AETHER INDUSTRIES LTD (AETHER) Q3 FY23 Earnings Concall Transcript

AETHER INDUSTRIES LTD (NSE: AETHER) Q3 FY23 Earnings Concall dated Jan. 20, 2023

Corporate Participants:

Ravi Bhojani — Lead Investor Relations

Aman Ashvin Desai — Director

Faiz Nagariya — Chief Financial Officer

Rohan Desai — Director

Aman Desai — Promoter and Whole Time Director

Ashwin Desai — Chief Executive Officer

Analysts:

Nilesh Ghuge — HDFC Securities — Analyst

Rohan Gupta — Nuvama Wealth Management — Analyst

Ranveer Singh — Edelweiss Wealth Management — Analyst

Yash Shah — Investec — Analyst

Kalpit Narvekar — Allianz Global Investors — Analyst

Rohit Nagraj — Centrum Broking. — Analyst

Sabyasachi Mukerji — Centrum PMS — Analyst

Rohit — Progressive Shares — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Aether Industries Limited Q3 FY23 Earnings Conference Call hosted by HDFC Securities Limited. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nilesh Ghuge. Thank you and over to you sir.

Nilesh Ghuge — HDFC Securities — Analyst

Thank you, Michelle. Good afternoon all. On behalf of HDFC Securities. I welcome everyone to this Aether Industries conference call to discuss the results for the quarter and nine months ended December 2022. From Aether Industries, we have with us today, Dr. Aman Desai, Promoter and Whole-Time Director; Mr. Rohan Desai, Promoter and Whole-Time Director; and Mr. Faiz Nagariya, Chief Financial Officer.

Without further ado, I will now hand over the floor Mr. Ravi Bhojani, Lead Investor Relations at Aether Industries, to begin with the earning call for Q3 and Nine-Month FY 23. Over to you, Ravi.

Ravi Bhojani — Lead Investor Relations

Good afternoon, everyone. And thank you Nilesh for the introduction today on January 20, 2023, our Board has approved the result for the third-quarter and nine months of fiscal year ’23, which ended on December 31, 2022. And we have released the same on stock exchanges as well as updated on the website for the review.

Please note that this conference call is being recorded and the transcript of the same will be made available on the website of Aether and exchanges. Please also note that the audio of the conference call is copyright material of Aether and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company.

Let me draw your attention to the fact on the call. Our discussion will include certain forward-looking statement which are predictions, projections or other estimates about future events. These estimates reflect management’s current expectation on future performance of the company. Please note that this estimate involves several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied.

Aether Industries or its officials does not take any obligation to publicly update any forward-looking statements whether as a result of future events or otherwise. Dr. Aman will begin the call by sharing the ongoing expansions and strategy of the company, and Mr. Faiz will cover the financial highlights for the period under review, and Mr. Rohan will talk on high-level overview of Aether’s business.

Now, I hand over the call to Dr. Aman Desai to share the update. Over to you Dr. Aman.

Aman Ashvin Desai — Director

Yes. Thank you, Ravi. Good afternoon, everybody. I hope everybody is doing well and very happy to connect with everybody to discuss the performance of our company, Aether Industries, for the third-quarter of the current fiscal year 2022-23. We have recently launched our site 3, which is our new greenfield manufacturing site for new products. Trial runs have already started in this month and commercial production will also begin in the current month. We will stepwise start the production of five new advanced pharmaceutical intermediates in this new site 3. All five products will be manufactured for the first time in India by Aether.

We also have recently got the position of site 3 plus, this is a plot of land adjacent to site3, where we will in the future be launching three new products for agrochemicals. As a result of this position of an additional land parcel, we have thereby significantly increased the size of our site 3, which is very important.

The three new products of agrochemicals that we will be launching in the site three-plus in the future are in addition to the five new products which we are currently launching in the site 3. The land parcel for the next greenfield manufacturing site, which is site 4 has also been increased by us from 8,000 square meters to 18,000 square meters to more than double.

Documentation for the position of all the plot and the amalgamation of the two plots of going on. Our plants, therefore, for the next two greenfield manufacturing site, i.e. the aforementioned site 4 in Suraj. And the site 5in are both simultaneously advancing well and various activities are going on in this regard towards the planning, including civil construction, which is initiatives in nature product selection, regulatory approval and overall design of this two site.

The reason for the large capex, of course, is primarily on the back of robust inquiry and opportunities and our own robust pipeline of in-house molecules that we have selected ourselves, which we have been receiving as well from various customers in the CRAMS business model, and we remain confident in our ability to grab this opportunity and work with world-class corporate of sectors in the CRAMS business models, as well as continue with our own in-house pipeline of molecules that reflect that we will manufacture the product for the first time in India.

The growth in our CRAMS business model is also continuously on the rise in the current financial year. And the demand for the products and contract manufacturing are also increasing quarter-on-quarter. We have also recently made a few public announcements in this regard. This reflects this continuous growth. We remain upbeat and positive on the business model for future outlook.

As in the last quarter, we continue to see the significant upward trend in inquiries, customer addition, previous contract renewal and actual business being translated into revenues in both business models of CRAMS which leads into contract and exclusive manufacturing.

