Aarti Pharmalabs Ltd (NSE: AARTIPHARM) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Anuj Sonpal — Chief Executive Officer
Rashesh C. Gogri — Chairman
Hetal Gogri Gala — Vice Chairperson and Managing Director
Piyush Lakhani — Chief Financial Officer
Analysts:
Dhaval Shah — Analyst
Dhwanil Desai — Analyst
Ankit Gupta — Analyst
Deep Gandhi — Analyst
Harshal Dhende — Analyst
Tushar Vasuja — Analyst
Nitesh Dutt — Analyst
Advait — Analyst
Neha Raichura — Analyst
Rupesh Tatiya — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Aarti Pharmalabs Limited Q2 and H1 FY 2025 Earnings Conference Call Hosted by Valorem Advisors. [Operator Instructions]
I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.
Anuj Sonpal — Chief Executive Officer
Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. On behalf of Aarti Pharmalabs, I would like to thank you all for participating in the company’s earnings conference call for the second quarter and first half of financial year 2025.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by, and information currently available, to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today’s earnings conference call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review.
Let me now introduce you to the management participating with us in today’s earnings call and hand it over to them for opening remarks. We have with us today Mr. Rashesh Gogri, Chairman; Mrs. Hetal Gogri Gala, Vice Chairperson and Managing Director; Mr. Piyush Lakhani, Chief Financial Officer.
Without any further delay, I request Mr. Rashesh Gogri to start with his opening remarks. Thank you, and over to you, sir.
Rashesh C. Gogri — Chairman
Yeah. Good evening, everyone, and thank you for joining us on our post result earning call for the quarter and the half year ended September 30, 2024. Our results have been uploaded on our website, and I hope you would have got a chance to go through them.
Let me provide you with the business highlights. The company operates in three distinct areas within the pharmaceutical industry: the first is Xanthine Derivatives; API and Intermediates; and CDMO/CMO business. The Xanthine Derivative segment contributed 45% of the turnover in Q2, and this market is still witnessing strong competition from China. However, our long-term partnership with the global giants and our position as a dominant Indian player helped us maintain strong position in this segment globally. For Q2, our Xanthine Derivatives facilities have operated almost at the full capacity. The API and Intermediate business contributed 51% of the turnover in Q2. The subsegment — breakup of this segment is 43% regulated market, 46% ROW market, and 10% non-regulated market. The third segment, CDMO/CMO, has contributed 3% of the turnover in the quarter. We are presently working with 19 customers on 55 projects, out of which 28 projects are in the commercial stage at the customer’s end, and 27 are at the different stages of development at the customer’s end. This highlights our presence in late-phase projects.
Typically, the orders in these segments are multistage products for which lead time is very long. CDMO/CMO segment does not have a uniform sales across every quarter because of these lead times. And there are few high-value orders of which the delivery is scheduled later in this year. It is likely that the revenue realization of this order in end might get extended beyond current financial year. However, in medium- to long-term, we have no doubts about long term prospects of this CDMO/CMO business. Given our strong R&D focus and robust scale up and manufacturing capabilities, we should be able to deliver strong growth in this segment.
Let me now share the key financial highlights. Consolidated financials for H1 FY ’25, I’m pleased to announce that in H1 FY ’25 consolidated top line was INR1,014 crores, which was 13% higher YoY basis. For the H1 FY ’25, the consolidated EBITDA from the operations was INR197 crores as compared to INR174 crores in corresponding period of the previous year. That is an increase of 13% YoY. The consolidated PAT for the H1 FY ’25 was INR110 crores, 11% higher year-on-year.
I will now share the progress update on the key expansion projects. We have announced the capacity expansion of Xanthine Derivatives in Q4 of last financial year to achieve a total capacity of 9,000 metric tonnes per annum. Till now, we have been majorly focusing on non-pharma application of Xanthine Derivatives. But going forward, we plan to target the pharmaceutical market also, for which we shall file for the regulatory approval for U.S. and Europe market in this year. The expansion of semicommercial production block of USFDA Intermediate unit at Vapi has been completed and currently undergoing the trial production. With this expansion, we have bridged the gap of small and medium batch size, and we’ll be able to offer gram scale to tonne scale batch sizes in CDMO/CMO business.
The solar energy project at Akola in Maharashtra has been commissioned successfully towards the end of Q2 FY ’25, and we foresee the project to deliver good savings in terms of our energy costs in the second half of this financial year. The greenfield project at Atali for CDMO/CMO and Intermediate manufacturing is progressing well, and we expect the commissioning of the site to happen by Q4 FY ’25. However, we are optimistic about the future prospects, and we maintain our guidance to achieve the EBITDA growth of approximately 10% to 12% in FY ’25 and long-term goal of about 15% annual growth in next year.
