Asahi Songwon Colors Limited (NSE: ASAHISONG) Q2 2025 Earnings Call dated Nov. 06, 2024
Corporate Participants:
Sayam Pokharna — Director
Gokul M. Jaykrishna — Joint Managing Director and Chief Executive Officer
Arjun G. Jaykrishna — Executive Director
Pratik Shah — Chief Financial Officer
Analysts:
Shreya Jain — Analyst
Dhwanil Desai — Analyst
Ankit Gupta — Analyst
Prolin Bharat Nandu — Analyst
Rupesh Tatia — Analyst
Tanish Mehta — Analyst
Ishit Desai — Analyst
Hemish Shah — Individual Investor
Aryan Oswal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Asahi Songwon Colors Limited Q2 and H1 FY ’25 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Sayam Pokharna from TIL Advisors. Thank you. And over to you, sir.
Sayam Pokharna — Director
Good evening, ladies and gentlemen. Welcome, everyone, and thank you for joining this Q2 and H1 FY ’25 Earnings Conference Call of Asahi Songwon Colors Limited.
The results and investor updates have been emailed to you and are also updated on the stock exchange and on the company website. In case anyone does not have a copy, please do write to us and we will be happy to send it over to you.
To take us through today’s results for the quarter and half year and answer your questions, we have with us from the management team, Mr. Gokul Jaykrishna, Joint Managing Director and CEO; Mr. Arjun Jaykrishna, Executive Director; Mr. Mitesh Patel, Executive Director; Mr. Pratik Shah, Chief Financial Officer; and Mr. Saji Joseph, Company Secretary and Compliance Officer. We’ll be starting with a brief overview on the quarter from Mr. Jaykrishna, which will be followed by the Q&A session.
I would like to remind you all that anything and everything that is said on this call, reflecting any outlook for the future which can be construed as a forward-looking statement must be viewed in conjunction with the risk and uncertainties that we face. These uncertainties and risks are included, but not limited to what has been mentioned in our annual reports.
With this, I would now like to hand over the call to Mr. Jaykrishna. Over to you, sir.
Gokul M. Jaykrishna — Joint Managing Director and Chief Executive Officer
Good afternoon, everyone. I thank you all for attending this call. Wishing you all a very Happy Diwali and a warm Saal Mubarak. A very warm welcome from the entire Asahi team.
I’m very happy to share with you the Q2 and H1 performance numbers for Asahi Group and briefly some idea on the business outlook going forward. Also, I will add a couple of challenges that we face, that we need to take care of, to take the company to new heights, after which we will open the floor for questions.
On the consolidated basis, quarter two revenues stood at INR143 crores, a growth of 6% Q-on-Q. EBITDA stood at INR14.51 crores, which was flat compared to the previous quarter and EBITDA margins on a consolidated basis was 10.2%. Consolidated numbers on H1 basis, revenue stood at INR278 crores, a growth of 40% year-on-year with an EBITDA of INR29 crores, a growth of 391% year-on-year.
PAT stood at INR7.7 crores, a growth of 229% year-on-year, excluding exceptional items. Please note that this in our history is the record best ever quarter on revenue and EBITDA basis. We hope to continue and build upon this performance. A few words on working capital. Our working capital turn at the quarter stood at 3.36 turns. This compared favorably to 2.84 turns for March ’24. Our cash conversion stood at 86 days, which also compares favorably as compared to 109 days on a group basis for March ’24.
Now, I will put forward a few developments that we have had during the last six months. Asahi blue division has done quite well despite a still very, very tough demand environment. We have been able to improve gross and EBITDA margins. As a leader in this segment globally, we have been an outlier and done much better compared to others, especially the unorganized sector, which continues to suffer.
At ATC, our utilization levels continue to inch up month-on-month every month since the last three months to six months. However, it is below our satisfaction and we need to ramp up the utilization, growth and revenues in this area. We have embarked upon a small debottlenecking exercise with a capex of INR10 crores, which should be completed by March or April of ’25.
This INR10 crores capex should increase our pigment capacity by 720 tonnes per year. This should add a revenue of INR30 crores to INR35 crores per year on the top line. For ATC and the pigment business last time [Phonetic], we hope to see improved demand from what was absolutely a terrible last year, year and a half from Europe since now President Trump will be back in office early next year. With that, we probably may see end to the Ukraine-Russia war and improved business from Europe.
On Atlas, the pharma business, the API business of a new intermediate plant is running well. In this quarter, as anticipated in the earlier call, we are now completely self-sufficient for the backward integration Stage 1 and Stage 2 for our main API product. This gives us satisfaction.
Now, a few lines on the business prospects and challenges. We have to continue to improve our ATC revenues by going into new markets and new customers, and ramp up revenues and capacity faster than we’ve been able to do in the past. At Atlas, our main challenge will be over the next 12 months to get a decent utilization from our new API facility in Chhatral. The future for Asahi Group looks solid. The team is very excited as we come to end of our capex cycle of the last three years and start the deleveraging process. The capex we have done are starting to deliver top line growth and will continue to do this for the year ’25-’26 and year ’26-’27. We hope to start improving on our bottom lines as well as we enter 2025.
With this, we open the floor for questions.
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 Shreya Jain [Phonetic] from Niveshaay. Please go ahead.
Shreya Jain
Hello, sir. Thank you for the opportunity. Sir, my first question is around the consolidation that is taking place in the industry right now. Recently, a leading India’s pigment company has acquired a global major in this industry. So, what is your take on this? How will this change the competition scenario in the industry and how does this have any direct bearing on Asahi blue or AZO business?
