grows because typically what happens is that if market is growing at X percentage and the introduction of fresh capacities are more than that, then typically the weaker players start exiting. So that is how it will shape up.
Aejas Lakhani — Unifi Capital — Analyst
Got it, sir. Thanks a ton.
Operator
Thank you. The next question is from the line of Saravanan from Unifi Capital. Please go ahead.
Saravanan VN — Unifi Capital — Analyst
Thanks for taking my question. What sort of volume growth are we targeting or expecting to achieve in FY23 as well as FY24 in API segment.
Adhish Patil — Chief Financial Officer
Ideally, we’ll be — we should get about 10%. Last year also, the entire year basis around 10% volume growth we were able to achieve in FY22 and similar kind of volume growth we hope to achieve in the coming year as well.
Saravanan VN — Unifi Capital — Analyst
Okay, and is INR90 crores per quarter is like a base EBITDA and we would be able to grow on that. So I’m talking not as a margin term, I’m talking as an absolute EBITDA, this INR90 crores per quarter is a sustainable number.
Adhish Patil — Chief Financial Officer
Yes. INR90 crores should be fairly easy [Technical Issues].
Operator
We request all the participants to please stay connected while the line for — while we reconnect Mr. Patil. Ladies and gentlemen, we have the line for Mr. Patil reconnected. Thank you and over to you, sir.
Adhish Patil — Chief Financial Officer
Yes, Saravanan, I was saying that INR90 crores is very much doable but we hope that ____ that.
Saravanan VN — Unifi Capital — Analyst
Okay, that’s good to know and formulations, what is the prognosis there. Are you. I mean — could it grow faster than the API segment in the formulation segment in the coming years.
Adhish Patil — Chief Financial Officer
Vishwa would you like to answer.
Vishwa Savla — Managing Director
Compared to the API–
Operator
Mr. Vishwa Savla, sir, sorry to interrupt, but your voice is not coming clear sir.
Vishwa Savla — Managing Director
Am I audible now.
Operator
Yeah. Now it’s fine. Please proceed.
Vishwa Savla — Managing Director
I was saying in the formulation segment as well we are undergoing our capex expansion for a new oncology plant as well as — I mean, which will be commissioned in the coming 3 months as well as we are also increasing our full product portfolio with a good pipeline of products and expanding our market reach in terms of more international markets. So we do foresee to grow at a faster pace — in a fast pace in the next 3 years and the projection is to try and double our revenues in the coming 3 years and we are in terms of our resources, we are on track for that.
Saravanan VN — Unifi Capital — Analyst
Got it. And the U.S. FDA plant currently it is being utilized, right, although we are under alert, it is getting utilized for other geographies or I mean you are still waiting for the clearance and then you will use it only for the U.S. business.
Adhish Patil — Chief Financial Officer
So as of now, it is being utilized for other geographies but then the utilization is fairly low. And moreover and that will happen if we sell more to regulated markets, that is a key factor for driving growth, profit growth from that particular unit.
Saravanan VN — Unifi Capital — Analyst
Okay, so that’s an important lever to look forward to, right, once the U.S. FDA clearance happens by end of this year and so your regulated markets would get fast tracked which will improve the margin trajectory overall.
Adhish Patil — Chief Financial Officer
Correct.
Saravanan VN — Unifi Capital — Analyst
Okay, thanks. Thanks a lot and all the very best.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ranjan Jain from Nirmal Bang. Please go ahead.
Ranjan Jain — Nirmal Bang — Analyst
Yes, thank you for the opportunity. Sir, just 2 questions. One, you said that you’ve taken the price hike and most of the price will be taken in during March. So you believe that the gross margins what we have witnessed during this quarter 4, it kind of bottomed out and we can see quarter-on-quarter improvement on that.
Adhish Patil — Chief Financial Officer
One thing I noticed that in the month of March also when we were negotiating orders that time also the margin was low. For the month of April and May, whatever we are negotiating the margins has slightly improved for the major product of ours but then the impact to come, it takes around 2 months probably towards the end as we exit the first quarter, maybe June month might be better is what I have a feeling but the quarter itself, the Q1 will definitely be impacted, impacted means more or less similar kind of margins.
Ranjan Jain — Nirmal Bang — Analyst
But even what we have seen, sir, have you seen in fact in the raw material prices that month-on-month also there is any increase in that or that is kind of stabilized right now.
Adhish Patil — Chief Financial Officer
Raw material prices.
Ranjan Jain — Nirmal Bang — Analyst
Yes, sir.
Adhish Patil — Chief Financial Officer
Raw material prices, we haven’t seen a decline yet
Ranjan Jain — Nirmal Bang — Analyst
But there is an increase or this will stabilize. The question is coming from sir, because if the prices have — raw material prices have stabilized and whatever improvement you take or hike you take on the finished goods, so that improvement whatever small should be visible. So that is what my understanding is that we should see some improvement in margins at least for Q1.