I will now request moderator to open the forum for Q&A 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 Dhaval Shah from Girik Capital. Please go ahead.
Dhaval Shah
Yeah. Hello. Am I audible?
Rashesh C. Gogri
Yes.
Dhaval Shah
Yeah. Hello, sir. Great set of numbers and very positive commentary on the future outlook. So two questions from my side. So, first on the API and Intermediates division. Can you share your thoughts with respect to the outlook on the API industry? Your numbers suggest the business environment seems to be improving, and we are able to combat the Chinese competition also quite strongly. And secondly, the CDMO business, as you mentioned in your initial commentary, that the revenue recognition might get spillover to FY ’26. So, taking lead from last quarter’s call regarding a 25% growth on FY ’24 base, so how would you revise your guidance for the current year on the CDMO front? These are my two questions. Thank you.
Rashesh C. Gogri
Yeah, thank you. So API and Intermediate business as such, we have had good financial year this year, and I think we are seeing new products and partnerships of our customers with whom our API is linked for the final formulation, getting commercialized for the coming period.
With that we see, despite pricing pressure, overall growth in the overall business for us. And in case of CDMO/CMO, as I mentioned that these results quarterly will vary from one quarter to the other quarter, and due to long lead time, and long gestation, certain products have lead time of almost seven, eight months, and it can get up and down by a couple of months here and there. And due to which we may have a deadline of one year, which can get spilled over and stuff like that. But overall, I think, we should look at this business as a strong business for us. We have a great pipeline. And as you would have seen, we have 55 projects, with which 19 customers are — and we are hopeful to add many more in the second half of this year. And with that, our conviction is very good for this business growth. I think overall the number that we had earlier mentioned about the 25% growth, we are pushing our team to get that growth. But however, this shift by one or two months can change that number by 5% to 7% also on the lower side. Yeah.
Dhaval Shah
And just reconfirming, the CDMO number last year was [Technical Issues], right?
Rashesh C. Gogri
Last year was INR167 crores.
Dhaval Shah
INR167 crores. Okay. And sir, this lead time is because of some more steps being given to us in terms of the entire..?
Rashesh C. Gogri
Exactly. So, what has happened in certain projects, we have been doing the RSM production also and the GMP production also. So, there are five, seven stages, and then there are multiple products, ultimately culminating into two or three GMP steps. So, basically, we end up doing almost seven, eight stages in single stream. So, that’s why — but however, overall, for us it’s a great value addition to do multiple stages. It gives us a lot of control. And for the customer, they don’t have to go to different suppliers to get their KSM and get their GMP material. So overall, it’s a very positive side for the company because our engagement with the customer is not only for the GMP but also for the KSM.
Dhaval Shah
Okay. Got it. Last question on the API side. You mentioned the customers’ product has been commercialized in the market, and that’s where we are seeing this volume growth coming in. Is my understanding correct?
Rashesh C. Gogri
Yeah. So we have had in the general APIs as well as the [Indecipherable] several APIs approvals that have come through in this year and for which we are seeing strong growth. So, our number for regulated and semi-regulated markets have improved significantly over last year. And overall numbers, we are not as much bothered, because the non-reg market overall profitability is anyway lower. So, the idea is to increase more engagement with the customers on the regulated side than semi-regulated side. We also had a Brazilian inspection authority and this is a inspection which was cleared by the company with zero observation. So, that is also we have more than 11 product approved for the Brazilian market.
Dhaval Shah
Wonderful, wonderful. Great to hear that. Great, sir. Thank you very much, and wish you everyone a happy Diwali. Thank you.
Operator
Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Dhwanil Desai
Hi, good afternoon, Rashesh bhai. So, my first question is, sir, on the gross margin side. So, I think despite lower contribution from CDMO, our gross margin on standalone has improved significantly on QoQ basis. So, is it largely because of the higher API contribution or anything else that we need to read into this number?
Rashesh C. Gogri
Yeah. I think overall on the standalone basis, I think, for the first half and also for the current quarter, I think we have improved our gross — 21 percentage has become 23 percentage EBITDA margin.
Dhwanil Desai
But at gross level it has come to 55%.
Rashesh C. Gogri
And at gross level it has come to 55%. So, I think, it is because of the better product mix and overall more regulated focus that we have had in this current quarter.
Dhwanil Desai
Okay, got it. Sir, second question on Xanthine, so if you can talk a bit about how things are shaping up in the market in terms of demand, supply, any changes in the pricing, competitive intensity since we have large capex coming up on that, and how are we progressing in terms of types [Phonetic] of customers for the upcoming capacity that we have on the Xanthine side?