And sir, my second question is regarding the — are we looking — are we open to such inorganic growth within the pigment industry ourselves, given a large inorganic growth transaction was directed outside pigments into APIs?
Gokul M. Jaykrishna
Thank you, Shreya, for your questions. The first one, there is definitely quite a bit of consolidation happening at the global scale as you refer to the large one. I touched upon the consolidation happening in my opening remarks as well, where we mentioned that the blue business where we are global leaders, we have been like outlier in terms of performance, which is the demand environment remains very benign and very — actually very bad and yet we’ve been able to do good business. This reflects also on some of the other major large companies in the sector. And the unorganized — this business consolidation is happening at the cost of either the unorganized sector or weaker companies. and this may probably be towards the end of the cycle, and it augurs well for the well-managed, organized players and the consolidation will also result for Asahi in various newer opportunities globally as well.
Now to take the second question, we are not, at this point of time, considering any inorganic growth in the pigment business. This does not mean we may not revisit that in the future, but as of today, the Board is not entertaining any thoughts of inorganic growth for the pigment business as such. The pigment business environment remains quite challenging and only very well managed, good businesses are doing well, but they are doing quite well. As you can see also from our results, we have delivered better results than we had in the previous year, year and a half. This does not mean we are not open to inorganic growth. We could look at inorganic growth in the pharma or API segment. But nothing right now. Right now, we are focused on consolidating, deleveraging, getting utilization up, getting into new geographies and new customers and ramp-up revenues. So, this will be our moto for 2025.
Shreya Jain
Got it, sir. Sir, also are there any updates on the pickup in the red pigment business within AZO? This really hasn’t progressed as much in the last two years as it was expected.
Gokul M. Jaykrishna
Sure. I mean, I also refer to this, but we are internally not very happy with the progress we are making. We are making progress month-to-month, but the progress is probably slower than anticipated because of very, very poor demand environment. However, we are seeing improvement not only on the top line, but also on the gross margin front and they should continue. About the red business, we are getting our foot well into the door now. It was a tough challenging year and a half, and we feel that the next six months should be much better than the previous.
Shreya Jain
Thank you so much, sir. That helps a lot.
Arjun G. Jaykrishna
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, sir. Sir, my first question is on the blue business. I think we alluded in our press release that it did quite well in this business, but one of the contributing factor was RM volatility and in the opening remarks, you also talked about debottlenecking. So, where we used to do around INR370 crores to INR400 crores revenue from blue business and we are close to that number on our quarterly basis around INR100 crores. So, how do we see growth from here on in this business? And is this number largely because of the price realization increase or the volume growth, both Q-o-Q, Y-o-Y?
Gokul M. Jaykrishna
So on the blue business, I — about growth, I will take that question first. We may not see any really big or rapid growth because we are at about 80%, 85% utilization in the blue business. We have — I would like to clarify, you refer to the debottlenecking. The debottlenecking is not in the blue segment. It is in the ATC, AZO business. So, we are not doing any capexes, new capexes, except the maintenance required capex on an annual basis at the blue plant. So, we are not adding debottlenecking in any new capacities as of now. We have 15% to 20% free capacity, but beyond that — so that is something that you could at some point factor in into potential growth. Over a period of couple of years, you could probably see Hindu [Phonetic] growth rate of 3% to 5% kind of thing over there, but nothing more exciting in that area. The other question you asked was regarding…
Dhwanil Desai
The volume growth Y-o-Y in the blue business?
Gokul M. Jaykrishna
So basically, you refer to the raw material pricing volatility. So, this is part and parcel of the pigment business. It’s nothing new, and we are not very concerned with it. I mean, every quarter or every six months, the prices are volatile. It’s a built-in mechanism in the system where any price increases are passed on, any price decreases are also passed on. So, they do have impact on a quarter-to-quarter basis. But on a year-on-year basis, those in fact seem to kind of iron themselves out.
Dhwanil Desai
Got it. Second question is on the blue margins. Sir, I think we also mentioned that it’s below our expectation or our stated goal of achieving 13% to 15%, which we had earlier indicated. And historically, we have been able to do that. So, how do you see the journey from where we are to that 13% to 15% range from here on and any timelines you can give for that?
Gokul M. Jaykrishna
It would be difficult to give a timeline because a lot is depending on how demand comes back. However, there is a lot in our control as well, which we can do better, which we have been doing better. So, our margins are actually inching up and are quite close to our — to reasonable margins. We are well into the double digits on the blue business, and we hope to build upon this. And so we are kind of close to where the 13%, 15% you indicated.
And we should — of course, we would like to get to that 13% to 15% and that should be possible. Like I said, there could be various different triggers that could just make that happen. Demand is still bad. The debottlenecking — the destocking on a global basis has already taken place. The bottoming out of prices has taken place. So, two things are out of the way now. But now, we need to see demand. Once demand comes back, you could easily see us going back towards the margins you referred to.
Dhwanil Desai
Got it, sir. One question on the API, and then I’ll come back in the queue. So, sir, on the API side, as you indicated, both CMH, RCMH, the capacity has been commercialized and stabilized. So, what is the progress in terms of moving the API production from Odhav to Chhatral site in terms of Pregabalin and other products, if you can give some sense on that? And also, margins have been little on the lower side and we were saying that when fully integrated and when we scale up the production, we can go to 12%, 13% kind of a margin range. So, how do you see again the trajectory on margin and Pregabalin production from Chhatral ramping up from here on?