Adhish Patil — Chief Financial Officer
I will answer little differently. What taking orders means [Technical Issues] we’re setting both the output trade and negotiations which are happening in the month of April [Technical Issues] better than March. However, these are the orders being taken but the orders for exports our pending order is around 3 months. For domestic it is somewhere 20 to 30 days, it’s something like that and similarly, raw materials for imported it will be a couple of months, for domestic it would be 15 to 30 days. So for that to come into the finance [Technical Issues].
Ranjan Jain — Nirmal Bang — Analyst
Okay. Sir, just last question. Is it possible for you to give you the Q-on-Q volume increase either for API or for the whole company.
Adhish Patil — Chief Financial Officer
With respect to December
Ranjan Jain — Nirmal Bang — Analyst
Yes, sir, from March to December, is there any improvement in the volumes in API.
Adhish Patil — Chief Financial Officer
We will do that. I don’t have the figures but overall on the entire year basis, the volume growth is 10%
Ranjan Jain — Nirmal Bang — Analyst
Ten percent?
Adhish Patil — Chief Financial Officer
FY22
Ranjan Jain — Nirmal Bang — Analyst
Okay, on quarter-on-quarter. Yeah, I’ll take it from you offline.
Adhish Patil — Chief Financial Officer
That I will have.
Ranjan Jain — Nirmal Bang — Analyst
Sure. Thank you so much, sir.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ankush Mahajan from Axis Securities, please go ahead.
Ankush Mahajan — Axis Securities — Analyst
Sir. I was just trying to understand this capex of INR250 to INR350 crores. Can you give more breakup for this capex that this is for which therapies actually we are going to use this capex. And what is the timeline for this.
Adhish Patil — Chief Financial Officer
The timeline is one year.. The thing is if you remove say around INR40 to INR50 crores then rest of the capex will be equally divided into 2 portions. One will go in Gujarat greenfield and other will go in Maharashtra greenfield facility equally and will be [Technical Issues] the backward integration and few other intermediates. So, it will be specialty chemicals intermediates kind of a thing and some bit of it will be using captively as well whereas the Tarapur greenfield would be more of the API and allied, few derivatives of API [Phonetic].
Ranjan Jain — Nirmal Bang — Analyst
So what are the — can you give us the name of the therapies.
Adhish Patil — Chief Financial Officer
The therapy would be, goes in derma segment, in the skin treatments, skincare
Ranjan Jain — Nirmal Bang — Analyst
For the API and for the specialty API, specialty products chem.
Adhish Patil — Chief Financial Officer
So that could be intermediate to some of our pharma products and yeah, mainly they will be pharma intermediates, will go in pharma intermediate and some of it might go for [Technical Issues] those products might also go for animal feed category.
Ranjan Jain — Nirmal Bang — Analyst
Okay, animal feeds, and sir, how much is brownfield and how much is greenfield.
Adhish Patil — Chief Financial Officer
Major would be the greenfield for the coming year and only INR40 crores to INR50 crores which we are earmarking, only that would be — the part of that would we used for brownfield.
Ranjan Jain — Nirmal Bang — Analyst
Fair enough. Okay. Sir, can you give me some names of raw materials like the raw materials that we are using like I’m just saying like chlorobenzene is one, what are the raw material that are you using. Can you give me the names of some raw materials.
Adhish Patil — Chief Financial Officer
Yeah, we use lot of acetic acid, nitric acid, so many things. There are almost 300, more than 300 raw materials which we use.
Ranjan Jain — Nirmal Bang — Analyst
I mean the major names, sir.
Adhish Patil — Chief Financial Officer
Harit bhai, would you like to answer that.
Harit Shah — Whole-time Director
Actually we are into antibiotics, so we use lot of chlorobenzene in chemistry intermediates and also piperazine is one of them. And then, lot of basic chemicals, we use and it depends on the product-specific basically, many other intermediates we are using. So it’s very difficult to give you names but there at least 200 chemicals we are using at least a month.
Ranjan Jain — Nirmal Bang — Analyst
Thank you, sir. That’s from my side. Thank you very much.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ravi Lodha, an individual investor. Please go ahead.
Ravi Lodha — — Analyst
Yeah. Good evening, sir. I–
Operator
Sir, your voice is breaking up. May we request you to take the phone off handset please.
Ravi Lodha — — Analyst
Yes, my question is whether Aarti Drugs is able to get the revenue target of INR4,500 in FY26 or FY27.
Adhish Patil — Chief Financial Officer
Yeah. We should be — that is fairly doable.
Ravi Lodha — — Analyst
Okay. Actually, sir, in concall that is Q3 FY21 you told that INR4,500 revenue target will be after in 5 years. And now you are saying that this target can be achieved in nearly next 5 to 6 years. So whether this target is the allocated, means it will be delayed.