Rashesh C. Gogri
Yeah, in Xanthine, as you know, we have announced 9,000 metric tonne capex, and I think it is going to be in two phases. So, I think the first phase will get operationalized much faster, and then second phase, so there are two facilities which we are upgrading for achieving this capacity. So, I think in the two phase we will have more capacities faster in the medium — so more capacities will come from the current level and then further it will enhance to the 750 tonnes per month capacity. Overall, I think, the market is divided. I think, if you consider there are three distinct segments of the market. So the spot market is quite brutal, whereas the pharmaceutical market, as well as the large consumers market, where all the suppliers have a long-term understanding, remains intact. And that’s what we have mentioned on my opening remarks also that we are quite confident of our participation more and more towards these markets, and we are confident of protecting our overall margins for the caffeine business. And as I have already mentioned that we have operated the plant at near full capacity for this current quarter.
Dhwanil Desai
Okay. Got it, sir. And one more question and I’ll come back in the queue. In general, what we are hearing from a lot of CDMO players is that, due to this BIOSECURE Act, lot of traction in terms of the business development and project awards. So, for us, are we seeing any significant changes in terms of either the order value or the number of molecules that our customer is willing to now work with us on that? Any qualitative color on that because of this change in that environment?
Rashesh C. Gogri
Yeah, essentially, I think, first if you take up the entire CDMO/CMO the way in which the business progresses is that, first is the engagement with the customer, then it follows with the customer visit, then RFP process, then there will be audit process, and then there will be a initial ordering and then you will get commercial. So, these are I think, five, six stages the way in which the entire CDMO/CMO business progresses. And I think we have seen more engagement with the customers. We have seen more visits. We have seen more RFPs coming to us because of the engagement. And I think all these things have started flowing, and I think it will culminate into more better projects getting added for us in future.
Hetal Gogri Gala
From existing customer as well as new customers.
Rashesh C. Gogri
Yeah.
Dhwanil Desai
Okay. That’s very helpful. I’ll come back in the queue. Thank you.
Rashesh C. Gogri
Thank you.
Operator
Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Ankit Gupta
Thanks for the opportunity. My question was on the CDMO side.
Operator
May I request you to use your handset, please, sir.
Ankit Gupta
I’m on handset only. Am I audible now?
Operator
Yes, sir. Please go ahead.
Ankit Gupta
Yeah. So my first question was on the CDMO/CMO side. So as you were saying that we have started doing more steps — more reaction steps starting from KSM kind of steps. So, does it mean that our margins in the CMO/CDMO segments will increase further given the more reaction steps involved in the products now?
Piyush Lakhani
So, basically you can think of us like services company. [Speech Overlap]
Rashesh C. Gogri
Yeah. Basically, the margins will improve as we do more and more stages, and as we move more nearer to the final API manufacturing for the CDMO/CMO segment. So, I think the margins, key starting material to regulatory starting material to GMP to API, keep on increasing, as the number of steps also increase and also the complexity and the regulatory requirement increases overall. But, of course, the margin profile is dependent on the occupancy and the number of stages that we do. So, there could be some project, which is in KSM where we end up doing multiple stages where the margins can be higher, but it can be lower for the GMP also, if it is only one or two stages. But overall, I think, given our understanding of regulatory requirements and also our USFDA compliant facilities with the GMP compliance, I think, we are stated to do more GMP steps also and API as well in future for the end consumers.
Ankit Gupta
Sure. And sir, on the Atali side, when is the Atali expected to start operations, given we need to do validation batches and get approvals from regulatory authorities like USFDA. So when can we expect Atali to start contributing to our growth on API and CMO/CDMO side?
Rashesh C. Gogri
Yeah, I think any greenfield site like Atali, I think we will have to give a year for it to stabilize. And 2025-’26 would be a year of getting all the facilities started. So, it will be not a single day we can start everything. It will be a phased manner, we have to transfer the projects from other sites as they grow in the size. And all that process also takes time. So, overall, I think, 12 to 18 months once we start, I think next year and then a half year after that we would see Atali site getting fully operationalized and utilized. So, from today, it can be 24 months.
Operator
Thank you. Mr. Ankit Gupta, maybe request that you return to the question queue for follow-up questions, please. The next question is from the line of Deep Gandhi from ithoughtpms. Please go ahead.
Deep Gandhi
Yeah, thank you for the opportunity. Sir, first question I had was a follow-up to the previous participant’s answer. So, can you give us some quantification about how much of our Xanthine revenue comes from the spot market and how much comes from the long-term?
Rashesh C. Gogri
For the Xanthine?
Deep Gandhi
Yeah.
Rashesh C. Gogri
We are not giving this split currently.
Deep Gandhi
Okay. Sir, my next question is about the CDMO. So, we have guided for around 25%, 30% growth. It might not happen this year, but even for say next year, the current products where we have already started shipments, are those products sufficient to achieve those targets or are you also expecting some new products shipment to start for the numbers to be achieved?
