Speaker #1: Ladies and gentlemen, good day. And welcome to Acuitas Limited Q2 FY27 earnings conference call. Hosted by Aqiris Securities Private 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.
Speaker #1: Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded.
Speaker #1: I now hand the conference over to Mr. Siddharth Garekar from Aqiris Securities Private Limited. Thank you, and over to you, sir.
Speaker #2: Good evening, everyone, and thank you for joining us on Acuitas Chemicals Q2 FY27 earnings conference call. Today we have with us Acuitas Chemicals Management, represented by Mr. Naresh Patel, Chairman and Managing Director; Mr. Abhishek Patel, Vice President, Strategy; and Mr. Bhavin Shah, Chief Financial Officer.
Speaker #2: I would now like to invite Mr. Bhavin Shah to initiate the proceedings. Over to you, sir. Thank you.
Speaker #3: Thank you, Siddharth. Good evening, everyone. We are pleased to welcome you all to our earnings conference call to discuss Q2 and H1 FY27 financials.
Speaker #3: Please note that a copy of our disclosure is available on the investor section of our website as well as on the stock exchanges. Please do note that anything said on this call which reflects our outlook towards the future or which could be construed as forward-looking statement must be reviewed in conjunction with the risks that the company may face.
Speaker #3: The conference call is being recorded and the transcript along with the audio of the same will be made available on the website of the company and exchanges.
Speaker #3: Please also note that the audio of the conference call is the copyright material of Acuitas Chemicals and cannot be copied, rebroadcasted, or attributed in press or media without specific and written consent of the company.
Speaker #3: Now I would like to hand over the floor to our CMD, Mr. Naresh Patel, for his opening statement. Over to you, sir.
Speaker #2: Thank you, Bhavin. Good evening, everyone. I hope you are all doing well. With Diwali just around the corner, I would like to extend warm wishes from the Acuitas family to you and your loved ones.
Speaker #2: May this festival season bring you spring joy, prosperity, good health, and success to everyone. Wishing you and your family a very happy Diwali. I will start my remarks with pharmaceutical intermediate business.
Speaker #2: Demand environment remains robust and whatever cost pressures we face due to geopolitical issues, we have been able to pass them on successfully. On the generic side, several large products are going off pattern.
Speaker #2: We have already developed intermediates for those products long best. Therefore, we are benefiting from our strategy of developing products ahead of the market. Coming to CDMO, during our Q3 FY25 earning call, in January 2025, we had said our ambition of achieving 1,000 crore in CDMO revenue by FY28.
Speaker #2: Based on the current orders of existing as well as new CDMO contracts, we now believe we will achieve this target one year ahead of schedule.
Speaker #2: It means in FY27 we will be achieving this 1,000 crore. Here I would like to highlight that we continue to add very exciting products to our CDMO pipeline.
Speaker #2: A couple of these products we have potentially to become billion-dollar product for our innovator customers. Here I would like to say that this CDMO business will be double in next three financial years.
Speaker #2: It means from 1,000 crore to new target we had set as 2,000 crore by FY2030. Now let me move to specific chemicals. Starting with battery chemicals, from industry point of view, demand continues to exceed supply.
Speaker #2: I am happy to say that this was our first quarter of commercial revenue from battery chemicals business. Initial commercial shipment of our third product were dispatched during last quarter.
Speaker #2: We will see scale up of third product in coming quarters. We have also sent pilot scale validation batches of fourth product to the customer.
Speaker #2: Overall, the start is very encouraging and I believe we will see a very strong ramp up as we already have orders in our hand.
Speaker #2: Coming to semiconductor chemicals, I am happy to say that we have inaugurated our plant in South Korea ahead of schedule. This state of the art facility will manufacture chemicals that goes into photoresist packaging material, etching materials, and other semiconductor applications.
Speaker #2: We have been submitting multiple qualification batches to customers in South Korea. Which showcase strong customer traction. I believe FY28 will be year of ramp up for initial products while we will continue to add more products into the basket.
Speaker #2: Moving to BFC, BFC is seeing strong order demand from its US customers as well as we have started receiving orders from Korean and Japanese customers.
Speaker #2: During the last quarter, our US customer was acquired by another US-based company. This caused a temporary pause in the shipments. Supplies have now resumed and operations are back to normal.
Speaker #2: On commodity chemicals, facing the out of old product is going on as per plan and that is visible in our numbers as well. During sorry, turning to our performance for the quarter, we delivered strong revenue of 4,000 traded 69 million Indian rupees, which is growth of 42.7% year on year.
Speaker #2: This was driven by strong performance of our pharmaceutical intermediate business, whereas specially chemicals business was muted during the quarter. Since we are on track to achieve our CDMO earlier target ahead of time, we would now like to set our before I conclude, I would also like to revise our revenue growth guidance for current year from 25% to around 30%.
Speaker #2: We are also raising our EBITDA margin guidance to 38 to 40 between 38 to 40% range from FY27. With that, I would now like to hand over to our Vice President of Strategy, Avishak Patel, who will walk you through the detailed business update.