Adhish Patil — Chief Financial Officer
FY26 means that will be now ’23, ’24, ’25, in 3, 4, 5, 6, that is 4 years from now considering this year.
Ravi Lodha — — Analyst
Okay, 4 to 5 years from now. Okay.
Adhish Patil — Chief Financial Officer
Around 4 years from now, it should be fairly easy.
Ravi Lodha — — Analyst
Okay, sir. And sir, one more question. Your revenue — in your revenue nearly 43% it consists of antibiotic. So whether this antibiotic are somewhat import substitution from China.
Adhish Patil — Chief Financial Officer
Partly, yes.
Ravi Lodha — — Analyst
Okay.
Adhish Patil — Chief Financial Officer
Partly yes, because–
Ravi Lodha — — Analyst
And sir whether we can believe that the margin, which we are getting this year that is nearly 13%, do we believe that in future, it will be — it can cross more than 20% or it will remain 20% to 25% EBITDA margin.
Adhish Patil — Chief Financial Officer
The EBITDA margins, once all our greenfield projects come into picture then definitely we can aim for something near to 20% and also the regulated market, Then we can target crossing 20.
Ravi Lodha — — Analyst
Okay. And sir, whatever we are doing the capex, that is INR600 crores, so so it will be more means more margin product or less margin product.
Adhish Patil — Chief Financial Officer
The capex, they are generally higher margin products because the thing is right now, even our existing products are performing below what they usually performance. So even from the existing market also we are hoping for a recovery of around INR300 basis points from 3%, even from the existing.
Ravi Lodha — — Analyst
Okay, thank you. Thank you. All the best from my side, sir. Thank you.
Operator
Thank you. The next question is from the line of Rahul Jha from Bay Capital. Please go ahead.
Rahul Jha — Bay Capital — Analyst
Yeah, I was looking at again on the R&D slide. So, last year you had some 57 MSc graduates and 11 graduates but this year again it is — it has come down how much 27 MSc graduates and 28 graduates. So are we — is there attrition happening like senior people are leaving on the R&D side because we are not seeing anything gross margins also like you have been saying that you have been backward integration is happening. So gross margin to EBITDA margin flow should not be weaker. It is getting weaker. Your gross margins should expand or the volumes should grow up. Nothing is happening on that.
Adhish Patil — Chief Financial Officer
No, I didn’t understand — see, about the R&D part I will definitely check all the slides but there is no attrition as such in the R&D.
Rahul Jha — Bay Capital — Analyst
Because last year it was 57 MSc graduates, this year 28 MSc graduates. So it is half and freshers–
Adhish Patil — Chief Financial Officer
The problem, we’ll check the numbers, but then the thing is on the shop floor level, the ground reality is that we haven’t reduced any R&D. In fact, we have put up one more floor in our centralized R&D center at Tarapur. We have expanded the R&D last year in fact by one more floor. So the thing is ground reality is there is no cut down in R&D or anything like that. We are doing R&D. In fact we have put a pilot plant also last year, so for the R&D of the bigger projects and your other question was regarding the gross margin, right?
Rahul Jha — Bay Capital — Analyst
Yes. So like you have been saying regularly that there has been backward integration and like debottlenecking and all those. So based on that–
Adhish Patil — Chief Financial Officer
Backward integration–
Rahul Jha — Bay Capital — Analyst
Yeah, so let me complete, sir.
Adhish Patil — Chief Financial Officer
Backward integration projects are going on.
Rahul Jha — Bay Capital — Analyst
So either there should be gross margin expansion, right, or at the EBITDA margin expansion but neither of it is visible.
Adhish Patil — Chief Financial Officer
Okay. So the backward integration projects which are putting up mainly that is happening in the greenfield location and Gujarat, so that facility hasn’t commenced yet. Secondly, the impact, other backward integration we put up the capacity but the thing is there is some problem in the pricing parity of few of the very basic chemicals which are available in India and China, and that has also happened because of this situation, geopolitical situation right now and because of which because of that disparity of the basic chemical prices in India and China is where we are facing the heat as of now. But once we come to a level playing ground then from technological standpoint, we are — the products top 15 products in which we’re operating most of them we are either at par or even better than China. So it is a temporary phase because of which this gross margins and EBITDA margins have been impacted but that has happened across the board for all the API products
Rahul Jha — Bay Capital — Analyst
Right. Thank you.
Operator
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Adhish Patil for closing comments. Over to you, sir.
Adhish Patil — Chief Financial Officer
Thank you. Thank you everyone for joining us on this call. Please reach out to us or our IR consultant, SGA, should you have any further queries. We can now close the call and thank you once again for participating in this call.
Operator
[Operator Closing Remarks]