Ladies and gentlemen, good day, welcome to Aarti Drugs Limited Q1 FY 2024 earnings conference call. This conference call may contain forward-looking statements about the company that are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Adhish Patil, Chief Operating Officer and CFO of Aarti Drugs Limited. Thank you, over to you, sir. Thank you. Good morning, everyone. Hope everyone is doing well. On behalf of Aarti Drugs Limited, I extend a warm welcome to everyone joining us today to discuss our financial results for quarter ended 13th June, 2023. On this call, we are joined by Mr. Harshit Savla, Joint Managing Director, Mr. Harit Shah, Whole-Time Director of Aarti Drugs Limited, Mr. Vishwa Savla, Managing Director, Pinnacle Life Science Private Limited, and SGA, our Investor Relations Advisors. I hope everyone had an opportunity to go through the financial results, press release and investor presentation, which we have uploaded on the stock exchange and on the company's website. The company reported a decent performance in Q1 FY24, with a top-line growth of 6.3% YOY on a consolidated basis. Revenue stood at INR 661.7 crores, as against INR 632.3 crores. EBITDA stood at INR 84.7 crores, as against INR 67.4 crores in Q1 FY23, a growth of 26%. EBITDA margins are at 10.8%. The company's performance improved on a year-on-year basis due to normalization in the input costs, the effective working capital utilization. On a year-on-year basis, EBITDA margins improved by around 200 basis points driven by increased capacity utilization. With cost of raw material stabilizing, our gross margins has improved in the current quarter and will continue to improve further going ahead. PAT stood at INR 48 crores as against INR 12.8 crores in Q1 FY23, a growth of 58%. PAT margins stood at 7.3%. Our entry into the dermatology segment and the implementation of backward integration in the second half of FY 2024, along with stable input costs, are expected to accelerate margin expansion. Upcoming quarters are likely to witness EBITDA margins on a potential basis. Coming to standalone performance for the quarter, the revenue for Q1 FY 2024 stood at INR 591.6 crores as against INR 551.2 crores, a growth of 7.3% YOY. The standalone business contributed around 36% to the consolidated revenue for the quarter. Around 60% of this revenues came from the domestic market and around 32% from the export market for Q1 FY 2024. Domestic revenue grew by around 13.6%, while exports degrew by around 4% year-on-year for Q1 FY 2024. The API business experienced significant growth with a volume increase of around 18%, primarily fueled by the rising demand in the domestic market. Within the API business, the antibiotic therapeutic category contributed around 48%, anti-diabetes around 13%, anti-protozoal around 17%, anti-inflammatory around 11%, anti-fungal around 7%, and the rest contributed around 4% to the total API sales for Q1 FY 2024. API export faced challenges this quarter as some export geographies experienced USA shortages, leading to slower growth in those geographies. In Q1 FY 2024, the formulation business segment recorded a revenue of INR 89.9 crores, constituting approximately 14% of the total company revenue. The majority of the revenue, accounting for 57%, was attributed to export sales, which has seen a remarkable increase compared to the previous year. The company's dedicated focus on increasing regulatory filings has led to this significant boost in export revenue. As a result, it is expected that the proportion of sales through exports will continue to grow in the future, particularly in the semi-regulation and regulation markets. To further strengthen its market position, the company is committed to investing in new product launches, regulatory filing, and capacity enhancement. The specialty chemicals business experienced a year-on-year impact in Q1 FY24. Primarily, due to the absence of a couple of campaign-based products during the period, the specialty chemical industry is currently confronting challenges on a global scale, as China has reopened and is flooding the international markets with their products at lower prices. Despite this reopening, the demand within China itself is not sufficient, prompting them to export at cheaper rates. The chemical sector is experiencing a decline in prices due to reduced demand from Latin America, Europe, and U.S. As a result of this pressure, export numbers for Indian pharmaceutical companies have faced pressure in Q1 FY24. It has also impacted us to some extent. We have coordinated action plans to mitigate this impact and are determined to seize every possible opportunity for potential growth in this sector. The capital expenditure incurred during Q1 FY24 amounted to INR 38 crores, and it is projected that the capital CapEx for the entire fiscal year will be between INR 250-350 crores. Notably, all of the CapEx plans, including Gujarat, Sayakha CapEx, and Tarapur CapEx on dermatology and specialty chemicals, both of which belong to high-margin activity category, are scheduled to be completed within this fiscal year. The implementation of these projects is expected to lead to improved growth prospects for