Speaker #3: Thank you, Naresh Bhai. Good evening, everyone. Let me share some additional insight into our business performance for the quarter. Starting with advanced pharmaceutical intermediate segment, this segment delivered robust performance with revenue of 4,020 million in Q2 FY27.
Speaker #3: Reflecting a strong year-on-year growth of 53.1%, CDMO business continued its strong growth trajectory, supported by robust growth in core pharmaceutical business. We are happy to share that we deliver more than 25% year-on-year growth in our core business.
Speaker #3: This quarter, driven by ramp up of new products as well as strong growth in top products. We are happy to share that we have received order for new CDMO contracts which are expected to start contributing revenue from H2 FY27.
Speaker #3: Moving on to specialty chemical segment, the revenue of quarter was 349 million, rupees 349 million, which is down 20% YOI driven by phasing out of old commodity products as well as temporary pause in shipment in BFC business due to ownership change of the US customer as highlighted by Naresh Bhai.
Speaker #3: I am happy to share the shipments have started and we are very much on target to deliver a growth in BFC this year. Now turning to the CAPEX, CAPEX for H1 FY27 was rupees 1,239 million, it is spread across electrolyte additive project, pilot plant, Indicam site, and maintenance CAPEX.
Speaker #3: Furthermore, for the full year, we believe our total CAPEX would be around rupees 3,000 million. So in H2 FY27, we plan to do additional CAPEX of rupees 1,650 million CAPEX, which will be around which will have around 1,000 million for electronic grade chemicals, rupees 450 million for second phase of electrolyte additive CAPEX, and remaining will be for the maintenance CAPEX.
Speaker #3: Please note this calculation does not include planned R&D CAPEX as well as the land acquisition. With that, I will now hand over floor to our Chief Financial Officer, Bhavin Shah, who will walk you through detailed related to financials.
Speaker #3: Over to you, Bhavin Bhai.
Speaker #1: Thank you, Avishak Bhai. I would like to briefly highlight the key performance metrics for the quarter and half year before we open the floor for questions.
Speaker #1: Let me start with quarterly performance. Revenue from operations for the quarter reached 4,369 million, representing 42.7% growth YOI. Gross profit for the quarter was 2,715 million, reflecting 59% increase compared to the same period last year.
Speaker #1: The gross margin expanded by 637 basis point YOI to 62.1%. Gross margin was driven by higher contribution from pharma intermediate business compared to the same period last year.
Speaker #1: EBITDA for the quarter was 1,760 million, up 84.6% YOI. EBITDA margins were at 40.3%, up 914 basis point YOI. EBITDA margin was driven by expansion in gross margin as well as operating leverage.
Speaker #1: PET for the quarter was 1,231 million, up 71.4% YOI. PET margins for the quarter were at 28.2%, which show an expansion of 472 basis point YOI.
Speaker #1: Moving on to the half yearly numbers, revenue from operations for H1 FY27 was 7,666 million, representing 49.3% growth YOI. EBITDA for H1 FY27 was 2,890 million, up 97.7% YOI, EBITDA margins were at 37.7%, up 922 basis point YOI.
Speaker #1: PET for the first half FY27 was 1,981 million, up 71% YOI. PET margin for H1 FY27 were at 25.8%, which show an expansion of 328 basis point YOI.
Speaker #1: Moving to the balance sheet item, net cash and cash equivalents were around 3,009 million as on 30th September 2026. Our working capital for the quarter stands at 115 days, vis-à-vis 99 days in Q1 FY27.
Speaker #1: This was driven by higher data days. With that, I request the moderator to open the floor for questions. Thank you.
Speaker #4: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone.
Speaker #4: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question.
Speaker #4: Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Abhijit from KIE.
Speaker #4: Please go ahead.
Speaker #1: Yeah, good afternoon. Thank you so much. And congratulations on the very strong results.
Speaker #3: Thank you.
Speaker #1: Just on the new CDMO products that you mentioned, which will begin contributing in 2H, any sense you could give us on the revenues that we should expect in this financial year itself?
Speaker #1: And then when we are speaking about this target of doubling CDMO revenues in the next three years, how much would be the contribution of these newer products within that target?
Speaker #3: So I am afraid that I will not be able to share the product-wise revenue guidance. That's the reason we are saying that we have we are very much confident to close this year with 1,000 crore revenue in CDMO segment because we have already got some good orders for the sum of the products which were already validated a few quarters back and now we are getting the orders.
Speaker #3: And we see a very good new business opportunity in this new CDMO as well as the sum of the CDMO pipeline. Which we are expecting to get a good revenue generation in coming quarters and years.
Speaker #3: That's the reason we are giving the 1,000, 2,000 crore kind of guidance for next three years. But. I'm afraid I will not be able to share any product-wise revenue bifurcation.
Speaker #1: Okay, got it. Just, I mean, maybe the number of products that you have that are getting commercialized this year, could you talk about that?