Gokul M. Jaykrishna
So, we are now self-sufficient for those two raw materials for our main API. This is, of course, one barrier that we needed to cross, and crossing that has given us a good bit of comfort. The numbers in terms of margins still remain work in process, though they have improved from the previous 4%, 5% margins. We are much better margins in the API business because of the backward integration. However, the utilization of the API capacity in the new Chhatral facility remains a challenge. And this is what — I mean, it always was going to be. It wasn’t going to be an easy challenge, but that capacity utilization should start happening gradually over the next 12 months to 18 months. And as we do that, it will show improvement in top line as well as improvement in the EBITDA margins as well.
As far as you’re referring to moving the PG, Pregabalin productions from Odhav to Chhatral, we are not doing this because the Odhav plant is actually operating very well. When we took over the plant, we thought that this is a small plant, it may do well, may not do well. We have a state-of-the-art new facility. But now when we run the plant, we see that this — what we require is actually a small jewel. So, we would right now not want to disturb that and probably focus our strategy on ramping up the API facility at the Chhatral new facility with added new products. This, of course, is new challenge and it will take time.
So, it won’t happen like in quarter or two, but it is work in progress. And our major strategy over the next 12 months will go in that area. And that is where — earlier this — the lady referred in the first question to growth in the blue business and I said, Hindu growth rate. So the growth rate in the top line, which I referred to over the next couple of years or two — one to three years should be coming out of the ATC business of AZOs, which continues to improve utilization and has free capacity where we have growth prospects and also from the new plant in Chhatral for Atlas in the API segment.
Dhwanil Desai
One follow up on this, on Pregabalin. I think if I remember correctly Chhatral, when we move to Chhatral, the capacity for Pregabalin was to double and now we are saying that probably we’ll move — go with newer API. So, are we now not intending to double the production of Pregabalin, company as a whole?
Gokul M. Jaykrishna
Good Dhwanil, you dropped this question. I should have probably touched upon it. So, no, it is not our intention to just do new products. I mean, Pregabalin increasing or — our revenues from Pregabalin and improving the volumes of Pregabalin by adding production of Pregabalin at Chhatral is definitely a possibility. So, it is going to be a combination of making Pregabalin. We had by the way started making some Pregabalin.
So the API facility at Chhatral is currently utilized only 10% to 15%. And this 10%, 15% is coming from Pregabalin So it is not like we don’t have intention to make Pregabalin. What I meant is we don’t have any intention to not use the Odhav plant, which we were earlier questioning because it was a small plant. It is a nice plant. So, we will continue to utilize that. We will probably make additional pregabalin and other molecules, other APIs in the Chhatral facility to utilize that facility. That’s what I meant.
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. So, continuing the question asked by the…
Operator
I’m sorry to interrupt you, Mr. Ankit, but can you please speak a bit louder?
Ankit Gupta
Sure. I will do that. Sir, my question was on the API segment, continuing the previous caller’s question. Earlier, we were planning to ship our entire Pregabalin facility from Odhav to Chhatral and utilize Odhav for manufacturing other APIs. So now we have changed our plan that we’ll continue to manufacture Pregabalin at Odhav and Chhatral will be used to manufacture additional quantities of Pregabalin, plus new APIs that we are developing.
Gokul M. Jaykrishna
So, I probably need to clarify this a little better for the benefit of our group. So, we have not actually changed the plans. We just found that the Odhav plant is actually a little jewel, which is doing quite well. So, we would not like to disturb it. The plan what we refer to that we may move the APIs we manufacture at Odhav to Chhatral could still play out in the future. It is part of the strategy. So let me put it this way. So, we have an option now. It is a clear strategic option whether to continue to make the same APIs that we make at Odhav in Odhav and add maybe more capacity of that in terms of volume at Chhatral and new APIs, or to move those eventually and get higher value products at Odhav.
Now, see, this will depend on the kind of products that we will go into. So, your clarification, if we end up shortlisting as part of our strategy, higher volume, lower-value products, then we would move those APIs to Chhatral because the facility is larger. If we go in for lower volume, higher-value products which are, for example, in the range of INR50,000 a kilo and more, then those will certainly go to Odhav, in which case if we get hold of such molecules or start making that or strategize to make that, then we will have the option to move the existing APIs from Odhav to Chhatral. So, this is a very nice capability that we now have. So, it is up to the Board and the management team now to consider what kind of APIs will fill up — will generate newer revenues over the next three years. So depending on that, we will decide which APIs will be made where. I hope this clarifies both of your questions, Dhwanil’s, and yours as well.
Ankit Gupta
Sure, sir. Sir, our API sales, despite Chhatral coming in and like, of course, that is largely for our backward integration, but API sales have been in around INR25 crores, INR27 crores — or INR23 crores, INR25 crores, INR27 crores for the past [Speech Overlap].
Gokul M. Jaykrishna
I couldn’t — can you just repeat the question, please?
Ankit Gupta
Sure, sure. I’ll do that. So, our API sales for many quarters has remained around INR23 crores, INR27 crores. So, when do you see a jump in the revenues, maybe primarily driven by more sales of Pregabalin or the other products or the new products coming in, in the API segment?
Gokul M. Jaykrishna
I could not gather it. Arjun, can you take this? And Ankit, you can go a little light on the earlier question about strategy as well.
Arjun G. Jaykrishna
Right. So, I think — from our side, I think my answer will actually end up covering both questions in one shot. So in the API business, the company we took over and what we have been working on, we reported earlier that we have done some changes in the finance side, the procurement side. We have added efficiencies from the Asahi Group into Atlas, which gave us slightly better performance a few quarters back. We are far from where we want to be. And the reason for the performance of Atlas over the last quarter or, say, in the coming quarter would not be to the level where we have said, we will be and we are still confident of reaching is because of the nature of that business.