We added several new customers in this quarter, which are three in plans and seven in large manufacturing, a total of 10 new customers added in this quarter. R&D expenditure is significant. And for the nine month — for the current fiscal year this stands at 7.7% of our revenues. This includes revenue plus capital expenditures.

The strength of the R&D team has also increased from 164 in March of 2022 to currently 207 in December 2022 with four new senior scientists, including three PhD project leader who have already joined us in that last quarter.

Our three business models continue to be robust and we are seeing growth in all business models, large manufacturing business model contribution will increase by the end of this fiscal year as the new products are being launched in site 3 which are of high-value add with existing high-demand in the market. The pipeline in R&D remain pack for future molecules with plan to launch this molecule in the upcoming years in the new site 4 and site 5 greenfield manufacturing site, as well as the site 3 plant.

So with that, I will now request our CFO, Faiz Nagariya to share the financial highlights of quarter three of the current fiscal year. Faiz, over to you.

Faiz Nagariya — Chief Financial Officer

Thank you, Dr. Aman. Good afternoon all of you and I hope you all are doing great. I take this pleasure in presenting the quarter three results of the company, which have been very good for us. The company has recorded a total revenue of INR1,705 million in Q3 of financial year ’23, which has shown — which is a growth of 16% compared to INR1,466 million in quarter two of the same financial year, and it is around 11% growth compared with the last year same quarter.

We are seeing growth in all the business segments in the quarter as already informed by Dr. Aman. The company has earned and healthy EBITDA of INR507 million, which is 29.7% of the revenues in quarter three of financial year ’23, which has grown by 17% compared to the last quarter of financial year ’23 and by 22% compared to quarter three of financial year ’22. The PAT of the company has been also increased because of this EBITDA and good revenues. It is INR350 million in quarter three financial year ’23, which has increased by 38% as compared to the last year’s quarter three of financial year ’22 and 29% as compared to the last quarter of the current financial year.

The total revenues of INR4,833 million in the financial year — nine months financial year ’23, which is 8% increase compared to the nine months of last year. The capex for the site 3 greenfield project is almost completed, and we are now planning for the capex for the site 3 plus, which will be around INR600 million to INR700 million for the launch of the three new products, which has been referred by Dr. Aman.

This will be funded partly from under accruals and partly from the term loans from the banks. Overall, our successful quarters for Aether Industries and for the investors to be sharing for after the first two quarters being almost flat.

Now I request Mr. Rohan Desai to talk high-level of overview of the sales results. Thank you.

Rohan Desai — Director

Thank you, Faiz, for the financial highlights. In terms of the demand, we have seen a good growth in quarter three compared to the first-half of the financial year. We are seeing strong demand for our products and expect the demand growth to continue and we are not seeing any signs of slowdown from our customers in the West.

For our products, the end prices have been fairly stable across the board. On the raw-material front, we are seeing the price getting stabilized, which relate to our margins going-forward.

As mentioned by Aman, we have been seeing a great traction from customers based out of Europe and USA, especially for the CRAMS business. With the gas crisis in Europe, we are seeing significant increase in the opportunities from the CRAMS business. This is to a certain extent being demonstrated by our recent announcements with respect to the partnership with Polaroid Group and an increase in business from our existing agrochemical customers.

Coming to our three independent business models. In nine-month ending of financial year 2022 to 2023, we have seen 50% of our total top line coming from large-scale manufacturing business model. Where we anticipate good future growth due to the launch of new products in the greenfield manufacturing site 3. 13% of our total top line comes out of contract research and manufacturing services business model and our third business model which is contract plus exclusive manufacturing contributed to 35% of our total top line.

Our endeavor is to achieve balance between large-scale manufacturing business model, CRAMS an contract-classss accessory manufacturing, so that we are not dependent on any single business model. Our sales mix stands as pharma 42%, agro 36%, material science 5%, high-performance photography 6%, coatings 3% and others including oil and gas as 7%. Our exports stands at 70%, which includes exports to SEZ and EOU units in India and domestic sales stands at 30%.

Exports outside the geography of India accounted for 31% of our total revenues from operations. We believe that with the launch of new projects — products, building up new capabilities, seeing the increasing demand from multi clients across sectors and geographies and renewal of existing contracts, we are settled to deliver group growth in the going forward. We are excited about the growth at [Indecipherable]. And with the commencement of the capex at site 4 and site 5, we are confident of the new product launches which we have in our pipeline.

Thank you and back to you Ravi.

Ravi Bhojani — Lead Investor Relations

Thank you, Rohan. We would request the moderator to open the line for question-and-answer.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions]. We have the first question from the line of Rohan Gupta from Nuvama Wealth Management. Please go ahead.

Rohan Gupta — Nuvama Wealth Management — Analyst

Hi, sir. Good afternoon and thanks for the opportunity and congratulations on good pickup in the current quarterly results. Sir, few questions from my side. I’ll restrict myself at two initially. So one is that, you mentioned in your opening comment that you are seeing a good traction in CRAMS business is specially from Europe. When they are struggling with energy crisis. So how do you see that the customers are approaching you are they looking for the replacement or they are looking at as an alternative for you for the high-cost energy which they are experiencing right now?

And you have also mentioned that you do not see any kind of slowdown in European customers demand, while we see that the European market are going through some recessionary pressures. So, why you think that it is not impacting our business? So that is first set of questions.