the company moving forward. Commercial operations for these projects are set to commence in Q3 FY24. On 21st July, 2023, the board of directors of the company has approved the buyback of 665,000 fully paid-up equity shares, representing 0.73% of the total number of outstanding equity shares of the company, at a price of INR 900 per equity share, as a part of our distribution policy, payable in cash at an aggregate amount of up to INR 68 crores on a proportionate basis for the tender offer. This shall bring the total distribution of around INR 280 crores over the last eight years, in the form of either dividend or share buyback route, inclusive taxes. Throughout this year, our primary focus is on augmenting our capabilities and improving our product offering to consistently meet the ever-changing demands of the clients. Despite facing immediate challenges, we are steadfast in our approach, addressing them, and maintaining an optimal outlook and potential within both the API and non-API industry. We anticipate a robust growth trajectory across all segments in coming term. This growth is expected to be fueled by the successful execution of existing projects and the increased utilization of our current capacities. In the formulation business, we foresee a consistent rate of growth in next quarter. With this, we can now begin with the question and answer session. Thank you. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handouts while asking a question. Ladies and gentlemen, we will wait for a moment for the question to assemble. Participants, may press star and one to ask a question. We have the first question from the line of Rashmi Shetty from Dolat Capital. Please go ahead. Yeah, good morning, everyone, and thanks for the opportunity. Could you comment on, you know, your, performing capacity, which in last quarter you said that, you know, we will be adding up new capacities? Also, can you explain on the teams, you know, whether the utilization has picked up, in this quarter or it is still not contributing significantly? Regarding the performing, we finished the expansion plan. Our plan was to scale up the increase in capacity by 13% to around 14, 15 tons per month in capacity. We have completed that expansion. Because of the expansion, our capacity was flat for some period, and that also led to the decrease in the volume sold in mid-seven in Q1 FY24. Now that is complete, and we expect performance sales to grow henceforth. As far as the teams are concerned, right now, for the third quarter, there is not much increase in the sales of the teams, but to discuss about it for future, I will ask Bhavesh to comment on this one. Yeah, we are considering 2 clippings, things, slowly and steadily. If we had some more time to take significant leadership position- ... we expect our cost due to our backward integration in and making from basic stage will help us to improve our market shares slowly and steadily. Sir, what is holding back? Is it that the demand is slowing down, and that is why you could not supply or the orders are less? What exactly is happening? See, what is happening is, when product goes off patent, at least 20 beauty players wanted to market the same product at the same time. You know, ultimately each will have, what will come to 3 to 4 players, over 1 or 2 years or 3 years. It will take more time to consolidate, you know, basically. Those players who have gone backward integration and those who have product players who have cost efficiency, that will ultimately take more market share. Got it, sir. Anything with the execution of this, you know, major CapEx, which we are expecting, you know, by FY 2024, we will see. What kind of revenue growth are we seeing in FY 2024, 2025, that we should build in? EBITDA margin, you know, what are you looking for in FY 2024 and 2025? Yeah. As far as EBITDA margins are concerned, right now we were around 12.8%-13%. We expect to close this current financial year with a comfortably EBITDA of, you know, 13.5%-15%. We still hope for it. Going forward, it should improve with the newer tickets coming in. As soon as the revenues are concerned, we feel that in the current year, in around 10% we'll try to achieve. That will be challenging because there has been negative rate variances that we have seen so far, because as you know, that the input prices have gone down and so are the selling prices. That will keep the downward pressure. In spite of that, because of good volume growth, we are expecting, at least to touch, you know, 10% growth in the current financial year. With the addition of new capacity, the potential would be around, say, around INR 1,000 to INR 12 billion from both the projects. You can safely assume, say, around, you know, 30 odd percent utilization, 30%-40% utilization in the FY25. Okay. Is it safe to say that in FY 2025, we should grow in the range of 13%-14% on revenue front, and probably EBITDA margin from the 15% level, we can reach to around 16%-17%? We select the 15%-16%, because when we launch those products, obviously there will be some free role, because of existing players as well. Yeah. The first year might be, like, similar, not too high, but we definitely