So, to go a little bit more in depth, see, these are obviously much more certified and much more complicated products to get approvals for. And by this, I mean, whether it is certifications of several global regions, whether it is within India, pharmaceutical companies, as we target more better customers, a higher level of a customer base, whether it is in India or elsewhere as well, there is a lot of certifications that need to be done in terms of validations of new products, in terms of validations of plants and so on. So, first to answer the last question little bit about the moving of Pregabalin, this is still a strategic discussion, but it is not something that can be done overnight in any case because the customer base we have, even our customer base within India, the formulators where they cater to, they need regulations, they need validations of several months of the product and of the plant.
So, all of that is strategically coming into place, but it is not something that can play out within just a few months. It is a slightly longer and validated process that we have to follow. And as a API player, our goal and our vision is to move from just a small local player to being a more reputed, being a more certified player. Again, this is not a matter of weeks or months. It is probably a matter of years, but we are already on that track and we are making sure that at our new plant in Chhatral, we follow systems and we make sure despite in the short term maybe we don’t see the numbers being as lucrative in one quarter, but we want to make sure that we are building towards the next few years and we can put ourselves at Atlas in a position where we are a strong reputed player that can cater to higher regulated formulators in market.
So, this will take a little bit of time. And same goes for these new products, as you mentioned, we are working quite a bit within our R&D setup and the strategic think tank for the new products, whether it is other Odhav or Chhatral, both sites. As that said, eventually, we plan to utilize and the goal is simple that we have to utilize the production facility we have set up. And the validations and the processes that we are following in this new product entry is following more regulated systems, which take a little bit more time, but it will help set up over the next several quarters us in a better position and keep them better ready for the long-term. I hope that gave a little bit of light on the timeline and why it is taking a little bit more time for new products as well to kick in because of the validations and procedure we are following it at Atlas.
Ankit Gupta
So, when do you see the revenues — revenue was growing in the segment and are margins touching our aspirational levels of low-teens?
Arjun G. Jaykrishna
So, it is very tough to give an exact timeline on it. So, I can comment for sure that the margins — margins should definitely kick in faster as our CEO said. We are already self-sufficient. In the next quarter, we would be — the whole quarter should be self-sufficient for our main API, so that should help with margins. But then as I said, as we move for more accreditations, as we try to be more systematic, we have to make sure that our procedures and our systems are following those levels and that is the only way we’ll be able to cater to the more qualified and higher regulated customers. So, while I can say that over the next two or three quarters, we would be able to show better margin. It is not something that we will be able to show immediately and not a jump that one can expect for directly to come to the number that we have, given it is more of a gradual thing and probably we should be reaching better EBITDA margins and higher turnover not for the next two quarters, but probably following that.
Ankit Gupta
Sure.
Gokul M. Jaykrishna
I entirely agree with what Arjun said. So precisely, what he meant is after two quarters, we would start seeing improvement in revenues coming out of new APIs hopefully by the first quarter of the next financial year that is starting 1st April.
Ankit Gupta
But the Pregabalin demand for the customers or the markets that we serve remains a bit challenging is what you are indicating?
Gokul M. Jaykrishna
No, the Pregabalin demand right now, I mean, what we are making we are selling. I mean, that is how our revenues are not falling.
Ankit Gupta
Sure. But the demand is also not growing there and the prices are also under a bit of pressure.
Gokul M. Jaykrishna
Demand is growing. Pregabalin demand is estimated to grow about 7% over the next five years. Prices continue to be under pressure, so that we will see. Now, with China Plus One also, how it plays out now that Trump is in office, will also put an interesting aspect to it, but demand for Pregabalin would probably do decently well, 5% to 8% over the next five years compounded, but the prices, you are absolutely right. This quarter — last quarter, we had decent pricing, this quarter, pricing is under pressure. It doesn’t always augur badly. Like you saw in the Pigment business, we had a very, very challenging one year because we were below cost and very, very tough time. But then the industry as somebody you, I think or somebody earlier then you referred to — went into consolidation and lot of people kind of got into trouble. So the consolidation of price pressure just makes you a little more efficient. So we have to embrace it in the meantime.
Operator
Thank you. The next question is from the line of Prolin Bharat Nandu from Edelweiss. Please go ahead.
Prolin Bharat Nandu
Yeah. Hi, team. Thank you for taking my question. I’ll start with API because last two questions were also more focused on API. So just to understand it correctly, while you mentioned that the margins have improved, but if I look at your reported numbers, quarter-on-quarter, they are down, right, for that matter, year-on-year also they are down, right, I mean in API, when I look at the segmental results. So are we both referring to the same numbers when you said that margins have improved in API?
Gokul M. Jaykrishna
I meant the half year.
Prolin Bharat Nandu
Okay. All right. Okay. Fine.
Gokul M. Jaykrishna
That’s why — but you’re right. I mean, otherwise it’s been flattish. A quarter it’s better and again, a quarter it’s challenging. I refer to the half year because I was talking to all about half year.
Prolin Bharat Nandu
All right. All right. So the larger and the more strategic question is this, right, I mean that in API we got into it. This was a completely new segment for us. We did not have any experience as such in this segment. We must have done our own industry demand supply analysis to get into this segment. And the time that you referred to in getting approval, is it something which is — which we have to endure because of our, I mean, lack of experience in this segment or that’s how the segment works, right? It takes time for to get approval. What I’m trying to understand is that had a company Atlas being held by the old promoters or being acquired by somebody who would have an experience within the pharma space, would the time to go to the market with the new products would have been — would it have been shorter or would it be taking a similar time as to what it is taking for us?