Rashesh C. Gogri
Yeah, I think, next year we will have few overflow projects plus newer projects also for which we already have visibility. Because I think CDMO/CMO market there is always nine to 12 months visibility that we have for the projects, how they are going to shape up if there are bigger projects.
Deep Gandhi
Sure.
Rashesh C. Gogri
We have great conviction that we will grow the segment going forward.
Deep Gandhi
Sure. And sir, next question is on the API side. Sir, if you can broadly explain us what are the top three therapies in the API, the revenue contribution from those therapies. And also related question, what would be our revenue contribution from the top three customers in API segment?
Rashesh C. Gogri
Yeah, I think, we have antihypertensive steroids, corticosteroids, and CNS products. I think these three categories are top three categories in which we operate. And I think top three customers, we may not have too much concentration of the customer. I think, top three customer would constitute to around 20% of the API.
Hetal Gogri Gala
Yes.
Rashesh C. Gogri
20%, 25% of the — even less probably.
Hetal Gogri Gala
Yeah.
Rashesh C. Gogri
So, we will have to get back to you with those numbers. But I think, the customer concentration is not much.
Deep Gandhi
Okay, sure, sir. Thanks. I’ll join the queue.
Rashesh C. Gogri
Thank you.
Operator
Thank you. The next question is from the line of Harshal from Rashi Fincorp. Please go ahead.
Harshal Dhende
Yeah. Hello. Sir, I just wanted to ask, this CDMO/CMO business will it stabilize annually? Can we see revenue growth in the future?
Rashesh C. Gogri
Yeah, I have told the guidance which was earlier as mentioned it was 25% plus, but it can roll over to next year, and we have already told that it can come a tad lower than the earlier number because of certain projects getting forward to next year according to the current situation. But we are I think fairly confident about the stronger growth next year and years to come for this segment.
Harshal Dhende
Okay, thank you. That’s it for me.
Operator
Thank you. The next question is from the line of Tushar Vasuja from Yogya Capital. Please go ahead.
Tushar Vasuja
Hello, am I audible?
Rashesh C. Gogri
Yes.
Tushar Vasuja
Thank you for the opportunity, sir. I have a couple of questions. Sir, first one is that you mentioned that you are expanding your Xanthine capacity from 5,000 tonne per annum to 9,000 tonne per annum. So, what will be the peak revenue potential once you hit the 9,000 tonne mark?
Rashesh C. Gogri
So, I think, with the 9,000 metric tonne capacity, I think we can reach $100 million to $125 million in revenue for this segment.
Tushar Vasuja
Okay, sir. And sir, what’s the current asset turn for Xanthine?
Rashesh C. Gogri
Current asset turn, we are not providing this information generally, but asset turn will improve because this being a brownfield project, overall we see improvement in overall asset turn.
Tushar Vasuja
Okay, sir. And sir, on previous calls you mentioned that this entire capex will cost around INR150 crores. So, does this include the land cost or not?
Rashesh C. Gogri
Yeah. We are taking smaller land parcels basically which are being brownfield. These are land parcels which are near our current site, so adjacent parcel. So, I think overall land component in this may not be more than I think INR10 crores overall.
Tushar Vasuja
So this INR150 crores, yes, is inclusive of land.
Rashesh C. Gogri
Inclusive of land.
Tushar Vasuja
Okay, sir. And sir, a bit of a broader question in terms of Xanthine. So, what’s the entire capacity in the world right now, and how much of it is in China?
Rashesh C. Gogri
I think, total world capacity operational would be around 40,000, 50,000 — around 50,000 plus or minus 10,000 tonnes currently. 40,000 to 50,000 tonnes, and out of which I think that China would have 70% of the capacity operational. 70%, 75% capacity. We have 12% to 15% capacity, and then I think balance is in Europe another 8%, 10%.
Tushar Vasuja
Okay, sir. And sir, out of the 70%, 75% Chinese capacity, how much do you reckon gets exported? What’s the internal consumption of China for this?
Rashesh C. Gogri
I think internal consumption numbers we may not have, but I think out of which my gut feeling is around 70% should get exported, 70%, 75%. So, 50%, 55% of the total capacity from China global gets exported.
Tushar Vasuja
Okay, sir. And sir, last question, how much of the price is reduced for Xanthine and its raw materials since the peak and how far away are they from the lowest they have ever been?
Rashesh C. Gogri
So, how many years you want me to go back? Because I have seen Xanthine for last 20 years. Of course, the lowest prices that I have seen, it went down to $6 in past. Yeah. So, currently, of course, they are much better than those numbers.
Tushar Vasuja
Say, last three, two years?