Speaker #3: There are multiple products as we said. The four products were already kind of validated a few quarters back and there are additional products which are getting commercialized this year.
Speaker #3: And there are eight to nine products in total you can say that these are getting getting into revenue stream in next one, one and a half year time.
Speaker #1: Understood. And the other one I just heard was on the specialty chemicals side. Of the key growth projects you have there, battery chemicals, semiconductor chemicals are now this electronic grade could you please help us with the, you know, timeline for commencement of revenues from each of these and what sort of trajectory we should expect from each of these?
Speaker #3: As we said, last time that now we are facing out some of our old legacy product related to parabenes and MS. And there those are getting replaced with some better margin and the futuristic product in that context only we have announced the CapEx related to bulk electronic grade chemical manufacturing.
Speaker #3: As we just announced the CapEx, it will take one and a half year time to get the CapEx to get completed. So maybe by H1 FY29 we should be we should be starting the production.
Speaker #3: But meanwhile the battery battery products are already started contributing in the revenue pie and that's the encouraging signal for our especially our pharma our our specialty chemical business side.
Speaker #1: Okay, got it. Thank you so much. And I'll get back in the queue for any more. Thank you.
Speaker #4: Thank you. Participants who wish to ask a question may press star and one on the touchstone telephone. The next question comes from the line of Aditya Iyer from HDFC Securities.
Speaker #4: Please go ahead.
Speaker #5: Hi, I'm Aditya.
Speaker #4: Yes, sir.
Speaker #3: Yes.
Speaker #5: Okay, so congratulations on a great set of numbers. So for the existing CDMO business, what kind of action are we seeing for Daryl Atom in terms of product adoption?
Speaker #5: And what kind of revenue potential do we expect from this molecule in the near future?
Speaker #3: So for Daryl Atom, we are not in position to comment anything about that product because it's not our product. It's a it's a innovator-driven product.
Speaker #3: And that is very much very well covered in the market. So for that, you I think it's better you refer all those already available public market information.
Speaker #3: What we are saying that based on the customers requirement of that particular product as well as the other customer based on that we are guiding that our CDMO revenue should get doubled in next three years time.
Speaker #5: Exactly. Okay. And for our Ankleshwar unit, what is the total amount that we invested and the utilization as of H1 FY27?
Speaker #3: For Ankleshwar unit, we have invested 330 crore. e. Utilization level for Q2 FY27 was 30%.
Speaker #5: And so by FY28, we are expecting peak utilization.
Speaker #3: Yes. Yes. It should largely get filled up by FY28.
Speaker #5: And in these electronic grade chemicals, when we say, do we mean battery grade or semiconductor grade chemicals?
Speaker #3: Both. Both. It will be kind of trajectory will move forward for various grades.
Speaker #5: Okay. So 50 one is to one mix or what is it?
Speaker #3: Sorry?
Speaker #5: I mean, is it 50-50 battery semiconductor grade or?
Speaker #3: No, as of now. What are you doing with the electronic grade chemicals? Going forward, we'll have we'll have additional plan, but not it will be starting with electronic grade chemical only.
Speaker #5: Okay. Thank you, sir. That's it from my.
Speaker #4: Thank you. The next question comes from the line of Mr. Siddharth Garikar from Equire Securities Private Limited. Please go ahead.
Speaker #5: Hi, sir. So the first question is on the electrolyte business. When we historically spoke about this business, the realizations for this product these products were closer to 10, 12 dollars.
Speaker #5: But in the last six, seven months, if you look at the prices, they have moved up to 35 dollars, 30, 35 dollars plus. So how should we think about this business going ahead in terms of the realization and margin?
Speaker #3: So we were right from beginning, we are saying that we have already signed long-term supply contract all in place. And based on that contract, we get the revised pricing based on the some of the key raw material price movement as well as the exchange rate fluctuation.
Speaker #3: So we are not riding on those some of the waves wherein price fluctuation we don't want to get benefit from those price fluctuation or when it gets down, we get down.
Speaker #3: It is more offer we look into our plate and we get our good profit wherein we get a timely payback of our investment and then look for a newer projects.
Speaker #3: These are what the policy philosophy what we are following.
Speaker #5: Okay. So when someone modeling perspective, when we look at the revenue potential from these projects, should we assume like an asset turnover or they would be more closer to spot prices given that raw material prices also could be volatile?
Speaker #3: No, for the for the understanding of your thing as well as you know, it was near to kind of double digit kind of dollar value.
Speaker #3: So there will be additional some of the realization because of price movement, but it will not be kind of 30, 35 dollar kind of kind of pricing.
Speaker #3: It will it can be early teens kind of pricing scenario.
Speaker #5: Okay. So second question on the electronic chemical business. Given that it seems like a 2x asset turnover where your realizations are closer to one, one and a half dollars.
Speaker #5: So can you give some sense on what kind of product this is and what would be the major end applications and it would be more like a commodity chemical or a niche molecule in this space?