Aman Desai — Promoter and Whole Time Director

Yeah. So in terms of traction in CRAMS vis a vis the energy crisis in Europe, we have actually seen an increased level of — as I had mentioned in the last quarter as well, we are seeing increased inquiries come in. These are a mix of the customers trying to shut down some of their facilities or reduce the production and the energy consumption in their facilities are optimized the energy consumption in their facilities and partner with other partners worldwide including Aether in India for picking-up some of these opportunities.

In addition to the — so in terms of the existing properties that are happening in these customers, we are seeing a lot of these positive towards partners like Aether. And in terms of newer opportunity and newer pipeline and newer launch molecules of these various multinational customers that we are working with at the highest-level the crossing the industry spectrum.

The decision to partner versus manufacturing in-house is much more now biased towards the decision to partner with people in with reliable partners in India where we are already adopted partner in their pipeline in for the last many years and so. So that’s what’s happening.

In terms of the recession happening in Europe versus that not affecting us at Aether. We are not seeing any effects of recession in our demand and the inquiries and the sales and the revenues. The pharmaceutical global industry was in a slight slowdown over the last couple of quarters. That has actually picked up now including inquiries from Europe has picked up in the pharma industry and the agro and the oil and gas and the material sciences sectors that we engage in various customers.

We’ve got very innovative customers who have launches rolling-off and pipeline which is back, and that’s the current recession in Europe has made no difference in that pipeline and that large programs that these customers have. So hopefully I answered your question, Rohan?

Rohan Gupta — Nuvama Wealth Management — Analyst

Yeah, Aman. Thanks. And just second question is on the gross margin expansion. So if I heard you rightly, you mentioned there definitely the end product pricing scenario is still remain very stable, where the customer pricing remains took are holding on, while the raw-material prices are experiencing and that they are softening. So that leads to gross margin expansion. Am I right? So we — do we see the margin expanding over next one or two quarters?

Aman Desai — Promoter and Whole Time Director

Sure. I will take that question, Rohan, for you. So the growth that is the raw-material prices are reducing the end-product prices will not reduced to that extent. So you’ll see some expansion which will happen, but the correction of the prices will also happen at the same time on the selling side. So if you see our positioning on all the products, we have not increased the prices on very-high level as such also, so it will not affect the gross margins. Other gross margins will improve to a certain extent. So, you’re right. But it will be at a certain extent level only.

Rohan Gupta — Nuvama Wealth Management — Analyst

Okay. Sir, just last from my side, and that is basically commissioning of the third unit. So how we are placed in terms of ramping-up that facility. And in terms of the customer acquisition or the product approval from the customer. So how quickly you see that the ramp-up of the new unit can happen and what can be the revenue potential?

Aman Desai — Promoter and Whole Time Director

All right. I’ll take that question. Also, Rohan, again. The full commissioning all the streams of that site 3 would be online by March end, but — what we are targeting for. And the revenue potential had maturity from this site 3 would be close to around INR400 crores, that is [4,000] in Indian rupees.

Rohan Gupta — Nuvama Wealth Management — Analyst

And in what timeframe you think that the full potential will be achieved in — what time period?

Aman Desai — Promoter and Whole Time Director

Two years time.

Rohan Gupta — Nuvama Wealth Management — Analyst

Okay. That’s it from my side. I’ll come back in queue for follow-up question. Thank you.

Aman Desai — Promoter and Whole Time Director

Thank you, Rohan.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Ranveer Singh from Edelweiss Wealth Management. Please go ahead.

Ranveer Singh — Edelweiss Wealth Management — Analyst

Yeah. Hi, thanks for taking my question. I’m Ranveer from [Edelweiss]. So, this question related to EBITDA. I see on Q-on-Q basis, we have some INR27 crore of incremental fee and EBITDA has been INR10 crore incremental EBITDA we are having this quarter. I see that most of revenue has gone up to contract manufacturing or exclusive manufacturing site. I think INR20 crores kind of revenue has gone up in the year. So, just wanted to understand that, over the EBITDA margin rightly where is between large-scale manufacturing and exclusive manufacturing or it is similar to that?

Faiz Nagariya — Chief Financial Officer

From margins, where is different between the large-scale manufacturing and CRAMS business model. Contract and exclusive manufacturing and large-scale manufacturing has a same — almost same EBITDA margins at the moment.

Ranveer Singh — Edelweiss Wealth Management — Analyst

Okay. So, what is the last year in FY ’22, our large-scale manufacturing has some 67% of revenue. Now this has come down to 50% of revenue. So, that when a CRAMS, [Indecipherable] and exclusive manufacturing is going up, but our EBITDA margins have been flattish and 29%. So that we want to understand even going forward basis, I believe ratio is going to be likewise or if you could guide here that now the proportion of business segment is going to be next two years? And how is our EBITDA or what kind of EBITDA we should expect if we change in product mix?

Faiz Nagariya — Chief Financial Officer

So, thank you, Ranveer, that’s great point. So we were — in the past two quarters, we were — as the prices all went into uptrend, we were taking a hit in the large-scale manufacturing business model. And the CRAMS business model was intact and it was increasing, hence the EBITDA margins was in the flattish zone. Now that the raw material prices and the trend is improving and coming back to the original levels, we will see the EBITDA margins go to the north of 30% from the next quarter onwards.