Gokul M. Jaykrishna
That is tough to answer, but this I can say that our lack of experience in the pharma business is not a excuse and should not be a excuse to take longer. So I would not expect my team to take longer than what it would take anybody else. I mean, definitely we should be doing it better and faster than the previous promoters. That’s why we took over the company and that’s why they sold it. But we have to ramp up our strategy and team to an extent where we are able to handle that compliances at par with any other pharma player. So when we budget, the time it would take, it would be the same as anybody else.
Having said that, like you said that and Arjun referred to earlier, that in the pharma API space, there is a time lag that happens. I mean, accreditations, whether it’s European or other countries, they have a certain time that it would take because you have to do stability runs, you have to do various formalities, procedures, which we have to adhere to and comply to. So at that time it should take but it should not be any more than what it should take anybody else in the industry.
Prolin Bharat Nandu
Fair point, but Gokul, all these things we would have already accounted for when we acquired, right, because we were aware into what we get. So again, maybe some strategic insights from you as to, is there somebody, some sector expert who is leading the team helping us understand the nuances of the business, can you shed some light on the manpower or the executives who are probably handling this business and helping us in terms of compliance, getting the European approval, U.S. approval so on and so forth?
Gokul M. Jaykrishna
Yeah. So we have a very — what we inherited from the previous management was a very well-lit and well-run team to be able to run that operations as it was. Now, we have gone in for a greenfield operation which is far larger and with — like Arjun referred to with — we have expanded in our mind, the horizon of the business that we want to do. So the challenges are new. Strategically, I think Arjun has already roped in along with his team an R&D consultant who is working on strategy in terms of honing down on specific products.
So this should take about six months to pick up specific products. On the HR side, we are — I don’t want to talk right now too much, but in the next call, I would be able to definitely tell you that we would be having one senior appointment, which is very close to happening and likely two. And these would take care of what you are saying in terms of our capabilities to adhere to the compliances and the ramping up of the facility.
Prolin Bharat Nandu
Sure. So what I understand is that when you talk about new product apart from Pregabalin, which was our core product, what Atlas was into, that is even deciding on which product to get into, is a six-month journey, right? I mean only then we will decide as to which product we will get into. Is that a fair way to think about it?
Gokul M. Jaykrishna
So like you — maybe it happens in one month. We don’t know. I mean it is — so I’m saying it should take — I mean, even if we were to identify a product in one month, it’s not going to generate revenues in one month.
Prolin Bharat Nandu
Yeah. Yeah. Correct.
Gokul M. Jaykrishna
So the identification process, we have given ourselves now until six months to identify product. Now it could happen anywhere during the period. It depends on the kind of products, the accessibility of the technology. There are also products that our team is working on in our — we have a independent R&D center as well at Odhav, which is away from the plant. And we are in the process of developing new molecules there as well. We have already developed two molecules and launched them and two new are underway, but these are not going to have a major revenue or EBITDA impact in the coming financial year. Even forget about a quarter or two quarters. So I didn’t refer to that. But what we are now looking for is strategically to get a higher volume product or two products which can help us ramp up utilization of the API facility faster.
Prolin Bharat Nandu
Sure, understood. And when we talk about backward integration in the N-1, N-2 and we are self-sufficient there, but we also had plans to sell that N-1, N-2 in the market because in the interim, by the time we have full utilization of our end API facility, we would have excess capacity of N-1, N-2 if I’m not wrong. So where are we there in terms of selling it to the outside market?
Gokul M. Jaykrishna
So we have not yet made any very serious efforts or inroads into doing that and we don’t intend to do it at least for the next quarter because our efforts will go into selling more Pregabalin. So if — because if you start selling, take the easier route and reach out to other makers of Pregabalin with these backward integrated products, you cannot do that and then stop in a few months because you have more demand for Pregabalin. So we are playing a little cautious role there rather than just sell a little more, get a little more revenue out of sales of those products to outside the players. We are playing a little longer term strategy where we want to reach out to newer customers in the Pregabalin business itself, whereby then we will need that backward integration for our own Pregabalin.
So we haven’t made any serious efforts to sell those products outside. And like I said that we are — even if we were to do that, we are at a stage where we are just self-sufficient. So this will be the first quarter that we will be fully self-sufficient. So we are just coming to that stage. So the question of selling that outside has not yet arisen in this quarter or in the next quarter.
Operator
Thank you. The next question is from the line of Rupesh Tatia [Phonetic] from Intelsense [Phonetic] Capital. Please go ahead.
Rupesh Tatia
Hello, sir. Am I audible?
Gokul M. Jaykrishna
Yeah. Very clear.
Rupesh Tatia
Yeah. Sir, my first question — I have questions from all three segments. My first question, sir, is on AZO. So in AZO, what is the capacity utilization of yellow and red separately? And when are we likely to hit, let’s say INR25 crore quarterly revenue in the AZO business?
Gokul M. Jaykrishna
What was the last — when are we likely to hit…
Rupesh Tatia
INR25 crore quarterly revenue run rate in AZO business.
Gokul M. Jaykrishna
Yeah. So Arjun, you want to take this? Then I’ll finish it.