hope that going forward, we should be able to increase our margins with this next projects. Okay. Thank you. That's all from my side. Thank you. Thank you. The next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead. Sir, the first question is on the API business. You indicated, you know, that volume growth in API is 18%, if I heard it correctly. Is this in aggregate? If that is the case, what has been the impact on pricing year-over-year for you on API? Is it by how much is it lower? Okay, yeah. That was on the aggregate business, what I told you, and majorly the entire volume growth is because of the domestic market, frankly speaking. As far as the rate is concerned, around year-on-year, almost on aggregate basis, we have, there is minus 8%, 9% growth as far as the rate is concerned. Okay. I mean, if I were to compare it with fourth quarter of previous year, fourth quarter FY twenty- Okay. Okay. How have the prices for your APIs moved? Yes. If you compare with the March quarter, the differential this is the prices have gone down by around 3% to 3.5%. The same thing, what you can see on the purchase side, also around, you know, 2% to 2.5%, prices have gone down. Okay. Input prices compared to, a year ago, where, I mean, how much have they dropped? For example, down to- Understood. so June, if you compare June versus June quarter, I mean June 2022 and June 2023 quarter, then the input prices on an aggregate basis have gone down by 15%-16%. 15%-16%. I mean, would it be a case, you know, that given there's a 15%, 16% drop in input prices Mm-hmm. You know, the output prices, will also drop some more, you know, to achieve parity between the drop in, you know, in input prices? Would it be a case that there could be some pressure on margins because of price pressure on finished API products going ahead? Ideally, lower interest rates means better margins, ideally. It will not put pressure. Only thing, only problem is then there is a sudden movement in a short period, that one quarter, sometimes there might be inventory losses. As of now, we are not seeing further volatility, though we have seen around 2.5% drop in the purchase price as compared to March quarter, in June 2023 versus March 2023. Still, what we saw that, from the month of May till through the month of June, prices were stable. In one show this year, were you carrying some high-cost input inventory, and therefore, you know, the blended price that you have probably is higher than the spot prices. Is that also okay? Yeah, some, yeah. Sometimes, our input booking is for the longer tenure. In some particular cases, it can happen like that. For you, listening to the consecutive quarter, which is Q2, your input prices will fall further down if the market prices of the KSMs and solvents remain stable because you had some high-cost inventory. Now the input prices are not falling down. There are specific cases, there are always specific cases, like in few categories or few particular raw materials, like antibiotics and some other things. We have seen drop in prices, but we have a few prices are a few raw materials. On an aggregate basis, there is no drop now. Yeah, there is no drop in the market prices. Would your average inventory cost, you know, in this quarter, because it was blended with some high cost, for you sequentially also, that should ideally reduce? Is that correct? You know, sequentially from 1Q to 2Q, because you'll be buying your overall buying price of the raw materials will drop down further, not because the market prices have got, but because your inventory cost, you know, it was higher in 1Q will reduce. Right. Yeah, we definitely expect that to happen, that on a sequential basis, ideally, the margin should improve because this effect will be removed. Are your customers coming in and negotiating for lower, you know, API prices now? See, that is mainly based on market prices. Mm. This is not. More than negotiation, it is mainly to do with the market forces, and how efficient you are with respect to your competition. That will decide this margin. Because I think the whole of last year, not only you, but most API companies were also viewed that, you know, input prices had gone up, utility and power costs have gone up, and you were unable to pass it on to your customer, given the environment in the market. Formulations was weak. Everybody talked about very high inventory in the channel. Therefore, primary sales were impacted. If that is the case and you were unable to pass on, logically speaking, you again have not raised your API prices to formulators. There is no argument for formulators to come back to you and say, "Reduce prices now. Right. Right. I would presume it all depends on, you know, what the final volume growth of formulations is, then what's the excess capacity or shortage of capacity in the system in any given product. Just trying to understand, you know, your assessment pertaining to your products of this environment. Okay. Yeah, frankly speaking, the prices place that they are right now, we expect our margins to improve because, it's, it's, where we can see some changes in terms of, volume of it because of the dollar shortages. Other than