Speaker #3: First thing, we are not saying it is a kind of 2x kind of asset and it will be 3 at least 3x kind of asset and we are expecting there we have not commented anything on the realization side.
Speaker #3: But what we are saying that it will it will be a kind of bulk electronic chemical and solvent products.
Speaker #5: Okay, got it. So I mean, timelines for this still remains FY29?
Speaker #3: Yes, first half of FY29. It will take around one and a half years to get completed in CapEx.
Speaker #5: So in the last question is on the CDMO. So when do we expect the next round of CapEx given that now we have given a guidance for 2000 crores by FY30?
Speaker #3: So next round of CapEx as we just discussed that plant utilization at Ankleshwar may get filled up by year 2028. So then that's the reason we are already starting with our future plan and that is for land acquisition.
Speaker #3: Then we'll plan for the next round of CapEx that size and scale we'll decide based on that.
Speaker #5: Okay, sir. Thank you so much.
Speaker #4: Thank you. The next question comes from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Speaker #2: Yeah, thank you. And congratulations on sustaining strong execution yet again Nareshbhai. My questions are first, as the Korea semiconductor facility, you know, moves from qualification into commercial ramp up in next fiscal, should we expect the initial economics to be somewhat lower at the company level?
Speaker #2: You know, given utilization and startup cost before improving as the volumes scale up, I mean, what would need to happen for the business to reach its targeted steady state economics?
Speaker #2: That's my first question. Thank you.
Speaker #3: So obviously the plant was inaugurated last quarter only and now it's a time time to first get the customer qualification process going. So that's the reason for this financial year we are not giving any tall commitments from next financial onward only it will have some revenue coming up.
Speaker #3: So obviously it will not be a kind of huge revenue or profitability. It will slowly ramp up but the encouraging things is we are getting a very good customer inquiry.
Speaker #3: We are already started submitting the sample as well as the pilot scale dispatches. And that's that's the kind of confidence we can get from that newer geography where we are operating.
Speaker #2: Sure. Helpful. And second, you know, as CDMO programs move from launch into commercial scale as you just highlighted, there can sometimes be, you know, an initial inventory build followed by normalization.
Speaker #2: So given the revised 2000 crores CDMO target by FY30, how confident are you that this growth will increasingly be diversified across multiple customers and multiple molecules rather than you know concentrated in one or two molecules?
Speaker #2: And if you could just you know broadly mention how many programs do you expect to become you know or how many programs you expect would be material contributors in let's say FY28?
Speaker #3: So as we already discussed that we have multiple products for which the validation basis were already submitted few quarters back. Now they have started giving the contribution in terms of commercial revenue and there are 8, 10 products already in pipeline.
Speaker #3: So that's the reason we are very confident that we will be again able to achieve this second milestone of 2000 crore revenue by FY30 despite of any cycle industry cycle moving up and down.
Speaker #3: We are confident that we will achieve those kind of revenue targets.
Speaker #2: Excellent. Excellent, sir. So just to clarify the second 1000 crore. So 1000 we will achieve this fiscal. The second 1000 crore will be a lot more diversified and and broad based in terms of molecules and and customers, right?
Speaker #3: Yes, absolutely right.
Speaker #2: Yeah, yeah. Thank you. Thank you. That's all.
Speaker #4: Thank you. The next question comes from the line of Nilesh Ghuge from HDFC Securities. Please go ahead.
Speaker #5: Oh, yeah. Thanks. Thanks for the opportunity. Just one question. When when we are saying 1000 crore of revenue in FY27, so what will be the utilization of our CDMO unit at Ankleshwar?
Speaker #5: And as you mentioned, there is no further CapEx required till 2000 crore CDMO revenue. So what will be the utilization FY in FY30 when we achieve CDMO revenue of 2000 crore?
Speaker #3: So for last quarter, as we said, it was a utilization of 30%. So is when we reach this financial end of this financial year, it should not be more than let's say 40% of the total utilization at unit to Ankleshwar.
Speaker #3: For the future, it is difficult to say as of now because it's a function of multiple things. The volumes, the realization, and the kind of processes.
Speaker #5: Okay. Thanks. Thanks a lot.
Speaker #4: Thank you. The next question comes from the line of Pars Dhalia from Union AMC. Please go ahead.
Speaker #5: Yeah. Hi. Thank you for the opportunity. I just had one question. So this is specifically on Daryl Tomide. So Bayer's recent trial showed that given the risk of metastasis or death by 58% in high risk localized prostate cancer, so if this goes into approval, you know, without going into product specifics, how do we think about the volume opportunity if that indication expansions come comes through?
Speaker #5: And directionally, do you have the capacity and contractual framework in place to support that meaningful step up of volumes over the next two to three years?
Speaker #3: So as you know, we are intermediate supplier for this API called Daruta Mide and what you are talking about is the formulation market and their indication.
Speaker #3: So at least being at the bottom of the pyramid, we are not able to comment anything on those programs. But this is good for you or the market to understand how the products are going.