Ranveer Singh — Edelweiss Wealth Management — Analyst

Okay. Nice. So there has been improvement because it’s product mix mainly, assuming that the cost element which has gone up significantly in tough quarter. It reminds that this level when this can be have that 1% improvement in the EBITDA.

Faiz Nagariya — Chief Financial Officer

So, as large-scale manufacture — all the raw materials are getting back to its normal level, the large-scale manufacturing business models, EBITDA margins will come back again to its normal zone, which will improve the margins — overall margins of the company also.

Ranveer Singh — Edelweiss Wealth Management — Analyst

I will request you to energy side for the cost, so energy cost I believe renewals that [Indecipherable] from level or [Indecipherable]

Faiz Nagariya — Chief Financial Officer

Energy cost is already we have and we are suffering with the energy cost since last nine months or more, I believe so. And so it is already been incorporated into the costings of all the products as we speak. So if there is a improvement in the energy cost, we will see still better improvement in the margins.

Ranveer Singh — Edelweiss Wealth Management — Analyst

Okay. Okay, that makes sense. Thank you. This is all. I may have some question, I’ll come back in end. Thanks, thanks a lot.

Ashwin Desai — Chief Executive Officer

Thank you, Ranveer.

Operator

We have the next question from the line of Amey Zalke [Phonetic] from three 3P Investments. Please go ahead.

Unidentified Participant — — Analyst

Yeah, thanks for taking my question. First question I have is basically on site 3. You’ve said that there will be five products which will get commercialized with this site from March onwards. Is it possible for you to give some color on the end market of these products, whether we were or the market is already established and is basically, maybe manufacturing which happening from the older supplier to US or these newer products were very equal ramp-up slowly over a period of time. The nature of the end-market products if you can explain?

And similarly, I also wanted to understand our segment called last still manufacturing in the CRAMS site. Also, what is the mix where here in this segment? I understand which supplier to be innovators but are with products where the patterns have already expired even micro cycle products, these are the new novel products which have just been launched over last few years, if you can explain a bit with more on it? Thank you.

Aman Desai — Promoter and Whole Time Director

Sorry, I didn’t take the first question Amey for you that is site 3 end up with five products and we have applications and the markets — end-markets and the customers. And Aman, can talk more on the contracts exclusive manufacturing on the later stage.

So Site 3, we’ll be completely online by March end and there’ll be five products, the applications would be in the pharmaceutical segment of chemical industry and [Indecipherable] applications would be carbamazepine, oxcarbazepine, ambroxol intermediate and dolutegravir intermediate, respectively, because these are the five intermediates which goes into this four products.

The total market known and being imported into India for the five products is INR1,200 crores, that is INR12,000 million. And the customers fairly — our Indian pharmaceutical companies the big company out in India, and then to a certain ex-factor, there are companies in Europe also and in Japan also for this pharmaceutical intermediates which we are planning to sell.

We have gestation period as of today because most of the companies have completed the validation of — taken the validation quantities and have already — we have also commercialized two products in the last two quarters out of these five products. And we are already selling that products through — from the site 2.

So Site 3 will not have much gestation period on the existing customers and the new customers will also have already audited our sites earlier and they are a existing customer for us. So we’ll not have any issues on the gestation period for these five products. Did I answer all your questions, Amey?

Unidentified Participant — — Analyst

Yeah. Just one supplementary question to this. So when you said, [Indecipherable] I assume that it would go to — the end market would it be the tender business, right? Or you think it will also go to the regulated market?

Aman Desai — Promoter and Whole Time Director

No. So we do not — we are not manufacturing APIs, we are manufacturing intermediate which goes into APIs.

Unidentified Participant — — Analyst

Right.

Aman Desai — Promoter and Whole Time Director

So it would be regulated market and RWA market both. So [Indecipherable] numbers would apply for that. Demand will be driven by — it is irrespective of the market, basically, I think [Speech Overlap]

Ashwin Desai — Chief Executive Officer

Yes. So demand will be driven by our customers.

Unidentified Participant — — Analyst

Sure. Sure. Thank you.

Operator

Thank you. We have the next question from the line of Noel [Phonetic] from Union Bank. Please go ahead.

Unidentified Participant — — Analyst

Yes, just wanted to know what exactly is the state-of-the working capital justification and what working capital days are we can close standing that is this initial period of 2Q? Thank you very much.

Faiz Nagariya — Chief Financial Officer

Yes, so I’ll take this question. The working capital cycle tends as it was under six months only, there is a slight increase because of the sales, which were down — because of the quarter sales and the working capital cycle will be contracted. We are in — we are working on it and the raw materials for the new products have been purchased. So again, raw materials have been increased. And we are hopeful that this will be controlled by March end, and we will be able to bring it down to a stable level.

Unidentified Participant — — Analyst

Thank you.

Operator

Thank you. We have the next question from the line of Yash Shah from Investec. Please go ahead.

Yash Shah — Investec — Analyst

Hello. Yeah. Am I audible?

Operator

Yes. Please proceed.