that, the domestic market, we expect things should be better, little better than last year. Okay. How was utility and power costing for you this quarter year-over-year basis? How much would they been up to you? Utilization? No, no, I'm talking about power cost, I think... Utility. Okay. I will give you our first increase. Hiking the power rate was done in the Q1 FY23, last June. In the second half of last financial year, again, there was slight increase towards the end of the financial year. As the coal prices are concerned now, coal prices have come off. It's almost it was around some, say, INR 11 to, it has come down to INR 8.5, and we expect it to further go down. This will also benefit you to a certain degree. Good. Would lower freight costs? Would that also-? Yeah, freight costs have already gone down. I believe, since December 2022 quarter, that improvement coming. Okay. Improvement in the freight costs. Right. For the CapEx that you have, I could see across, how much could be funded? Yeah. Right now, on a standalone basis, we are having a long-term debt of around INR 225 crores. We are planning to raise, though there will be repayments. On a rough basis, around, you know, INR 100 crores we might add up in a long-term loan. ... Overall, gross rate would be how much? Just to consolidate. consolidated forum, the total debt would be up to INR 500 crores. INR 590. All put together. In terms of working capital, last year was also difficult for, I presume, all companies. Mm-hmm. Have things improved, and should one assume that? We have slightly improved. We have slightly improved, though they are working out a plan to further reduce the inventory. We can reduce the inventory base because historically we have seen that pre-COVID, means before COVID, when there were no problems in terms of supply of raw materials, no uncertainty was there. In those times, our inventory days were slightly lower on the RMI and WIP, so we will definitely try to work on in those areas. Okay. Thanks. I'll get back in touch with you. Thank you. Okay, thank you. Thank you. The next question is from the line of Maulik from Anand Rathi. Please go ahead. Hi, sir. Good morning. Am I audible? Yes, sir. Please proceed. My question was mainly that on a sequential basis, the prices have not reduced significantly, but our revenue is down 11% year-on-year. The API revenue is down by approximately 17% sequentially. Has the volume declined on a sequential basis? Can you please throw some light on it? Yes. The volume has declined on a sequential basis if you compare with respect to March 2023 quarter. Mainly it is to, as I told you, mainly it is to do with the export and segment. In fact, in last March, Q4 are typically always base quarters for us. Having said that, in the last March quarter, there was a heavy buying in the in antibiotics, especially in domestic market. Because of that, slightly the sales were lower in March and coupled with the fact that the segment and the export market didn't do well in Q1 of April 2024. Okay. Thank you for the clarification. One more, just... In the last one of the question you said that INR 1,000 crores-INR 1,000 crores of additional revenue from two projects. Which two projects were you mentioning? Was it Macmillan and Bernard or- No, no. There were one intermediate and second project, and second one was the dermatology clinical project. Plus, there is one brownfield expansion as well, which is going to be completed in August, in the next month. Okay. Brownfield expansion by August. Okay. Okay, okay. Thank you so much, sir. I'll get back in touch. Okay. Thank you. The next question is from the line of Rahul Jain from Credit Suisse. Please go ahead. Thanks for the opportunity. Congratulations, team, on a good set of numbers. Just to understand, you mentioned in a previous question about that we will still achieve about 10% value growth for April 2024 in the current environment. Just to understand, when you talk about 10% value growth for the current year, you are assuming that the prices are at the current levels remaining for the year. Based on that, the assumption is of 10% value growth? Yes, correct. The assumption will be that you will continue to grow, it means volume growth. Correct, correct. Sure. With regard to the CapEx, if you could just share details in terms of the growth in the current year to get over, and next year, in terms of the year, like, you know, what juncture the kind of growth that is based over in the current year and the next year, if I may? Apart from that, what is the maintenance and the capital allocation CapEx? Okay. typically the maintenance CapEx, maintenance, I would say, key bottom-making CapEx. Mm-hmm. Both, both together, for our company, typically is in the range of INR 50-50 crores per annum, which also takes care of the higher regulatory, you know, GMP requirements, key bottom-making, and the maintenance pressure. All together, INR 40-50 crores. Rest is all for the bigger projects, which is actually, announcement. This current year, we plan to complete anywhere between INR 250-320, we are targeting to complete, inclusive of the maintenance CapEx. Next year, probably we have a plan of