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Ami Organics Ltd
Earnings Call Analysis
Q3-2024 Analysis
Ami Organics Ltd
The recent earnings call has provided a mixed picture of financial performance. While the company's 9-month revenue in FY '24 increased by 14.4%, amounting to INR 493 crores compared to INR 430 crores in the previous period, the profit after tax (PAT) for the quarter declined to INR 17.8 crores from INR 22.3 crores. The adjusted PAT margin stands at 11.1%, reflecting stable profitability despite the revenue growth. Looking ahead, management projects revenue growth of 17-20% or possibly up to 22% for FY '25.
One pressing topic during the call was the substantial increase in CapEx for the Ankleshwar unit, revising from INR 190 crores to INR 310 crores. This adjustment caters to new machinery for CDMO contracts and associated infrastructure. Despite this increment, revenue turnover is expected to remain within an optimistic range of 3 to 3.5 times the investment, revealing confidence in future earnings potential.
Focusing on strategic growth, the company has embarked on enhancing its specialty chemicals and electrolyte additives production. They highlight a shift towards incremental capacity, suggesting a possible 4 to 5-fold increase with long-term supply agreements already signed. Management expects these efforts to contribute notably to future revenues with positive outlooks hinting at fast-moving projects and already-controlled significant market shares.
The company's presence in the U.S. market, particularly for specialty chemicals, is expanding, which bodes well for diversification and market share growth. The U.S. supply is anticipated to increase in the coming quarters, expanding beyond the established strength in the European market. Also notable is the market size for their electrolyte segment, previously valued around $1 billion, recently experienced a dip by 20% due to raw material price changes. This volatility presents challenges in estimating the precise addressable market size and potential revenue share.
Operationally, the company reports an EBITDA of 15.9% for the quarter, maintaining consistency in its financial metrics. This figure reflects both the pharmaceutical intermediates and specialty chemicals sectors, signifying a balanced performance across its business divisions.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call for Ami Organics Limited, hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Prashant Nair from Ambit Capital. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and welcome to the Third Quarter Fiscal '24 Earnings Call of Ami Organics. Today, we have with us from management, Mr. Naresh Patel, Chairman and Managing Director; Mr. Bhavin Shah, Chief Financial Officer; and Mr. Abhishek Patel, Vice President, Strategy.
I would now like to hand over the call to Mr. Bhavin Shah for opening remarks. Over to you, Bhavin.
Thank you, Prashant. Good evening, everyone. We are pleased to welcome you all to our earnings conference call to discuss Q3 FY '24 financial. Please note that a copy of our disclosure is available on the Investors 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 further or which could be construed as forward-looking statement must be reviewed in conjunction with the risk that the company faces.
The conference call is being recorded, and the transcript along with audio of the same will be made available on the website of the company and exchanges. Please also note that the audio of the conference call is the copyright material of Ami Organics and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company.
Today, on call, along with me, we have Mr. Naresh Patel, Chairman and Managing Director; and Mr. Abhishek Patel, Vice President, Strategy.
Now I would like to hand over the floor to our CMD, Mr. Naresh Patel, for his opening statement. Over to you, sir.
Thank you, Bhavin. Good afternoon, everyone. I hope you all are doing well. A warm welcome to our Q3 FY '24 earnings conference call. I would like to wish you all a great and prosperous New Year. Before I discuss the results for the quarter, let me discuss some economic and industry headwinds and tailwinds.
This year is expected to be the year of demand recovery following the unforeseen slump seen in the later half of 2023. Inflation is steadily reaching towards the comfort zones of central bankers across the world, signaling a positive turn. However, ongoing geographic -- geopolitical crisis continue to cast a shadow of uncertainty. A prime example of this is the Red Sea crisis, which has led to a spike in freight costs.
Addressing the industry, we see the demand picking up steadily. However, a sharp decline in raw material prices has exerted pricing pressure across the specialty chemical sector. As we speak, we are witnessing raw material prices stabilizing. Consequently, we anticipate a return to standard pricing level in the coming quarters.
With this, let me turn your attention to our Q3 results. Our focus through the quarter has been on quality growth, and I'm happy to share that we have been able to deliver the same. Let me deep dive into this. Our revenue from operations for the quarter was at INR 166 crores, which is a growth of 9.2% year-on-year. However, if you look at volume growth, our overall business has grown by 25% year-on-year, showing strong business traction.
Our pricing stabilize, I'm confident our growth will be back to the 20% level. When I refer to quality growth, it doesn't only represent strong volume growth, but also strong uptick in margins. If you look at our numbers subsequently, they are slightly lower than previous quarter. But if you look at our EBITDA margin, they have expanded by 150 basis points. I believe this trend will continue in coming quarters.
The growth for the quarter was catalyzed by both the pharmaceuticals business as well as specialty chemical business. I will let Bhavin discuss financial performance in a greater detail.
Moving on to business update. I'm happy to share that we have inaugurated our Ankleshwar plant in December 2023, marking a milestone for us given that it took us only 12 months for the inauguration since the groundbreaking commenced. This makes of great achievement, and I would whole-heartedly like to congratulate our team and highlight the tremendous effort they have put in this.
I would also like to highlight that the new plant is testimony to the state-of-the-art technology we are beginning to advance pharmaceutical intermediate manufacturing in India, and is symbolically of Ami Organics' commitment to innovations and its role in revolutionizing India's intermediate landscape.