Speaker #3: For us, what we track is what we are getting from the customer and we should be the beneficiary whatever our customers is gaining in the market.
Speaker #3: And that is what we see that we are getting a good traction in this product as well as for the next three years. And that is how we are going giving the good guidance also.
Speaker #5: Understood. Got it. But just extending the question to let's say if Bayer for the formulation opportunity are there upside estimates do you reckon that?
Speaker #3: Sorry, your voice is breaking.
Speaker #5: Sorry. Is it better now? So I was just a follow up on that question. Let's say to the innovator sales, the formulation sales is is does this trial lead to a meaningful upgrade in their numbers?
Speaker #3: We don't. We we we are not very well placed to comment on whether there's formulation market is how much they are going. I think that we will not be able to comment on this.
Speaker #5: Okay, no problem. Thank you so much.
Speaker #4: Thank you. A reminder for all the participants. Participants who wish to ask questions, may press star and one on the touch tone telephone. The next question comes from the line of Rohit Nagaraj from 361 Capital.
Speaker #4: Please go ahead.
Speaker #5: Yeah. Thanks for the opportunity and congrats on a very strong set of numbers. So first question is on the CDMO front. So the 2000 crore guidance for FY30, in terms of EBITDA margins, would it track the current margins on 1000 crores or would there be some kind of a dilution that we're expecting?
Speaker #5: Thank you.
Speaker #3: Largely it should be in the same same range what we are getting for the CDMA business as on date.
Speaker #5: Sure. And second question is on the semiconductor chemicals. Given that our plant is operational, we are probably sending the validation batches to the South Korean players.
Speaker #5: Are we also engaged with any of the Indian counterparts for validation? And are there any immediate plans of if not, are there any immediate plans of serving them?
Speaker #5: Thank you.
Speaker #3: So you are when you are say Indian that means you are talking about Indian semiconductor manufacturer. You are referring to Indian semiconductor industry?
Speaker #5: Yeah. So the ecosystem which is getting developed now and which probably will be operational over the next couple of years.
Speaker #3: So for as of now, whatever we have kept planned, the capacity, that is for the for Indicam, it is Korean ecosystem and then after outside Korea geography like Japan and Taiwan.
Speaker #3: From India, Baba Fine came again because the this ecosystem is yet not that matured and we have already market available in the export market.
Speaker #3: So that's the reason we are targeting more of a Korea Japan US market only. That is where we are getting very good traction also.
Speaker #3: In future, when this ecosystem gets developed, we would be happy to part of that. But as of now, all our capacity as well as the business development largely focus on the exports market only.
Speaker #5: Sure. Just one clarification. In terms of products, once they get validated from our international customers, would it be relatively easier and with a shorter period of time frame to validate for the Indian counterparts?
Speaker #3: Let me answer this. See, customer validation is their internal process. It's not that one customer big customers approve means that that product can be used by someone else.
Speaker #3: Immediately. So it's a because their process and the requirements are different. So the validation process is robust, long term time consuming and it's a long term.
Speaker #3: So but beauty is that Acuitas and Indicam has a capability to produce very high end chemicals and our process is validated. Our our manufacturing side is validated.
Speaker #3: That will help us to consider our Indian customer to as a based on the experience what we have. So that will this is an advantage against the other competitor of us.
Speaker #5: Perfect, sir. Thanks a lot for answering all the questions and all the best.
Speaker #3: Thank you.
Speaker #4: Thank you. The next question comes from the line of Bharat Shah from Bharat Shah Capital Ideas Private Limited. Please go ahead.
Speaker #3: Thanks, Harish Nay. Hattick, congratulations. To you and Acuitas team.
Speaker #5: Thank you, sir. Thank you, Bharat. Bye.
Speaker #3: Thank you. Anay just wanted to have two important views. Over the last three to four years, we made a considerable progress in converting the sheep of our farmer.
Speaker #3: From commodity chemicals to the speciality and from limited relationships to more customer and sticky long term relationships. Our margins top line and capital efficiency all reflect the painstaking work of the past.
Speaker #3: Now that we'll be staying and good part of the capex for the future is under our belt. When you look at next five years, what are your key aspirations?
Speaker #3: And what are the milestones with which you will like to define Acuitas or Amees journey ahead? And secondly, as you stand, it is important juncture where we have achieved made a considerable progress but many more important milestones are lying ahead.
Speaker #3: What are your key apprehensions or challenges that you perceive?
Speaker #5: Bharat guys, thank you very much. First of all for seeing of a journey right when we started in IPO 2021 till today. You are always inspiring and motivating us.
Speaker #5: It's a journey which is now giving the fruit of what we had done in last one decade and transforming family company into the structure and professional company focusing on each area right starting from raw material secure to process strengthening to operational efficiency to manpower upgrading technology implementation process improvement plant atomization and at the end of the day customer satisfaction.