further expanding anti-diabetes segment. That will come up next year. Plus, we have another project on paper, which is like, you know. Same chain product for our dermatology product. If that works well, there will be another, it will be a, new product launch, but it will be done in an existing plot. It won't be completely different, but mix of brownfield and greenfield, which we can commence next year. Okay. You said current year, you will be around INR 200-300 crores, including INR 66 crores of maintenance, so the rest will be good CapEx, right? Correct, correct. Next year, the CapEx amount to how much? Uh, so next year- INR 66 crores of maintenance and regulatory. So, so if both the projects start, uh, which is, which I talked about, anti-rabies, and another is, uh, uh, chain product. If both the projects start, then, uh, uh, we haven't worked out, uh, yet, but around hundred to two hundred cr, uh, will be there for the next financial year. This is over and above the INR 66 crores, right? No, inclusive. Acha, inclusive. Okay, sure. Just coming to the FY 25 growth in terms of revenue, typically considering again today's prices, what kind of revenue growth and CapEx plan getting completed as per your schedules as we speak today? What kind of value growth we can see for FY 25? As you said, it will depend on the utilization of the greenfield projects which are putting this year. Total potential would be around INR 1,000-1,200 crores from those two greenfield projects. We expect around 30%-35% utilization in the first year of FY25. Mm-hmm. To come from this position. Sure. Lastly, on the margin front, you mentioned that, considering the present situation and the prices of most of the overall aggregate products getting stabilized, both on the input and output side. We expect the margins to have a sequential improvement, and then in the current year or quarter four, you will see around 30-15% margin. Correct. Is that understanding? Yes, yes. Correct. Sure. Thank you so much, Harit. Wish you all the best. Thank you. Thank you. Next question is from the line of Dhaval Shah from Bamboo Capital. Please go ahead. Yeah, hi. Hello. My question is very broadly, given, we've seen this Chinese behavior in the market and dumping it, the prices came down. There is also an element of freight cost which was built into it when the prices went down. You know, when the scenario was regular, pre-COVID, compared to that, time and this realization for your key products, what is the price difference? It's, I know that one product, the product which contributes around 19% to 20% of our annual sales. Mm. For that product, if you, if I'm not mistaken, it's exactly the same. Just before COVID and now. Got you. Between 1,800 to 1,900. Which is the product? ibuprofen, improve product. ibuprofen product. Okay. Prices are back to the pre-COVID level. As I said, I declared the first, I mean, this product, but others I have to check. I mean, I have to check. Yes, yes. For this, you are saying the prices are back. Okay. How about the raw materials for this product? I mean, basically, your per ton margin, are that also back or how is that? Let me check. The thing is, ma'am, in some cases, we are making those margins. The problem is, there are other factors like, you know, the inventory in play. Ah. Considering that, then it looks, the scenario looks little different. If we compare just the sales orders and the POs that we are raising today, it seems like the margins are back. The only problem is, because all these people taking, inventory situation is coming into this. That is impacting the overall margins of the company when we report it, on a quarter basis. Otherwise, it seems like the margins are good. Okay. Okay, okay. The CapEx plan, I understand we've not changed anything. Whatever we had thought of it before, we have kept the same in spite of this, you know, certain volatile trend which has come and hit the industry. Am I correct? Yeah. What has happened, ma'am, as far as the CapEx were concerned, one CapEx got little bit delayed because we're constantly changing the process. Means, to further improve. Before even launching the project, we were constantly doing R&D. The process part has changed. That is the only change as far as the original plan was concerned. One anti-rabies which is concerned, which is planned in 2,000 tons per month, only that piece has got delayed, and probably we'll do it next year. अच्छा, अच्छा. Okay, okay, got it. In the last quarter, you know, I checked the call. Anything on this paracetamol, have we stabilized it? What is it on the CAP front? Paracetamol, this is the group company, not good. Correct, correct. This is Bharat Chemicals, right? Something. Right. Yeah. That, so have we got the required quality for CAP? Maureen, can you comment on this? No, we are not aware of it. It does not belong to Aarti Drugs, this product, so we are not aware of that exactly. Yeah. Okay, okay, fine. Chalo. Thank you. Thank you. Thank you. The next question is from the line of Harsh from Marcellus Investments. Please go ahead. Hello, am I audible? Yes, sir. Please proceed. Yeah, fine. Sir, in the product pipeline presentation, I saw that now you're