Yash Shah — Investec — Analyst

Hi, sir. Congratulations on good set of numbers. Sir, my first question is regarding our CRAMS business segment. We’ve added about seven new customers in this segment this quarter. My question was, do we expect — in the coming quarter since we are seeing increase in traction, do we expect the — expect to add the similar number of customers in the coming quarter as well? And do we have any kind of internal target when it comes to adding newer customers throughout the year? So that will be my first question, sir.

Aman Ashvin Desai — Director

Yeah. Seven new customers were in the last two manufacturing model. In the CRAMS, we have three new customers. It’s not — so the new customers are important, but also additional projects from existing customers I would say even more important than CRAMS business, because once they’ve established relationship at the highest levels with no way to customers across the industry spectrum, they have a pact pipeline of launch molecules coming off. And our endeavor is to basically make sure we deliver on the first project, so when the next project coming off, the launch pad of these customers come to us. And so, that’s usually a more focus area for us compared to new customers, but yes, considering all these scenarios — scenarios happening globally in terms of the energy issues and other issues and India being the preferred destination, we do expect to be adding additional customers in the coming quarter as well. We added three in the last quarter. I am guessing, we’ll be able to add the same number or more in the next quarters to come as well.

Yash Shah — Investec — Analyst

All right. And sir, are you seeing any kind of inventory pile up in terms of CRAMS on the customer side?

Ashwin Desai — Chief Executive Officer

No. I think we haven’t seen that effect yet in the CRAMS area because of the last two [Phonetic] manufacturing on. Especially the CRAMS is all pipeline molecules and there are six [Phonetic] timelines of launch for these customers. And that doesn’t deviate because 100 different factors that are involved in the launch as compared to just supply of critical materials from us.

Yash Shah — Investec — Analyst

Got it, sir. And sir, now coming to the business at the end-user business segments now from the last couple of quarters, we were seeing pressure in the pharma segment, and — which was very well covered by the agro. Now, we are seeing — we are seeing revival in the pharma, but at the same time, agro, we are seeing inventory pile up on the agro side. So what has been your experience on the ground at this point of time? Are you witnessing strong demand from both the segments, or how is it working out for you?

Ashwin Desai — Chief Executive Officer

I will take that question, Yash. We are seeing comparatively very strong demand on the agro and the pharma side. Both — we do not have many products on farm — on agro side. We have only four products on agro side as of today. So, our answer would be limited to that, but we are seeing a good demand on the agro side till now.

Yash Shah — Investec — Analyst

Got it, sir. Sir, one last question, then I’ll come back in the queue. Sir, the new three products which we are going to launch above that [Phonetic] five products, will the application be in pharma itself? And I might have missed it, what is the revenue potential of these three products? Is it INR400 crores which you mentioned? Or can you please provide some clarity on the same?

Ashwin Desai — Chief Executive Officer

Yeah, so these three are all intermediates for agrochemicals. And the revenue potential for these three molecules which are coming into India is around — in the range of INR540 crores per annum.

Yash Shah — Investec — Analyst

And what will be the market share will be targeting, sir, in the near term, say two years? And when do we expect it to be commercialized?

Ashwin Desai — Chief Executive Officer

Yeah. So we should be able to target INR200 crores plus market share based on the current capacities which we are designing.

Yash Shah — Investec — Analyst

Okay. And when will this be commercialized, sir? As soon as Site 3 is commercialized?

Ashwin Desai — Chief Executive Officer

Site 3 will be commercialized in March. And this would come in, I believe so, in, Aman, correct me if I’m wrong, March — next March, right?

Aman Ashvin Desai — Director

Correct, yes.

Yash Shah — Investec — Analyst

Got it. So we are looking at incremental INR200 crores starting next March over a period of two years, right?

Ashwin Desai — Chief Executive Officer

We will be ramping up these molecules also in the existing sites. So you will see it much more faster than two years. Typically consider these three products in the 18 months period.

Yash Shah — Investec — Analyst

Got it. Got it, sir. And sir, one last question on my side. You’ve launched one more product this quarter. Is it part of the five new products which we had said, because we had already commercialized two out of those five? So the one new product, is it part of that five or incremental to it?

Ashwin Desai — Chief Executive Officer

It is part of the five.

Yash Shah — Investec — Analyst

Okay. So that means three, or is it two?

Ashwin Desai — Chief Executive Officer

It is totally now at three.

Yash Shah — Investec — Analyst

Okay. So we have commercialized three products now?

Ashwin Desai — Chief Executive Officer

Yes. Got it, sir. I’ll join back in the queue. Yeah. Thank you.

Operator

Thank you. We have the next question from the line of Kalpit Narvekar from Allianz Global Investors. Please go ahead.

Kalpit Narvekar — Allianz Global Investors — Analyst

Hello, sir. Congratulation on the results, and thanks for taking my question. So my first question was on the five products that are coming in the Site 3. Could you share some color on whether these and molecules are actually innovator products and whether you are working with companies or the intermediate manufacturers through the research stage of it, and have they come into the manufacturing stage from the CRAMS side of the business?

Ashwin Desai — Chief Executive Officer

Kalpit, I’ll take that question. No, these are all generic APIs. Then market is the generic API these molecules where it grows. And they’re mostly manufactured in India. Europe and Japan. The APIs are manufactured over there. And so, it’s not innovator association molecules because these all five products belong to large scale manufacturing business model.