Speaker #5: We are a community effort of our last one decade working which is giving fruit now. Regarding what you say the inspiration for next five years I have a visibility of for the generic as so many time I say that we have developed a lot of molecule which having an expiry up to 2045.
Speaker #5: So this is how we are working in our research department for generic portfolio strengthening whereas for regulated market we have a long term agreement with several customers and that is also helping us to guide for next three years we had revised our CDMO target from 1000 to 2000 crore based on these new CDMO as well as the old CDMO.
Speaker #5: Pipeline. And considering transforming company from a pharma to speciality chemicals and multi multi applications for the chemistry now as I said when we made it was a very very primary stage of the battery chemical now it is almost mature and having very strong section from the customers long term orders are in pending with us and now it's commercial supply also started so slowly slowly is ramping up and is now self sustained.
Speaker #5: And the second stage is the semiconductor segment which is a very important for us because it's a very the beauty of semiconductor business is that everybody cannot be they start today and entered into market because it's a very technical driven very high purity chemical production and very customer sticky business.
Speaker #5: So that is helping us by acquiring Baba Fencam has open our door right from the first day into the ecosystem and then this ecosystem has learned teach us how to go for the more pure material and that's how we put Indicam in South Korea.
Speaker #5: So this is a it's like a business is teaching us and we are learning very quickly and we implementing also very fast. This experience also helping us when there is a ecosystem start in India for some today there is no any demand for something like a chemical India because it's they are not very started.
Speaker #5: But once the phase is start we are one of very few out of them having all the experience of very high pure chemical production and that will help us to immediately cater the market in India as well.
Speaker #5: So this is how our aim is that in five years this would be not known as a chemical pharma company but as a chemical company having multiple multiple avenues which can be apply supply chemical in a different sector.
Speaker #3: Thanks. What is your opinion are changeable and more qualitative aspirations that you that you believe Amee Organic says likely to fulfill in the upcoming five year journey?
Speaker #3: And what what possible apprehensions that you carry in your mind or concerns about potential challenges?
Speaker #2: Let me just give some internal matters at our end. As Naresh bhai shared his vision that he want to create an organization which is not only focused on on a pharma chemical but then we are getting into the multiple chemistry related to battery related to semiconductor related to electronics and there are other multiple areas where we are already working.
Speaker #2: For us internally as tangible we work on a let's say on a various parameters related to the capital deployment ROI ultimately the business has to be self sustained standing on its own feet as well as generating a long term cash flow and sustainable growth in the future.
Speaker #2: Like for the battery chemical we started with two two products then we keep on adding multiple the third and fourth products are already commercialized and then it should generate a good cash flow every year and then comes the sustainability in terms of sustainability what we are doing is we are building a very good healthy customer relationship by not focusing as we discussed in last question only that we are not riding on those 30 35 kind of pricing wave rather than we are focusing more on the customer relationship.
Speaker #2: So these how we want to convert this business into long term sustainable cash generating machine and that is what we are focusing for each and every business what we are targeting it's not that we start the business today we run for three years and then we want to just let it it it can go down it has to be sustainable long term business only that is what we are focusing on each of those businesses.
Speaker #3: And concerns if any?
Speaker #5: The concerns are always there Bharat bhai and we have to find out we have to find out the way out of the concern there is a geopolitical issues are there supply chain logistic operational electricity water there are so many constraints are always coming you have to find out the way out of that that is what we are doing day to day operation and for like semiconductor ecosystem is happening in India if it is delayed it will be a delayed of implementation in India.
Speaker #5: So similar kind of opposite are also it's a huge opportunity for Indian chemical manufacturer in India as well as abroad. And whatever the current mindset of China free is helping Indian Indian chemical manufacturer on their own capacity to grab the opportunity which is available.
Speaker #5: So these are sometime you grab a lot of opportunity but you cannot able to grow all because of the competition as well. So these all things has to be considered and this is what we do whenever we enter into segments we first analyze everything whether it is good for us sustainable for us long term what will be the situation of the market and all and then we enter in that segment.
Speaker #5: So this is what we we try at most that all the all the concern need to be covered but then if on unexpected will come that will be a to face that.
Speaker #3: Sure. Just one last thing. We have come a long way over last few decades from Amee to Qtars. And we built a lot of tremendous strengths even even as we still remain relatively rather modest in the size of turnover in business but rapidly progressing.
Speaker #3: Would you Naresh bhai say that the coming decade will be the most defining and probably most momentous decade in the in the kind of future that you visualize given the opportunity in this space?
Speaker #5: Absolutely sir. That is what I said that last last decade was our foundation year decade where we done lot of feeding now the feeding one by one is giving us the fruit so now from the next decade will be the more important decade for us in terms of getting fruits out of whatever we seeded in last one decade.
Speaker #3: Sure. Thank you Naresh bhai all the very best and to the entire team for a tremendous transformation of the firm.
Speaker #5: Thank you Bharat bhai. Thank you very much. Happy Diwali.