entering into some of the methylamine-based products. Can you elaborate on that? I could see the two or three products which are in the pipeline. Yeah, it is mainly to do with the backward integration and, some two to three products might be that which we might be selling outside. Okay, this backward integration is for metformin, is it? Yeah. sir, in metformin, I reckon that it is only one of the products which is used, wherever they are entering into about most of the methylamine base. That is something which is not telling us actually. The thing is, there are certain products, you know, when you manufacture the product, automatically you get a certain proportion, you get other products. That, that is why, means, we'll be selling the product. Okay. Okay. Any plans to enter, much deeper minor industries? As of now, no, not much. As of now, not much. It's mainly to do with the backward integration. Okay, okay. That's clear to my head. Thank you. Thank you. Thank you. The next question is from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead. Thanks for the opportunity. I was just trying to understand if you are seeing any pricing pressure from China and any of your major products. What we're hearing is, in some of your chemical industry related products, there has been, you know, excess supply that will be coming from China. I was just curious how that impacts our business. Yeah. Actually, the API, it is not impacting very severely. It is just the second stage, where we have seen little drop in demand for few of the ingredients. That needs to be seen. Otherwise, this is more of an indirect impact to us, not the direct impact. It's reducing your, raw material prices, right? In, in that sense. Yeah, the raw materials, yeah. Overall, the trend is down, downward, the raw materials. Like earlier, you were talking about 16% decline in your RM prices. Can one assume that this particular excess supply is starting to somehow flow into your RM costs indirectly? Actually our RMs are something around, say, 60% to 70% of our RM, almost 70%, they are directly or indirectly linked to crude. Last year, because of this Russia-Ukraine thing, the crude has gone up very sharply. I recollect correctly, in the month of September, is where the crude corrected. After that, we had seen this downward trend in the raw material prices, which were linked to crude, directly or indirectly. That seems to be one major thing, impact, and probably opening up to more suppliers that can, means, more suppliers than the demand. That can also impact them. Mainly, I think we are committed to the falling of crude prices. I see. Just a related question, how much of your RM you are sourcing within India versus Europe versus China? Any color on that, please? Yeah. It's almost half, and almost half. We do have the option to buy locally also, few of the raw materials, but because it's in bulk, we can import entire containers as well. It's definitely cheaper for us and hence, we are importing. Half is coming within India and half is coming from outside India? Approximately, yeah. I'm sorry, I didn't hear that. Yeah, half is indigenous and half is imported. Imported mainly from China or...? Around 80%-90% of the import is from China. Okay. let's say 40% from China and 10% from rest of the country and 50 locally, right? That's what I mean. Okay. Yeah. Yeah. All right. Thank you so much. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Aniket Gargani from PMSPL Capital. Please go ahead. Am I audible? ... Yes, sir, please proceed. Yeah. I had just a question regarding to the RM prices, especially pertaining to crude. Can you give a color on, you know, what is the risk to the HCl business if we see any upward in crude prices, and let's say they go back to those 100 odd levels, which they had gone up before? You know, since China has opened up and the supply is also next to be out, should the effect of any higher crude prices from here be a significant risk to the business? As you correctly pointed out, there were two factors, means, great number of factors and plus the crude prices also going up. That had caused a sudden uptick in the raw material prices during last year. Whenever there is a sharp increase in prices in a very short, then definitely, it impacts demand in short term, it impacts margins in short term. Because as everyone has asked previously also that, you know, whether the absolute profit per kg or per ton for MMA, whether that remains same. The answer to that, our answer to that was always that in short term, yes, but if it stays for a longer term, say, couple of years, then definitely the margins will be revised. Means the per ton absolute profit will also be revised for the HMAs. To answer your question, if it goes up sharply, in shorter run, it can definitely increase the margins, but in longer run, the businesses will stabilize at a newer norm, I would say. Okay, okay. All right. Thanks for the answer and those comments. Thank you. Thank you. The next question is from the line of Rahil Shah from Crown Capital. Please go ahead. Hello. Hi, sir. Good morning. Audible? Am I audible? Good morning, yes. Yes. Yes, yes. Just touching the point on the