Kalpit Narvekar — Allianz Global Investors — Analyst

Okay. Thanks, sir. And my second question was on the three new molecules on the agrochem side because if my understanding is correct, there you have customers on the CRAMS side in agrochem, right? So, are these molecules being converted from that pipeline?

Ashwin Desai — Chief Executive Officer

No, these all three are also large scale manufacturing business models where the imports are happening since last three years or more and they are also generic molecules.

Kalpit Narvekar — Allianz Global Investors — Analyst

So sir, just one follow-up on this was that, if — so could you share some color on what helps in the conversion of these molecules for you with the customers the most? There must be some existing manufacturing from Europe and Japan you mentioned, right? So are we better than those guys on cost front, or — and have we been doing this on a small scale for some of these guys, not really, right? So could you share some color on what are the critical parameters for the customer that we are able to sort of pitch them these…

Aman Ashvin Desai — Director

Our competition is usually China. And so, usually, the customer who wants the product — these are all products which are manufactured for the first time in India, again. And usually, the customer looks at Indian manufacturer. That’s the biggest advantage we see. The second is obviously the cost component, where you should be comparable to China’s price. The third is the QEHS, Quality, Environment, Health and Safety, which we demonstrate to our some customers and they audit us quite regularly, which gives them confidence. And the fourth one is they do not want Chinese manufacturers or Chinese source now active when there is a Indian source out in India manufacturing the same products at the same prices. So that’s the major advantage. And what is the advantage for Aether is the technical competencies of chemistries and technologies under which this product is developed, and then we use automation and other initiatives on chemistries and technologies where we improve the yields and productivity, which gives us an added advantage compared to our competitors.

Kalpit Narvekar — Allianz Global Investors — Analyst

Great. Thanks so much, Aman. If I may ask one more question, if it’s okay one more question, if it is okay. So, if on the R&D side, we are doing significant spending, which is actually great, right. So if and — so round about when I look at the numbers, so distillate is about 13% CRAMS, so let’s say 13% of the revenues is actually from the R&D side and 7% or around, 7.7% of the expenses are going there so, in R&D, so could share some breakup on the R&D expenses in terms of what is being channeled into the customer side and what is being channeled into the large scale manufacturing piece in terms of developing capabilities for new molecules in the large scale side versus what goes into working with the customer?

Aman Ashvin Desai — Director

Yes, so R&D expenditure, actually we do not bifurcate between the CRAMS and large scale manufacturing because we have — we have given the R&D work to various scientists who are handling the R&D for various products. We have given some large scale manufacturing products also And CRAMS also. So the bifurcation is not done by us, but very less portion — of the portion is towards CRAMS because CRAMS basically of Joint partnership with the world innovators. So mainly the expenses which are done are towards distillate and very less portion is towards CRAMS portion.

Rohan Desai — Director

If I may add, the CRAMS activities are the cost or the expenses are all the raw material costs are repaid by the customers and they are build to the customers. So you will not see a huge amount of overlap between the CRAMS and the large-scale manufacturing. R&D is mainly done for large-scale manufacturing business model or contracts with exclusive manufacturing business model only.

Kalpit Narvekar — Allianz Global Investors — Analyst

Great, thanks. Thanks, Aman. Thanks, Rohan. And thanks for Mr. Faiz. And congratulations on the result again, thank you.

Ashwin Desai — Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question is from the line of Rohit Nagraj from Centrum Broking Limited. Please go ahead.

Rohit Nagraj — Centrum Broking. — Analyst

Yeah, thanks for the opportunity and congrats on good set of numbers. First question is in terms of our overall capex for the next couple of years. I mean FY ’23/’24. So as I understand that site three, we had a capex of INR190 crores with revenue potential of INR400 crores. Site three-plus, we just mentioned about INR60 crores, INR70 crores of capex, INR200 crores of revenue potential. What could be the capex for maybe site four and site five? And what will be the annual capex for say FY ’23 and ’24? Thank you.

Faiz Nagariya — Chief Financial Officer

So I’ll take this question. So as you mentioned rightly the site 3 capex is INR190 crores. So for financial year ’23 when we end, the total capex will be with site three, that is INR190 crores plus the R&D ramp-up, which we did for the R&D ramp-up and the pilot plant ramp up, which will be added and the solar power plant, which we have commissioned. So it will be around plus some portions of capex being done in the current location of site two also. So it will come to north of around INR275 crores. And for the next year. as you have rightly mentioned site three-plus will be started and it is a project which will be costing around INR60 crores to INR70 crores. Plus we are also going to break ground wind in the site four and site five together, wherein we will have some capex, which will come up. So next year also We expect the capex to be around INR150 crores to INR200 crores.

Rohit Nagraj — Centrum Broking. — Analyst

Right, got it. Thanks. Second question is from the current sites one and two. Is there any untapped revenue potential, which still exists or incrementally we — our entire revenue stream will be coming from site three and site three-plus?