Speaker #1: Thank you. The next question comes from the line of Prateek Dharamshri from Union Mutual Fund. Please go ahead.
Speaker #3: Yeah. Thanks for giving the opportunity. Many congratulations Naresh bhai Abhishek k bhai for a splendid set of numbers. Just my question is on the the new CDMO projects which you're working on.
Speaker #3: So you mentioned initially you used to mention around four new projects or CDMOs you're working and now the number has gone up to seven eight.
Speaker #3: Some color on the therapy would be really appreciated apart from you used to mention around 50 crore each sort of molecule. Is the 100 similar or you are expecting some change to it?
Speaker #3: Is it accelerating based on now the commercial supplies are starting? So some more color on it would be really helpful. Thank you.
Speaker #2: For CDMO projects because these are all innovator driven projects we are not able to at least share any details related to their product or their therapeutic segment or their potential but as we generally say that for the non blockbuster product 50 to 100 crore is the kind of range because that's the kind of revenue we can get it as a intermediate player but as Naresh bhai mentioned there are some of the very exciting projects already going on and we say as a better revenue possibility and that's a that gives the confidence that it will be a good growth engine in future also in terms of newer CDMO projects.
Speaker #3: Got it. Yep. Thank you and all the best.
Speaker #2: Thank you.
Speaker #1: Thank you. The next question comes from the line of Meet Vora from JM Financial. Please go ahead.
Speaker #4: Thanks. So the opportunity. So what gives us the confidence to increase our EBITDA margin guidance to 38 to 40 percent beyond FY27 on a sustainable basis because this quarter we have mentioned in our presentation that higher margins are led by gross margin and operating leverage.
Speaker #4: But will this operating leverage continue going into FY28 as well? Or maybe this upgrade is more to do with higher contribution mix from CDMO?
Speaker #2: So first thing at a material or the gross level the margins are always function of the product mix. As you see that just our battery chemical business has just started in this quarter so that's the reason the large portion of the revenue is coming from the pharma intermediate and growth is driven by CDMO segment that is where the high margin is coming and with the kind of order book we have already in place for the edge to FY27 we are we are confident to achieve this thousand crore margin which converts into a good kind of margin for FY27.
Speaker #2: That's the reason we have raised our margin guidance. Related to operating leverage obviously as and when this revenue keeps on increasing within the same premises or the facility the operating margin has to kick in as we just mentioned the 30 percent utilization level at a unit two and the obviously the very low utilization level at the our electro our battery chemical business the operating margin will keep on adding once those production level scales up.
Speaker #4: So this 38 to 40 percent EBITDA margin guidance is for FY27 or this continues for 2027?
Speaker #2: FY27.
Speaker #4: Oh okay okay. Yeah that's it from my side. Thanks a lot and best of luck for coming quarters.
Speaker #2: Thanks.
Speaker #1: Thank you. The next question comes from the line of Siddharth Negandhi from CWC. Please go ahead.
Speaker #3: Thank you. Congratulations on a great set of numbers. Three questions from my end. On the pharma intermediates business you mentioned that CDMO could achieve thousand crores in FY27.
Speaker #3: Could you help us understand how much of that is already in the bag in H1 which is your pharma intermediates business the the innovator and generic split?
Speaker #3: That was question one. The second question was on Daro can you potentially double the supply from the same facility over the next two years or will you need Capex and what is your current utilization and your wallet share in in this and the third question was on the base business in specialty chemicals.
Speaker #3: So how many more quarters before this complete the commodity chemicals completely go off business and most of this will be will be the battery chemicals and the other specialty chemicals.
Speaker #3: Yeah these were my three questions.
Speaker #2: For related to CDMO first thing we are not doing any generic work. We we are doing all the CDMO projects with the originator only.
Speaker #2: So these are all originator business. No generic piece over there. Related to what question related to what is in our bag. So as Naresh bhai already mentioned this thousand crore mark guidance for the this financial year is based on the customer visibility and the contracts in place.
Speaker #2: So that is very much very good achievable. Definitely achievable target for us. Your second question related to the kind of split in the business or the market share we are not able to comment on this because we only see what originator gives us as a business and that is what we are guiding.
Speaker #2: We are not concerned about the the kind of who are who and what who are getting what. Third question related to specialty chemical business.
Speaker #2: See we have already started scaling down this old legacy product related to Paraben and MS. It takes some time because right at upfront we cannot say no to the customer because they also need to their develop their alternative vendor and supply line.
Speaker #2: So that's the reason it may take around one one and a half year to scale down this business. MS business we may continue for some time because for there are some good customer already in place.
Speaker #2: So it will take some it may take some time beyond one and a half year also to scale down MS business.
Speaker #3: Got it. Sorry. Just a clarification on the first one. What I meant is not that CDMO is generic. What I meant is if I look at the advanced pharma intermediates segment right part of that is CDMO business and part of that is base business.
Speaker #3: If you could help us with that split.
Speaker #2: Okay. We sorry also we are not giving those split also. We see completely as a pharma intermediate business only. But definitely it will cross the thousand crore mark as we already committed.