specialty chemical side. You mentioned in your remarks that the demand has been weak overall, globally, within the industry, and you're taking some steps to mitigate the impact. By when can we, like, see this reflecting in its contribution overall? Yeah, when can we expect this improvement, and what are you doing to, you know? One is that we'll be seeing more and more customers. We can clearly see, means, we can see the challenges we are facing in certain products, so we are trying to overcome them. One is expansion, one is direct transit. We'll take care of that. Other is that our contract manufacturing businesses, because of previous labor shortages, in the month of June, we were not able to deliver the certain material, which will be now, which will start flowing in coming months. As far as the MMA is concerned, those are the steps we are taking. As far as the exports, in general, for the MMA is concerned, that will... We are always trying to see whether we can do businesses in alternate currencies like AED or euros with certain geography. Those kinds of things we are trying, because we don't want to be over, you know, we don't want to sell in the conditions that receivables should be at risk. That is why we went through. We can see the demand, we can see the inquiries, but problem is we are reluctant to dispatch until the situation gets good. Okay, that, like, by when will you see improvement in general? The macro factors, it is difficult. For as far as the MMA is concerned, Q2 will be a slightly better, hopefully better than Q1. Q3 should be even better because we will have additional product for, Q3. Right. Right. Okay, okay. Just, sorry to repeat this, but retouching the point on the EBITDA margins. Correct me if I'm wrong. Mm-hmm. You said you'll improve quarter by quarter, and then you will end the year at in the range of 14.5%-15%. Am I right? Correct. Correct. Okay. Okay, sir. Thank you so much for all the way. Thank you. Thank you. The next question is from the line of Zain from Dolat Capital. Please go ahead. Hello. Hello, audible? Yes, sir. Please proceed. I just have 1 question at the AM? Yes. Yeah. I want to know about the other plant update, the one in September. What is the update of that plant? Regarding that last response we had sent in September, then we had come back to us in the month of February of 2023. We had given some clarity, additional information there for customers, and we had replied by the end of March 2023. Meanwhile, we were waiting to get our European or European inspection, EU GMP inspection of the scriptures by the end of last calendar year, 2022. We were expecting the GMP certificate, which we just received from European authorities for the same facility. Now we are drafting a letter just along with the new GMP certificate to accelerate the process of inspection. Okay. You also mentioned in last quarter that the RM inventory, high RM inventory, was not completely utilized in Q4. In Q1, is it completely utilized? ...Sort of, yes. Yes. Because if you compare June quarter with March quarter, the average decline is just 2.5%. That too, last 2 months of the June quarter, that is May and June, we did not see decline. Having said that, on aggregate basis, it is completely useless. In few cases, there are drops, but it will always be there. On an aggregate basis, the higher stock inventory looks to be useless. Okay. Okay, thank you. That's it. Thank you. The next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead. Mr. Thareja, I have unmuted your line. Kindly proceed with your question. Thank you. Yeah. Thanks, thanks for taking the follow-up. The two greenfield capacities that you talked of, two questions there. One, you know, what's the breakeven utilization for you on these capacities? You know, when you give your margin guidance, would it include, you know, the initial, sort of initial negative impact as these capacities come on stream with their full cost, and over a period of time, you know, achieve the utilization? Yeah. Yes. Though on paper, you know, we, the margins look very high for a first year or 2, we expect the margins of the company to be in the similar range, 60%-60%. We are not being too optimistic because we expect some kind of price cut from the competition. Yes, the answer is yes, we are trying to take care of that initial price war in terms of margin item. As far as breakeven was concerned, I will get back to you on that because I don't have exact number what actually can be breakeven. Okay. What timeframe do you know, foresee optimal utilization in these two to happen? Yeah. As I said, we were quite optimistic and we said that 30-35% utilization will be there, in the first year, and next year maybe 60%, and then maybe, you know, 62% or something like that. It is all, it is all projections. Sometimes it is faster, sometimes it is slower. Especially if it is exported, it is slower. For specific market, it is relatively faster. Is this largely domestic market focus or is it- Yes, yes. As of now, largely domestic, yes. Which products are these? As you said, these are methylamine and mainly salicylic acid, which is in the dermatology segment. Salicylic Acid is a fairly