Rohan Desai — Director

I will take the question. Site one is a CRAMS and hosts the world’s biggest pilot plant. So the CRAMS has a very good potential, we have 55 few modes over there and we are expanding constantly in terms of the team which we have, which is currently growing every quarter. So we see a good potential increasing in site one. As far as site two, we are approximately at manufacturing capacities of 70%. Faiz, correct me if I’m wrong. And we are looking at, if we can realign the production and the productivity and the demand comes back on all the products, would go into 80% to 85% capacity utilization. So 15% increase can happen in the site two also. Rohit, does that answer your question?

Rohit Nagraj — Centrum Broking. — Analyst

Right. So effectively the current revenues have a potential of going up by another 15%, largely, that should be the equation, correct?

Ravi Bhojani — Lead Investor Relations

Yes, you can think in that way. Yes.

Rohit Nagraj — Centrum Broking. — Analyst

And just one last clarification on the pharma side. So the pharma intermediates that we are manufacturing, are there any previous inventories in the global system or we see that the demand for our pharma intermediates as more or less normalized and shall start growing from let’s say this quarter onwards? Thank you.

Aman Ashvin Desai — Director

Yes, so we have struggled quite a bit in large scale manufacturing since Q1, Q2. So the struggle is we are seeing a good revival on all our molecules. And lot of inquiries are coming on in each of the molecules. So we are not seeing any ruggedness now on all the molecules which we are manufacturing in the pharmaceutical space.

Rohit Nagraj — Centrum Broking. — Analyst

Thank you so much, and best of luck to you all.

Aman Ashvin Desai — Director

Thank you Rohit.

Operator

Thank you. We have the next question from the line of Sabyasachi Mukerji from Centrum PMS. Please go ahead.

Sabyasachi Mukerji — Centrum PMS — Analyst

Yeah, hi, thanks for the opportunity. So few questions from my side. Firstly, can you share the volume data, volume or the realization data for this quarter?

Ashwin Desai — Chief Executive Officer

Volume means you are talking about the — positivity side.

Sabyasachi Mukerji — Centrum PMS — Analyst

So. I think in one — quarter one, you had shared the realization as INR1,800 per kg The similar data for 2Q and 3Q, if you can share.

Rohan Desai — Director

Yes, it is at the north of around INR1900 in the nine months, totally.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay, okay. INR1900 for nine months. And if possible, quarter three?

Rohan Desai — Director

Pardon.

Sabyasachi Mukerji — Centrum PMS — Analyst

For quarter three what was the number?

Ravi Bhojani — Lead Investor Relations

Quarter three is around INR825 [Phonetic].

Sabyasachi Mukerji — Centrum PMS — Analyst

INR1825, right?

Ravi Bhojani — Lead Investor Relations

Yes.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay. So the site three Is the revenue potential is INR400 crores and the Installed capacity is 3,500 metric tons. Am I right?

Rohan Desai — Director

Yeah. Yes, [Technical Issues] sorry.

Sabyasachi Mukerji — Centrum PMS — Analyst

Hello?

Rohan Desai — Director

Yes, yes, go ahead.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay, okay. So my question is, so let’s check 3,500 metric tons of capacity, And probably we reach around 75%, 80% kind of optimization levels. And that translates to somewhere around 2,500 metric tonnes to 2,800 metric tonnes of peak production capacity. And if I do the maths generating INR400 crores of peak revenue, the relation rupees per kg comes to somewhere around INR1,400 to INR1450. Which is lower than the current trend. But if I recall correctly, in the past few quarters, as well as in the various management interactions, it was said that these five molecules should be having a very high relation compared to whatever we have currently. So where-is the disconnect if you can please throw some light?

Ravi Bhojani — Lead Investor Relations

We always operate on the conservative estimates of year 2012 when the prices were at the lowest on all the molecules. Second, you’re not going to reach 3,500 tonnes capacities because it is a complex molecules. You have a design capacities, which are there, which are still not explored, right? So once you stabilize the production coming up in quarter one of next financial year, we will be able to tell you what is actual capacities of this which we can achieve. Designing is a different part, because there is no other manufacturer in India. So, it’s not straight forward designing where you’re designing a automobile line and saying that saying that that 100 units will be produced on a daily basis, it’s not so straightforward. Although lines are quite complicated and there are several tasks on production. So going — I understand where you are going through Mr. Mukherjee, but that’s not the right way of calculating the capacities for our specialty chemical company.

Sabyasachi Mukerji — Centrum PMS — Analyst

No. I get that point since I’ve kind of mentioned that you will probably reach 75% or 80% of the rated capacity and not obviously [Indecipherable] but let me ask or rephrase the question. So this INR400 crores of revenue that you have a conservative target of what kind of blended realization in the rupees per kg that you are factoring in for these five molecules?

Rohan Desai — Director

It would be INR2,500 plus per kilo.

Sabyasachi Mukerji — Centrum PMS — Analyst

INR2,500 per kilo. Okay, and may I know the reasons behind such high number compared to your existing product line, because you said that these five intermediates will go into APIs which are generic in nature and not something which is innovator molecules, right. So the pricing power remains not so great compared to innovator molecule, I believe.

Rohan Desai — Director

Right. So we are again talking about INR2,500 as a conservative number. And these are based on the import statistics which we are seeing since the last 10 years.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay. Okay. Second question on the Site four that you spoke about, I believe last few calls, you had a target of completing the Site 4 capex by December ’23 with a estimated capex of INR240 crores, INR250 crores. Are we on track or is it getting bit delayed?