Rashesh C. Gogri
No, last three, four years the prices have been much higher. They have been more than double of that number.
Tushar Vasuja
Yes. Sure, sir.
Rashesh C. Gogri
Yeah.
Tushar Vasuja
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Nitesh Dutt from Burman Capital. Please go ahead.
Nitesh Dutt
Hi. sir, thanks for the opportunity. First question, in H1, we are at INR190 crores EBITDA. So, to achieve the 10% to 12% growth guidance, we would need to have roughly INR230 crores EBITDA in H2. So, just checking if we are on track for that guidance, especially considering that CDMO/CMO some part of it might get pushed out in the next year.
Rashesh C. Gogri
Yeah, we are on track. That’s why we reaffirmed our growth numbers in my speech.
Nitesh Dutt
Got it. Second question, capex for H2 and FY ’26 and also related to it, when do you expect the incremental Xanthine capacity to get operational?
Rashesh C. Gogri
I think incremental Xanthine capacity will get operational by end of next fiscal. So, we will have, I think the entire project should complete by Q3 of next financial year. And of course, it may take another six, eight months to completely — or two, three quarters for us to completely operationalize. So, I think, the project is divided in two phases, and I think this final phase will get over by Q3, and then we will have two, three quarters for operating the capacity to a significant level. And I think, overall we have invested, Piyush…
Piyush Lakhani
In H1, we have invested INR170 crores in tangible assets and I think in H2 we might spend additional INR250 crores.
Rashesh C. Gogri
INR250 crores plus.
Piyush Lakhani
And for next year also we will have another — first half, we will do another INR150 crores spend.
Nitesh Dutt
H1 of FY ’26, another INR150 crores, that’s right?
Piyush Lakhani
Yes.
Nitesh Dutt
Thanks. I’ll come back in queue.
Piyush Lakhani
There’s no change in the overall plan of spending. [Speech Overlap] INR550 crores to INR600 crores.
Nitesh Dutt
Got it. Thank you.
Operator
Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Dhwanil Desai
Thanks for the opportunity again. Sir, one question on capex. So, once we are done with this Atali and Xanthine expansion, how do we let our capex spend — would we first prefer to stabilize and ramp up the capacity before doing next leg of capex how do we think of it?
Rashesh C. Gogri
Yeah. So as you know, company operates in three segments. So, API and Intermediate, out of which the API site is at Tarapur. In Tarapur, we have space for brownfield expansion for the API capacity, and I think we see in future good demand of anti-cancer products as well as the API. So, we are already on drawing board to further debottleneck these capacities and put up some capacity there. Whereas Atali will largely concentrate on a mix of intermediate as well as the CDMO/CMO. And in this segment, it’s a large project with 80 acres space. I think we are just starting phase 1. I think that project will have multiple phases. So, with the phase 1, we will have 60 reactors operationalized with 450 plus KL capacity. And I think there we have scope to do — add every year one or two blocks of 250, 300 KL going forward, depending on the need of the customer and how we are ramping up our CDMO/CMO business. And in case of Xanthine I think, we will be fully operationalizing the 9,000 I think and further which we don’t foresee any immediate action for next few years. We will keep on considering — reviewing our strategy of caffeine. And then, if there need be, we could think about any future expansion. But currently I don’t feel there would be any need for that particular segment.
Dhwanil Desai
Okay. Got it, sir. And one more question, sir. Slightly larger or longer-term question. But this 15% target on EBITDA growth for next three years, sir, if I look at segment wise, every segment is you expect [Phonetic] to grow at much faster than that. And I don’t know about the API part, but at least Xanthine and CDMO. And CDMO is a much better margin segment, and you’re focusing more on API on the regulated market. So, I am unable to get this, how we will not surpass the number that we are projecting, 15%. I’m not able to add up the math.
Rashesh C. Gogri
Yeah, I think, next few years, I think two, three, four years, the numbers we want to be bit cautious on whatever we give the outlook. So, I think this is a outlook that we are pretty sure that we should be able to achieve with the current business plan that we have and surpass it in future. As you rightly mentioned that if we add up the number, the number can look bigger, but we don’t want to overcommit and underachieve.
Dhwanil Desai
Understood, sir. Thanks. That’s it for me.
Operator
Thank you. The next question is from the line of Advait [Phonetic], who’s an investor. Please go ahead.
Advait
Hi, is my voice audible?
Operator
Yes sir. Please go ahead.
Advait
Sir, just one question from my side. When I was looking at the inventory days and the absolute value of inventory, it has significantly increased, which to an extent has also weighed on your working capital. Is this something that is characteristic for this industry, or is this specific to this quarter? If you could just highlight that, that will be helpful. Thank you.