volatile product, right? I mean, one of your peer companies in the intermediates has always been indicating that, you know, it's a fairly commoditized business and, you know, they see a lot of volatility in prices there. Salicylic Acid, is long. Since Indian manufacturers are not manufacturing now, because China has completely taken over the manufacturing of Salicylic Acid. Okay since last one year or so. Most of the companies are now importing that and some other manufacturing conversion into salicylic, which has a vast area of application, right? Right from intermediates, pharma intermediates to cosmetics and so on. Yes, we are confident about the process, what we have developed. We have been piloting also. Though as of now, the margins is very high, we expect some price cut from China, some reaction from China. That is why initially we are not estimating any high, exceptionally high margin in that business. In the longer term, we definitely expect to get that business from China. Government is also supportive for import substitution, as you have seen in last two years. Moreover, we ourselves have certain experience in terms of import substitution when it comes to propoxyphene and norpropoxyphene. I mean, almost 95% of the Indian production was imported, but now it is exactly reverse. Around 80%-85% is now indigenous to produce and which is imported. Yeah, we are fairly confident about this particular point. What, what's the current, you know, annual market size for Salicylic Acid in the domestic market, and how much is imported out of that? It's almost completely imported, mostly. I think it's maybe about 20-25 kilos probably. Okay. From you, your process, you feel has better yields, or are you related to a degree where you believe that you will be able to withstand cost pressures from Chinese suppliers and actually be better in terms of pricing? Yes. Yes. Okay, there's no policy per se, you know, which might create a duty structure which will sort of turn the market favorable? There is a scope. There is a scope. Nothing as of now. There is a high chance of that. You are not expecting any policy measures? No, no. While pushing the project, it is purely based on our internal scope, but anything, policy-wise will be an extra benefit for us. All right. How do the current prices compare to, let's say, long-term average prices of Salicylic Acid? Would you have answer to this? We have seen last five years' data. More or less, similar trends there. Like, based on phenol prices, they are measured through raw material, phenol and carbon, CO2. More or less, they are in the line of last five years, the average price is similar to. It's based on phenol, basically. Yeah. I think you did indicate that you believe pricing might normalize over a period of time, and current margins are not reflective of sustainable realities. No, after COVID, prices from China has already started coming down, and I think it now they are reaching pre-COVID levels, margin as far as it is concerned. Yeah. Assuming that, you know, this is a sustainable average price, are margins on this product still better than what you currently report? Optimal utilization of this kind of talking, I understand. When you achieve optimal utilization on Salicylic Acid, would resuming current input prices remain what they are, at what they are? Would your margins be higher than what you today report on a blended basis? Yes. By how much would? No, I mean, we don't discuss. It's actually quite high, but we don't exactly discuss product-wise margins. Okay. All right. I get it. It will be better than the blended one, that we can say. All right. Lastly, on formulations, I think you've been indicating exports within the formulation salience of exports is continuously rising. How does that portend for your growth and for your formulation margins as you move in? Would you like to answer this? Yeah, yeah, sure. As you rightly mentioned, in formulations, continuously we are shifting our sales from more domestically, right, to exports, majorly in the emerging markets and gradually into the regulated markets also. As we are expanding our product portfolio in exports and also at the same time opening up more markets, we are estimated to see more and more growth towards the next quarters in international markets. We are also factoring a small expansion on our OS capacities over the next six months. That will also lead to a volume growth. In terms of margins, would exports have a better margin profile? Yeah, definitely. In domestic, we are working more with the CMO. Their margins are strict. Exports have and continue having a better margin than domestic. Thank you. I appreciate it. Thank you. Ladies and gentlemen, that was the last question for the team. We would now like to hand the conference over to the management for closing comments. Over to you. Thank you, everyone, for joining us today, on this earnings call. We appreciate your interest in Aarti Drugs Limited and all the questions you asked. If you have any further queries, please contact SGA, our investor relations advisor. Thank you. Thank you very much, sir. On behalf of Aarti Drugs Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.