Speaker #3: So so but but when you say when you say thousand crore crossing in that business you mean not for the advanced pharma intermediate segment only CDMO within that outside of the base business right?
Speaker #2: Yes yes yes.
Speaker #3: Got it. Got it. Clear. The second one while while clear on you know you not looking at wallet share. Could you give us some color in terms of Daro if you have to potentially double the Daro supply right.
Speaker #3: Will that need more Capex or are you you know where are you in terms of utilization of the facility there and and how how should one look at that?
Speaker #2: As we said the capacity utilization is 30 percent only. So there is some room available but we are not disclosing anything about the whether it is able whether it is sufficing the production requirement or not.
Speaker #3: Confidential. Okay. Very clear. And and last question on South the South Korea facility. What are the markets that you will target for supply from this facility?
Speaker #3: Will it be Korea Japan primarily? Are you looking at some cell manufacturers in India or Southeast Asia also? How should one think of that business?
Speaker #2: Over Korea it's a semiconductor business. So our target customer for photoresist and the fab industry and a semiconductor consumption industry. It's not a kind of cell manufacture and largely because those are based in Korea and Japan.
Speaker #2: These are our potential customer market.
Speaker #3: Understood. Sorry. Sorry. Got it. Got it. Thank you. Thank you. Thank you very much. And wish you all the best.
Speaker #1: Thank you. The next question comes from the line of Juhi Kumari from Nagnolia Financial Services Limited. Please go ahead.
Speaker #3: Yeah. Thanks for the opportunity. And congratulations on the strong set of numbers. My first question is regarding the battery electrolytes additives production. It was expected to start in second quarter FY27.
Speaker #3: So just wanted to know that has the commercial supply begun and what was the revenue contribution during the current quarter?
Speaker #2: We have already started commercial supply for VC and FEC as well as the third product also ahead of the time. And the fourth product the validation batches are already been supplied.
Speaker #2: At a from a pilot scale. Revenue contribution we are not disclosing. It is just a start and ramp up is expected in next two to three quarter.
Speaker #3: Okay. Sure. Thanks. And my second question is regarding what portion of the remaining 349 million specialty chemical revenue is still compromised of commodity chemicals.
Speaker #3: Scheduled for exit. And once this phasing out is complete and BFC normalizes what is the steady state quarterly revenue expectation from specialty chemicals?
Speaker #2: For specialty chemical we have not giving any split between spec over traditional specialty chemical product or the battery chemical. But it will remain in this territory and with a ramp up from the battery chemical business.
Speaker #2: Overall there will be a there will overall there will be a growth as against what number we have reported last financial year.
Speaker #3: Okay. So we expect this to remain in a state where it is being in the first half FY27.
Speaker #2: Yes.
Speaker #3: Okay. And just one last question about the gross margin expansion that has expanded significantly to 62.1 percent this quarter. How much of this expansion came from raw material prices softening versus a structural shift in product mix towards higher margin?
Speaker #2: Gross margin expansion is a function of both product mix as well as the as well as the raw material. So in total it's a we cannot bifurcate between the raw material price escalation or the or the kind of product mix.
Speaker #2: It's a function of both.
Speaker #3: Okay. So is there any like leverage that we have got from raw material price softening this quarter?
Speaker #2: No. No. We are not seeing that raw material price has soft softened in this quarter. In fact that is not that is definitely not the case.
Speaker #3: Okay. Okay. Okay. Yeah. Thanks for the answer and all the best for the coming quarters.
Speaker #1: Okay. The next question comes from the line of Basanth Bansal from NBG Investments. Please go ahead.
Speaker #4: Yeah. Good evening. My question to you is that in the first half our pharma revenue is 695 crore. Can you tell me out of 695 crore how much is CDMO?
Speaker #2: 95 crore. I didn't understand.
Speaker #4: 695 crore. 695 crore is our first half revenue.
Speaker #2: So sorry your voice is a little echoing. You are saying out of 695 695.
Speaker #4: No. No. I am saying I'm I'm seeing your slide number six wherein the revenue from pharma intermediate vertically shown as 695 crore. I want to know out of this how much is CDMO.
Speaker #2: Okay. Oh sorry. We are not disclosing those split but in in subsegment of this pharma intermediate business.
Speaker #4: Okay. Okay. And can you tell me in percentage terms if possible?
Speaker #2: No. Again it's the same thing sir.
Speaker #4: Same thing. Okay. Okay. No problem. Thank you. Thank you.
Speaker #1: Thank you. Ladies and gentlemen we will take this as the last question for today. I now hand over to the management for closing comments.
Speaker #1: Over to you sir.
Speaker #3: Thank you Aquarius team for hosting our conference call. We appreciate everyone's question. And hope we are we have addressed most of your queries. If we missed any of your questions please reach out to our investor relations team and we will get back to you promptly.
Speaker #3: Once again thank you very much and happy festivals.