Arjun G. Jaykrishna
Yeah. So I will take utilization and those numbers where you are. So we — we would just for competition in general market, I say, we would refrain from giving too much product wise or color wise information about utilization. What we can say is and what was highlighted in the first question as well, the yellow line we have reported has done well over the last few quarters and we have seen the utilization for that line go up. For the red line as well, if you see Q-on-Q, we are improving every single quarter and we are making sure this last half year has been better than the — substantially better than the half year before.
And we can see as opposed to before that we are seeing a higher utilization now in the red line as well. It is not where we needed to be, but we are hopeful that in the coming quarters we will — we are now at a position where we will really be pushing that and pushing it fast within the next two quarters. So utilization of both red and yellow should now — both should proportionally go up in the coming quarters and the margin improvement that we have seen over the last three quarters will certainly continue in this quarter as well.
Gokul M. Jaykrishna
Our overall capacity utilization for the AZO business stands at about 66% — 65%.
Rupesh Tatia
Okay. So INR25 crore quarterly run rate, when can we reach there?
Gokul M. Jaykrishna
I think we should be able to reach there in the first quarter of the next financial.
Rupesh Tatia
Okay. And sir, how is the update from the TTC account because I think we have some guaranteed uptake from the tenants, so how is the situation there?
Gokul M. Jaykrishna
So it is not as much as we expected, but it is decent. I mean, so they are buying products that they need. Unfortunately, what happened over the last one and a half years, one, the global demand itself and the pigment industry you all know went through a terrible time and Europe was the worst with this Ukraine, Russia war. So I mean, you can’t blame them for not — because their own demand kind of crashed substantially. So let’s see, I think it’s bottomed out. We are seeing improvement and we should be — so to be specific, we haven’t been able to sell to TTC what we had targeted to.
However, this quarter there is improvement. Last quarter was very poor in fact, and this quarter there is some improvement and we are hoping that over the next few quarters, it will continue doing so. And Europe also, like I said earlier, with Trump coming back to office, you may see the war in Ukraine get over and Europe start doing much better in ’25. If that happens, then we could be at normal with TTC what we had envisaged.
Rupesh Tatia
Okay. Okay, sir. Sir, and then in API business, what is the top line needed to go to, let’s say, 13%, 14% margin? Can we do that at INR150 crore? Because there will be fixed costs and other things, right? Yeah. Sorry?
Gokul M. Jaykrishna
You meant at INR150 crores turnover?
Rupesh Tatia
Yeah, at INR150 crore turnover, can we hit 13%, 14% margins?
Gokul M. Jaykrishna
Yes. Absolutely, yes. That is our internal target that we reach a turnover of INR150 crores and we hit 13%, 14% margin EBITDA.
Rupesh Tatia
And we can achieve that next year, FY26?
Gokul M. Jaykrishna
See, I’ve been like, I’ve been wrong earlier with the ATC numbers because of the market and other situations. So I’m a little reluctant to put a timeline on it, but yes, that — I mean, internally that is, for sure, our goal that next year we should be — by end of the financial year, we should be at a full year of INR150 crores and close to INR13 crores of EBITDA.
Rupesh Tatia
Okay. And sir, I mean, now that Pregabalin at Odhav will continue. I think that was one of our major operational targets when we started the year. So now that Pregabalin will continue at Odhav. So have you — I mean, where are we on commercializing non Pregabalin from Chhatral and then we also have a unit for high pressure, high value APIs or intermediates. So that plan now should get accelerated, right?
Gokul M. Jaykrishna
Absolutely. So I mentioned that the biggest challenge going forward and the highest opportunity comes from here. I said it even in the opening, the two challenges, one, ramping up faster on the ATC, AZO pigment capacity utilization and revenue is one, and the second and the biggest would be from utilization of the API facility at the new plant in Chhatral to strategically introduce new products to strengthen the team at senior level and ramp up capacity of the API unit there, ramp up as in utilized, I mean, we already have a capacity now.
Operator
Thank you. The next question is from the line of Tanish Mehta from ithought. Please go ahead.
Tanish Mehta
Am I audible? Hello?
Gokul M. Jaykrishna
Hello?
Tanish Mehta
Yeah, hi, sir. Am I audible?
Gokul M. Jaykrishna
Yes, Tanish. Yeah, go ahead.
Tanish Mehta
Yeah. So my first question was with regards to the blue segment. So if you could just mention what is your revenue potential from the existing capacity, and I think you had mentioned that you don’t have any plans for expansion in the segment, right?
Gokul M. Jaykrishna
Yes, that’s correct.
Tanish Mehta
So what is the revenue potential from the existing capacity?
Gokul M. Jaykrishna
So about — it depends a bit on the pricing as well, but anywhere between INR350 crores to INR425 crores from the blue segment.
Tanish Mehta
Okay. My second question was from the API segment. So I think you had mentioned that we are looking to do…
Gokul M. Jaykrishna
Based on this question, we have reported on a standalone half year basis, I think INR192 crores.
Tanish Mehta
Okay. Okay.
Gokul M. Jaykrishna
Yeah, carry on, carry on. Yeah.
Tanish Mehta
Yeah. Yeah. Thank you. So the second question was from the API segment. So I think you had mentioned earlier that you are looking to do a INR200 crore API in FY 2026. And I think in H1, you have done INR52 crores. So by next year, will you expect to double this number?
Gokul M. Jaykrishna
You were not audible. Can you repeat it, please?
Tanish Mehta
Yeah, yeah, yeah. So I think we had mentioned that we plan to do INR200 crores in API in FY26. And…
Gokul M. Jaykrishna
I couldn’t hear the figure. I don’t know what you’re saying, what the number.