Rashesh C. Gogri
Yeah. I think as we earlier mentioned that CDMO/CMO [Technical Issues] certain projects which have long gestation, and I think it is result of that we have a significant inventory because we have a sizable order which will get dispatched in one quarter, so that inventory can come down in that quarter. So, that is the reason that we have this inventory built up. But I think, looking at overall characteristic of CDMO/CMO business in future also, and our appetite of doing multistage synthesis, think, we will have this inventory fluctuating to higher number and lower number. And once we have every quarter stabilized number, I think, then we will stabilize at some inventory. But the numbers will remain high, looking at our overall appetite for this multistage synthesis where we do the regulatory starting material also, GMP also, and sometimes we will end up doing API also. So, with that, we will have that situation.
Hetal Gogri Gala
And our own APIs as well.
Rashesh C. Gogri
And our own API also…
Hetal Gogri Gala
[Speech Overlap] intermediates in-house.
Rashesh C. Gogri
Yeah.
Advait
Thank you. Just one last question. If you could just give us a view of the gross margin profile by segment, that will just be helpful. Thank you. That’s it from my side.
Rashesh C. Gogri
That information currently we are not sharing.
Advait
Okay. Thanks.
Operator
Thank you. The next question is from the line of Neha from Abakkus. Please go ahead.
Neha Raichura
Yeah, hi. Thanks for the opportunity. Am I audible?
Rashesh C. Gogri
Yes.
Neha Raichura
Yeah. So, on the Xanthine part, I wanted to understand that how the average realization have changed versus last quarter in the spot market and the contract market.
Rashesh C. Gogri
I think we are not giving absolute numbers of this. But I think overall the spot market has come down as we compare to last year. I think both the markets — spot market has come down more than the contracted market, and I think we have also reduced our raw material cost. So, I think that’s how we are able to protect our margins in this segment. So, that is what I can tell about the Xanthine. We are not dwelling over absolute numbers of either of the segments.
Hetal Gogri Gala
We are continuously working on cost improvements. That will also come, like with biogas [Phonetic] or better efficient boiler and with solar power plant, we will have the cost reduced in coming quarters. That will also help.
Neha Raichura
Okay. And in terms of volume growth, if you can speak about for the current quarter for Xanthine?
Rashesh C. Gogri
Yeah. I think, volume growth current quarter, I think, we had a little bit of muted deliveries for one customer. But barring that, I think, overall the production did happen at rated capacity. And I think, that will continue to happen. As we have announced the future expansion, I think, currently, we are fully utilizing our capacity, and I think there could be one month of higher inventory. But I think, overall, we are quite confident of pushing the entire production out in the market of Xanthine.
Neha Raichura
Okay. And also on the CDMO front, in H1 FY ’25, we have almost done about INR50 crores for the CDMO, and we are — although we have reduced our overall guidance for CDMO business from 25% plus to let’s say about 20%. So, in that case, about INR150 crores can come in H2 FY ’25. Is that understanding correct?
Rashesh C. Gogri
Yeah. So we are not dwelling on the absolute number here. You can get to those numbers yourself. But, I think, we will have significant deliveries happening in H2. And anyway, from whatever our earlier guidance and today’s discussion that we had, I think those numbers are possible.
Neha Raichura
Okay. And sir, when you mentioned about the lead time being higher, does it mean that, since there are various steps involved, in a particular step, it took more time, and that’s why that has pushed the overall timeline for the project?
Rashesh C. Gogri
So, there have been instances where there was extension because of these projects. There have been some projects which have been a little bit pushed down. So, it is, I think, two such issues which have overall impacted the numbers on the CDMO/CMO side.
Neha Raichura
And sir, certain projects being pushed down, as in like they are being pushed…
Rashesh C. Gogri
They have been delayed by one or two quarters by the customer because of overall their inventory management and whatever the– for the commercially running products, basically.
Neha Raichura
Okay, understood. Thank you.
Operator
Thank you. The next question is from the line of Rupesh Tatiya from Intelsense Capital. Please go ahead.
Rupesh Tatiya
Hello, sir. Thank you for the opportunity. Am I audible?
Rashesh C. Gogri
Yes, please.
Rupesh Tatiya
Sir, I understand you don’t want to give gross margin by segment, but can you maybe rank them between one to three, which is the highest gross margin, which is the lowest gross margin between our three divisions?
Rashesh C. Gogri
Yeah. So, highest would be CDMO/CMO, then API, and then Xanthine. And overall gross margin this time was 65% [Phonetic] gross margin. So, they range between 40% to, I think 65% — 35% to 65%?
Rupesh Tatiya
No, not 35%.
Rashesh C. Gogri
No, across all the segments.
Piyush Lakhani
Yeah, 35% to 65%.