Ashwin Desai — Chief Executive Officer

It was delayed because we amalgamated two units together, right. If you see the earlier communication, the Site 4 was only 8,000 square meters. Now, it is approximately 18,000 square meters. So these are opportunities to buy that doesn’t end and amalgamate do the application for the whole parcel of land instead of going for two applications with pollution control board because if you have two applications, you will have to have two pollution control set and everything which is noble in nature. So we are slightly delayed over the whole process but it is a very good advantage on a longer-term.

Sabyasachi Mukerji — Centrum PMS — Analyst

What is the revised timeline, sir?

Operator

Mr. Mukherjee, I will request you to kindly rejoin the queue please, there are many participants.

Sabyasachi Mukerji — Centrum PMS — Analyst

I’m sorry.

Operator

Thank you. We have the next question from the line of Rohit [Phonetic] from Progressive Shares. Please go ahead.

Rohit — Progressive Shares — Analyst

Hi, Dr. Aman and team. Congrats on the award for BW the sub 40 and 40 by Business World. Sir, I have few questions. Firstly on Polaroid, INR120 crores for three years, what sort of EBITDA margins can be expected?

Aman Ashvin Desai — Director

Yeah, thank you for the kind wishes first of all. And Polaroid business is clearly in the CRAMS business model and we expect 60% to 70% EBITDA margins in that.

Rohit — Progressive Shares — Analyst

Okay. And in addition to this, the three molecules, what is the timeline by when do you think you will be launching the rest of the three molecules from the five which we earlier spoke about?

Rohan Desai — Director

We are looking towards the end of March, that is next March. We will be launching this molecule.

Rohit — Progressive Shares — Analyst

Okay.

Rohan Desai — Director

However, we will look — seeing opportunity of launching the — any of these three molecules in the existing site also, if there is a possibility.

Rohit — Progressive Shares — Analyst

Okay. Okay. So that can help you hold the margins to around 33%, 35% kind of range in next two, three years, is it possible?

Faiz Nagariya — Chief Financial Officer

Theoretically possible, yeah, but we have to see.

Rohit — Progressive Shares — Analyst

Okay. Okay. And in addition to Polaroid, are there any more strategic acquisitions that you’re looking at in UK, US?

Faiz Nagariya — Chief Financial Officer

Aman?

Aman Ashvin Desai — Director

[Indecipherable] it is — it was a collaboration and an announcement of partnership on research and development and scale-up and that has been finished. That it continues to be a one of our privileged customers for the CRAMS business. Along that line, we have several customers and we are currently working on trying to enable a few similar announcements in the near future as well.

Rohit — Progressive Shares — Analyst

Yes, okay. Okay, with China opening up and I know that the prices and the competition that we have with China and we try to always be one up with the prices, do you think that the opening up of China would lead to increase or decrease in the average selling prices going forward?

Rohan Desai — Director

It will not affect in a negative way for Aether. So the pricing of all the molecules are already at it’s best. So there is — it is not related to the China opening up its model, because of the COVID thing. So I don’t see any changes in the pricing structure.

Rohit — Progressive Shares — Analyst

Okay. My last question is related to any developments on my store work that you have done, which is related to chlorination or organic silicon or anything that is related to oil and gas segment?

Ashwin Desai — Chief Executive Officer

For chlorination, we are currently working on two molecules in the R&D which are complex molecules. One is showing significant promise and that’s going to go into the agrochemical sector. [Indecipherable] silicon, still on the paper stage, exploring significantly on the paper. Actually, tying up with one of our European CRAMS customers in a significant way for their contract research and contract manufacturing requirements on [Indecipherable] chemistry and we are hoping to finalize contract in the coming few months with that particular customer. And that is an [Indecipherable] chemistry and that is translate this business that is currently in the CRAMS business model into the contract with exclusive manufacturing business model in the coming quarters, that’s [Indecipherable] chemistry.

And the last question I believe was oil and gas. We continue to work with numerous top most innovators in the oil and gas sector in Europe and USA with existing contracts and existing significant projects for all these customers and that’s significant portion of our CRAMS. This is model right now which we are hoping and fully expecting to translated by exclusive manufacturing business models in the months and years to come.

Rohit — Progressive Shares — Analyst

Aman and Faiz, if you can share some numbers as in like what sort of revenue can we expect from these new initiatives? Or is it like INR100 crore kind of an uptick in the business or INR150 crore or more than that?

Faiz Nagariya — Chief Financial Officer

I think, we’ll refrain from giving such numbers for the forward looking things. Suffice to say that we are quite upbeat and quite positive about the interactions that we’re having and we should see significant growth and revenues from these areas in the months and years to come.

Rohit — Progressive Shares — Analyst

Okay, sir. Thank you. Thanks a lot for answering my questions. Thank you.

Rohan Desai — Director

My pleasure. Thank you very much.

Operator

Thank you. Ladies and gentlemen that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Ashwin Desai — Chief Executive Officer

Thank you everyone for joining the call. We hope that we have covered most of your questions. If you still have any further questions, please feel free to reach us directly. Stay safe, and have a great day ahead. Thank you.

Operator

[Operator Closing Remarks]