Tanish Mehta
Just a second.
Gokul M. Jaykrishna
You said what has been…
Tanish Mehta
Am I audible now?
Gokul M. Jaykrishna
Yes.
Tanish Mehta
Yeah. So I think we had mentioned that in the API segment, we plan to achieve INR200 crores in top line in FY26, and in H1 of FY25, I think that’s INR52 crores in top line. So do we expect to double this number in the next financial year?
Gokul M. Jaykrishna
See, it’s going to be a challenge, but that is the aim. We would like to. And like Arjun had referred earlier, if we get our strategy right and play our cards properly, we should probably be able to do that.
Tanish Mehta
And if you could just mention a little bit about what would be your growth strategy?
Gokul M. Jaykrishna
We have the capacity, we have the opportunity. Now we have to work towards it. But yes, for ’25, ’26, that is a real possibility.
Tanish Mehta
Okay. And if you could just mention a little bit about what would be your growth strategy for the same like…
Gokul M. Jaykrishna
For the API, Arjun.
Tanish Mehta
Yeah, yeah, yeah, for the API.
Arjun G. Jaykrishna
Yeah. I think this will come back to the earlier question and it’s difficult to give a exact timeline or a exact growth plan. But in general, I think what we are doing as a company and what we want to achieve over the next, say, two years is to be known for a more, accredited, validated type of plan. This will allow us to not only increase our volumes in the product we are strong in, which is Pregabalin by catering to the more accredited markets, which would in turn help us with better numbers, better bottom line as well, as well as in new products where we would be able to cater to customers that require a certain level of system, certain level of validation.
We are well on our way to achieving those systems and those validations while they take time. And it is a cumbersome process, as our CEO said, we are working towards it. We are working with the internal team. We have some consultants that are helping get our plant and our systems in line as well. We are doing several internal audits. We are doing several processes inside, which are making sure that our core is getting stronger and hence as we move to new products, as we move to new markets and segments for even Pregabalin, we will be well set because in this API business for all players, us as well as everyone else having a very strong core and having very strong data integrity is at the crux of the whole business and that is what we are establishing.
And we want to make sure we are known for that and we are known to be that kind of player. So I cannot give a exact strategy, but this is largely what we plan to do. This is what we plan to follow. And we will be using internal as well as outside consultants and we will be using all the resources we have to push Atlas in this direction. So over the next two years, we are able to achieve the plan that we have laid out as well as hopefully the numbers that we are hoping to get over the next two years.
Tanish Mehta
Okay, great. Thanks. That was helpful. Also if you could just mention what are your top three drugs and the contribution to the — and their contribution to API revenues, if you could give us the same?
Gokul M. Jaykrishna
The top three?
Tanish Mehta
Products in the API segment and what is their contribution to this?
Gokul M. Jaykrishna
So, one is Pregabalin, which is more than half of the revenue of the API business. Second is Levosulpiride. Arjun, can you tell the other two?
Arjun G. Jaykrishna
Yeah. So as we mentioned, we probably refrain from giving exact numbers, but Pregabalin is our largest, as you said, more than half. We also have Levosulpiride, which is our second biggest, and then we have a mix of five others, which are all not very large but all are contributing in their own small way, which is about 25%.
Operator
Thank you. The next question is from the line of Ishit Desai [Phonetic] from Forge [Phonetic]. Please go ahead.
Ishit Desai
Yeah. Thank you for the opportunity, sir, and congratulations on good set of numbers. Am I audible?
Gokul M. Jaykrishna
Yes, Ishit.
Arjun G. Jaykrishna
Yeah, absolutely. Go ahead.
Ishit Desai
Yeah. Yes, sir. So, sir, my first question is on the AZO business. Since — our capacity, if we look at in terms of global market size, right, and the kind of relationship we have with some of these global players is still very small, right? So — and in the first one year or two years, we had some challenges in terms of product quality and output issues. Now given that most of that is behind us, how — you — in your commentary also you’ve mentioned that you are witnessing increasing inquiries. So could you throw some color in terms of what kind of size, scale, players are we interacting with? And once the demand scenario starts becoming a little normalized, do we see this ramp-up much faster than what we have seen in last one year or two years?
Gokul M. Jaykrishna
Arjun?
Arjun G. Jaykrishna
Yeah. So thank you for the question. Yeah. So basically to answer backwards from the last one, yeah, we definitely should be a faster growth as the demand picks up. As we described generally, still even today that the global demand situation has not improved too much, we are marginally improving, but the rate of improvement in our AZO business is far from where we would be happy with and far from where we wanted to be. So we are working every day to help move that faster.
As markets improve and hopefully the demand improves in the next few quarters, we should certainly be seeing a faster rate of growth. And in terms of customers and segments here, we are working on several different opportunities for several products, and we are working with partners and channels that we will look to open over the next few quarters and help boost this growth faster than it has been for the last two years.
Gokul M. Jaykrishna
Ishit, this is a good question that you’d asked. Basically, we would be — as of right now, we are doing mostly local business. Exports is very — contributing not significantly. Like in the blue business, exports contributes more than half and significantly to our top line and bottom line. In this, we have not started yet. We were slow to get started, but now we have started making inroads into the same customers. So now there is tremendous customer synergy when we talk about exports between the blue business and the AZO business, which has not been leveraged yet. I hope this answers your question. So then, yeah, if we are…
Ishit Desai
Yeah. But any traction on that in…
Gokul M. Jaykrishna
Yes, there is traction. The traction is slow, but if it ramps up the opportunity, there is traction on three accounts actually to be very specific. I don’t want to name them because it is too early in the game. But if one of them even ramps up, it could be helping us do the revenue numbers that we were talking earlier for the full year ’25, ’26 of INR150 crores, then would look very, very doable very easily in fact. And if we get two accounts cracking, which is also a question of matter of time. But if that happens, the earlier it happens, the easier it gets to ramp up revenue and the business.