Rupesh Tatiya
Okay, sir. And then for other question, in CDMO, is all of our CDMO project are with innovator products, basically, products which are under patent or under development, or is there some generic CDMO also there?
Rashesh C. Gogri
No, we are working with 19 customers, and the projects that we do, almost 90% of them are with the innovator. So, we have, I think, couple of — one or two generic, very small value.
Hetal Gogri Gala
[Indecipherable].
Rupesh Tatiya
Sorry, I didn’t get that, ma’am. Sorry?
Rashesh C. Gogri
Yeah. No, So we have largely innovator work that we do.
Rupesh Tatiya
And maybe can you tell me how many of them are phase 3, and how many are commercial, some rough idea?
Rashesh C. Gogri
So, we have 28 of them which have been commercial projects and 27 are developmental projects. So, we are working on 55 projects with 19 customers.
Rupesh Tatiya
So, sir, then my question is, with 28 projects, our commercial revenue is actually very small. So, is it like we are like a second source supplier in the innovator product for these commercial products?
Rashesh C. Gogri
So, if you would see in last couple of years, we have built up the pipeline. And with this pipeline, the innovator doesn’t make the product every year. They have alternate year production and stuff like that. First year they will take initial validation work, and then they will give certain quantity, and then the third campaign they will give us more quantity. So, we are in that progress of the cycle of management of the supplier by the innovator. So, once we are fully onboarded, I think, we expect more stable revenue from each and every projects that we have.
Rupesh Tatiya
Sir, maybe the other way to ask this is…
Rashesh C. Gogri
Yeah, let me just add the way in which we classify is that 28 projects are commercially — so the products have been launched commercially by the customers in the market, whereas 27 projects are in various phases, phase one to three of the clinical phase. So, in the 28 projects that we are doing, we have certain projects where we have just entered, we have certain projects where we have supplied validation quantities, we have certain projects where we have done only one-time supply, and certain projects we have supplied in one year, one year there was break, and now it’s the third time that customer would buy. So, there are several such examples of how this business operates.
Rupesh Tatiya
So, then the other way to ask this question, sir, is out of these 28 commercial molecules or projects, in how many we are the single source supplier?
Rashesh C. Gogri
No, we may not be single sources in any of them. So, innovators are quite — they have supply chain strategy, and they never have single source.
Rupesh Tatiya
And then maybe the final question is in this commercial drug development, can you give some idea about the total revenue potential of end customer in the projects? Is it like $1 billion combined, each project is like $50 million, or is there some molecules which can go on and become very, very large?
Rashesh C. Gogri
Yeah. So, with the current visibility that we have and the numbers that we have from the customers, I think there is potential of these projects becoming quite large also in few cases. Absolute number can vary, but I think a range could be $25 million to $50 million also possible, if the product gets matured, and we are able to satisfy the customers’ need and service the customer in a proper way, those potential projects are also there in our pipeline.
Rupesh Tatiya
Okay, sir. Thank you. Thank you for answering my question. That was very helpful.
Operator
Thank you. The next question is from the line of Deep Gandhi from ithoughtpms. Please go ahead.
Deep Gandhi
Yes, thanks for the follow-up opportunity. Sir, my question is again on the Xanthine. So, you mentioned that once you reach the full utilization for 9,000 tonnes, the potential revenue could be around INR1,000 crores or $125 million. So, sir, currently, when you are at, say, full utilization with 5,000 tonnes capacity, you’re already doing INR800 crores. And if I say, assume even 20% drop in realizations from here, the revenue should be around INR1,200 crores. So, I’m not able to understand this mismatch. And if you can explain, are you expecting even higher drop in realizations than 20%, or what’s the mismatch here?
Rashesh C. Gogri
Yeah, I think, those numbers are all speculative numbers. So, I think the number range I would like to widen from $100 million to $150 million, anything can happen with the 9,000 metric tonnes instead of $125 million. It can go higher also.
Deep Gandhi
Okay. Thank you.
Operator
Thank you. The next question is from the line of Nitesh Dutt with Burman Capital. Please go ahead.
Nitesh Dutt
Hi. Sir, my question is, in FY ’26 our Xanthine capacities, the expansion would not be coming on stream. Similarly, Atali would not be fully ramped up. So, for FY ’26 which segment will do the heavy lifting in terms of volume growth? Or do you expect your product mix, pricing, and a little bit of CDMO/CMO to drive the growth? And related to it, do you expect that FY ’27 will be doing the bulk of heavy lifting in terms of achieving your 15% CAGR guidance, or FY ’26 can also see a similar growth?