Ishit Desai
Great. Thank you. Thank you, sir. And my second question…
Gokul M. Jaykrishna
Yeah, good question.
Ishit Desai
My second question is on the API business. Since you are now focusing on getting your products in the basket, I understand that you will not be able to name it, but more in terms of product mix, I mean, what kind of products are we looking at, are we continuing to look at cost leadership sort of model with, say, Pregabalin sort of very large market size molecule or are we looking at more niche sort of high value — I know as a basket you’d want to cover more but more in terms of thought process. I mean, are we looking at complex high value molecules as a larger basket or our focus will still be on cost leadership and then we want to kind of gather more market share in some of those molecules, and some color on those aspects? And again, and at what stage are we, I mean, when we are saying that we are trying to finalize product basket. So have we kind of taken feedbacks or some of the potential? Where do we sit in terms of stage of development or stage of finalizing, crystallizing some of those products?
Gokul M. Jaykrishna
So Ishit, we would be using both the strategies and we would need to use both the strategies, the higher volume, lower margin, lower value products to fill up capacity and the high value, lower volume, higher margin products to get a name in the market. At current stage, we are concentrating strategically more on getting the cost-efficient lower margin — the lower value, higher volume product, so that we can fill up our capacities, utilize what our — what strength we bring in as a management straight away, where we are cost-efficient, and then we will start looking at products into the higher value chain category. And when that comes, then that ramp-up earlier, couple of questions back, somebody had referred to about Odhav to Chhatral will crop up.
And that’s why we have put it on hold because right now we are not chasing the — see what happens if you chase the high value products right away, they are not going to — they’re going to take much longer. So it will not — even if we were to even develop one and we have internally developed one product, Dapagliflozin [Phonetic]. So this product has been internally developed, commercially launched, but it’s not going to have any impact, because it’s neither — it’s going to take a long time. It’s INR25,000 a kilo, INR30,000 a kilo product, but the volumes are nothing that I can talk to you about. So we are not concentrating on getting more high value molecules like that, more on the high volume molecules, where we build cost advantages and go into backward also where possible, which again is our natural strength.
Operator
Thank you. The next question is from the line of Hemish Shah from — an Individual Investor. Please go ahead.
Hemish Shah
Yeah. Good afternoon, sir. I just want to get a sense of how is the business looking and your outlook probably for the rest of the year and next year, when you compare it with the first two quarters of this year, how are different segments looking pricing and demand-wise?
Gokul M. Jaykrishna
So generally, the second half of the year, I would say, would probably look similar in terms of top and bottom line. Segment wise, we have four facilities and it would probably differ segment wise. We would clearly want to see a reasonable improvement from two plants of the four plants, which is both the new plants. One, the pigment plant at Dahej, the AZO plant and the intermediate and API facility in Chhatral. So from these two plants, we should see certainly improved second half as compared to the first half. However, that may not be a game-changing big thing on a half to half year basis, but it should definitely be better than the previous half. And we hope to maintain our position in the blue business and the Odhav API facilities and the numbers as well.
Hemish Shah
So even margin wise, I think the blue business should look stable, you think over the next, I mean, six months to one year?
Gokul M. Jaykrishna
Yes.
Hemish Shah
Okay. Okay. Thank you, sir. All the best.
Gokul M. Jaykrishna
Thank you very much.
Operator
Thank you. Ladies and gentlemen, this will be the last question, which is from the line of Aryan Oswal from Finterest Capital. Please go ahead.
Aryan Oswal
Hello?
Operator
Please go ahead.
Gokul M. Jaykrishna
Good afternoon, Mr. Oswal. Yeah, go ahead.
Aryan Oswal
Good afternoon, sir. Sir, my question is on the line of tax rate. So why is the tax rate so higher? And do we have any DTA applicable — available?
Gokul M. Jaykrishna
Pratik bhai, can you take that?
Pratik Shah
Yeah. We do not have significant amount of DTA available. Yes, we do have some portion of it, but that’s not as high as to compensate on the overall tax rate.
Aryan Oswal
Okay, okay, sir. And sir, any comments on the tax rate — the higher tax rate?
Pratik Shah
See tax rate is uniform for all the entities. There is no — no changes in any — on the entities for any of the tax rate.
Aryan Oswal
Okay. Thank you so much, sir.
Gokul M. Jaykrishna
So on the tax front, I mean the — it — both the entities which are generating majority of the profit are both in a higher tax bracket than the newer entities, both the new plants, the ATC/AZO plant and the Chhatral plant, which are in the lower bracket range, but they are not yet in the PAT positive territory and hence it may look that. So it should improve over the next few years as we get these two in a profit zone.
Aryan Oswal
Okay. Thank you so much, sir.
Operator
Thank you. Ladies and gentlemen, as that was the last question for today, I now hand the conference over to Mr. Gokul Jaykrishna for closing comments.
Gokul M. Jaykrishna
Thank you everyone for joining the con call this afternoon and taking your precious time out. It was wonderful interacting with you. And I hope to come back to you with the Asahi team for the next half year as well with better numbers and better brighter prospects. And we bring also the hope of deleveraging, consolidating and growth. Thank you, everyone.
Operator
[Operator Closing Remarks]