Rashesh C. Gogri
Yeah, I think, FY ’27 would be the year where I think bulk of the capacity will get operationalized. And I think, FY ’26 definitely, I think as you said product mix. But, of course, in phase 1 of our Xanthine will get operationalized in the second half of next year and which will be utilized. And then by the end of the year we’ll have full operationalization of Xanthine. But Atali, we expect to fill it with the intermediate operations for the generic industry also to start with, so that we can utilize the capacity. But I think, as you rightly mentioned, more contribution and meaningful margins can be driven only in the ’27 for these two expansions that we have done.
Nitesh Dutt
Sir, any qualitative guidance you would have or any idea about FY ’26 numbers similar to how you have separated it for FY ’25?
Rashesh C. Gogri
I think, we would give that guidance in Q4 call, probably once we have the budget and everything prepared. Currently, of course, we have broader numbers. I think, API segment with the capacities getting utilized, I think, there we expect the growth to come because the facility, I think, the expansion was done a couple of years back, and those capacities are getting occupied, and then we are also debottlenecking one or two lines to enhance the capacity. So that facility can do some increase in overall production.
Nitesh Dutt
Got it. Thanks for the response.
Operator
Thank you. The next question is from the line of Tushar Vasuja from Yogya Capital. Please go ahead.
Tushar Vasuja
Thank you for the follow-up opportunity, sir. Sir, you said that you would focus more on the pharma side of Xanthine now. So, how are the realizations in margin for pharmaceutical Xanthine as compared to beverage?
Rashesh C. Gogri
Similar or better? So, in pharma side, I think, we will focus on the regulated markets, and I think the overall pricing that we expect from this segment being regulated will be better.
Tushar Vasuja
Okay, sir. And sir, you said that you’ll apply for regulatory approvals in the coming quarters. So, what is the current distribution for beverages and pharma, and how will it change once you get the approvals?
Rashesh C. Gogri
See, currently we had been focusing more on beverages and spot market, but now the pharma market, eventually we expect, once we ramp up the capacity, I think 20%, 25% of our overall capacity, we want to push to the pharma segment, 20% in the regulated space and 10% in unregulated space. So, with that I think, overall, it will stabilize the margin profile also.
Tushar Vasuja
Okay, sir. And sir, what will be the timeline for you to get all the required approvals?
Rashesh C. Gogri
No, so that’s why, basically we are doing the brownfield expansion at the current site. So, as we mentioned on the call during my speech that we will file later in the current fiscal only the USFDA DMF as well as the EUGMP CEP application. So, I think, we expect both approvals and the triggering happen in next year.
Tushar Vasuja
Okay, sir. Thank you.
Rashesh C. Gogri
Thank you.
Operator
Thank you. Our next question is from the line of Advait [Phonetic], who is an investor. Please go ahead.
Advait
Thank you for the follow-up. Just one thing is, if you could just give a perspective about what’s happening from a pricing perspective versus last quarter and same quarter last year as far as Xanthine is concerned. Because I think in the last concall you had mentioned about there being pricing pressure given the supply. If you could just give us a perspective on that, that would be helpful.
Rashesh C. Gogri
I think, as we have mentioned, that the spot market has deteriorated because of the excess Chinese capacity, and unregulated players in China have been dumping the product in the market. Whereas overall, I think, large contracts are also under pressure, but margins are intact because they definitely follow the raw material cost model and the overall the way in which the pricing happens is largely basis cost. Of course, it’s a negotiated number, but still I think there is some logic there the way in which — the strategy that we have is that, how do we go away more from spot and move towards more long-term market and regulated market, which can give us stable margins, and we don’t have to fight on the spot side.
Advait
Thank you, sir. And just one last question from my side. Primarily within the Xanthine segment, do you cater to the local Indian customers, or it’s primarily exports? That’s the other thing.
Rashesh C. Gogri
Yeah, we will cater to all customers. I think, in India also there is regulated market customers. There are a lot of paracetamol caffeine combination API formulation being manufactured in India and getting exported worldwide in Europe as well as the U.S. market. So, we will definitely target all regulated markets. There are marquee customers also in India and globally, large multinationals who also have OTC presence across the world, and they also require regulated DMFs and CEPs and stuff like that. So, we will be catering to all those markets. And that catering can start in the current half only because it’s, of course, a couple of quarter qualifications, other approvals. And by that time our capacities will also come onboard. So, we will be able to start supplies as soon as we have the capacity.
Advait
Got it. And presently the exports, are they more than 50% as far as Xanthine is concerned, specific to Xanthine segment, or is it…?
Rashesh C. Gogri
Yeah.
Piyush Lakhani
More than 50% is export.
Advait
Perfect. Thank you, sir. Thank you so much for your time for answering the question.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. As there are no further questions, I would now like to hand the conference over to the management for closing remarks.
Rashesh C. Gogri
Yeah, I would like to thank all of you for joining our call and Happy Diwali. Thank you.
Operator
[Operator Closing Remarks]