On the very day of our plant inauguration, we extended our partnership with Fermion by signing agreements for 2 more advanced intermediates for their API. These advanced pharmaceutical intermediates will be used in captive consumption for the earlier advanced pharmaceutical intermediates signed with them. The agreement is likely to add tremendous value to the final advanced intermediates, which will be supplied by Ami Organics leading to higher value of the end product.
The products are slated to the manufacturing at Ankleshwar facility and is expected to start contributing meaningfully to the revenue from FY '25 onwards. On that note, I want to emphasize our ongoing efforts to engage with our customers for such kind of opportunities. I'm optimistic about finalizing a few of these in the upcoming years.
Moving to our electrolyte business. I'm happy to share that we have signed MoU with a global manufacturer of electrolytes for manufacturing of electrolytes for battery cells and allied materials. Recently, we have also commenced commercial operations for electrolyte additives, which I believe will start ramping up from FY '25 onwards.
I would like to highlight that the ramp-up would be gradual. In regards to the electrolyte opportunity, we have also signed an MoU with Government of Gujarat for investment amounting up to INR 300 crores for setting up of a dedicated manufacturing facility for electrolytes business in Gujarat.
Moving on to the Baba Fine Chemicals. The integration is currently underway. This process usually result in operational issues due to change in ownership and name of the company, which will have a temporary impact on sales. This situation is expected to be transient, and we anticipate pickup in sales following the completion of the integration.
Before I conclude, I would like to highlight that in today's digital landscape, safeguarding sensitive information and ensuring data confidentiality, integrity and availability have become paramount in nature. With this in mind and our endeavor to always follow global standards, I'm proud to announce the implementation of Information Security Management System, ISMS 27001-2022 practice across the organization.
ISMS is a comprehensive framework that assist organizations in managing and protecting their information asset. By adopting ISMS practice, our goal is to enhance our overall information security posture and create a secure environment for our employees, clients and stakeholders. I'm glad to inform you that we have successfully passed the ISMS 27001-2022 audit and received an ISO 27001:2022 standard certification.
To conclude, despite the industry headwinds, we remain confident of closing the year with healthy growth. I would also like to highlight that the various initiatives we have taken in FY '23 and FY '24 enhances our revenue visibility for FY '25 and beyond, bolstering our confidence in our potential for stronger growth in coming years.
Now before I hand over the call to Bhavin, I would like to welcome back Abhishek Patel, who has rejoined us as Vice President, Strategy. Abhishek will work closely with me on strategic initiatives. Even he has been with the company more than 5 years in his previous stint at Ami Organics. He knows about the business very well. Therefore, he will also handle investor interactions along with Bhavin. I have worked with Abhishek closely for many years in past, and I am confident that he will add immense value to the company.
With that, I request our CFO, Mr. Bhavin Shah, to discuss the financial with you. Over to you, Bhavin. Thank you.
Thank you, Naresh-bhai. I would like to briefly touch upon the key performance highlights for the quarter and 9 months ended 31st December 2023. And then we will open the floor for the question and answer.
I will begin with the quarterly update. Revenue from operations for the quarter was at INR 166.5 crores, up 9.2% as compared to INR 152.4 crores in Q3 FY '23 driven by robust 25% volume growth. The gross profit for the quarter was at INR 71.4 crores, which was up 2% when compared to same period last year. The gross margin for the quarter was at 42.9% compared to 46% in Q3 FY '23. Lower gross margin were driven by unfavorable product mix.
Moving on to EBITDA for the quarter was at INR 26.5 crores, down 13.9% as compared to INR 30.8 crores in Q3 FY '23. EBITDA margins for the quarter were at 15.9% compared to 20.2% in Q3 FY '23. EBITDA margins were driven by gross margin and higher employee expense. Higher employee expense were driven by yearly increments of cost and hiring of new employees for Ankleshwar unit.
PAT for the quarter was at INR 17.8 crores compared to INR 22.3 crores in Q3 FY '23. PAT margins for the quarter were at 10.7%. Lower PAT margins for the quarter was driven by lower EBITDA margins as well as higher depreciation and finance costs.
Moving on to 9 months FY '24 update. Revenue from operations for 9 months FY '24 was at INR 493 crores, up 14.4% as compared to INR 430 crores in 9 months FY '23. Gross profit for 9 months FY '24 was at INR 215.8 crores, up 5.5% on a year-on-year basis. The gross margin for 9-month FY '24 was at 43.8%.
EBITDA for 9 months FY '24 was at INR 85.3 crores, up 4.3% as compared to INR 82 crores in 9 months FY '23. EBITDA margin for 9 months FY '24 was at 17.3%. Adjusted PAT for 9 months FY '24 was at INR 54.8 crores with adjusted PAT margins of 11.1%. Adjusted PAT figures exclude onetime full impairment of JV Ami Oncotheranostics LLC. Export for the quarter was at 61%, whereas domestic business was at 39%.
Coming to cash flow and balance sheet. Our working capital for the quarter was stretched during the quarter, mainly driven by lower payable days. Inventory and debtors days were steady during the quarter. Even though our working capital cycle was stretched during the quarter, we have been able to generate cash from operation of INR 35 crores for 9 month FY '24, leading to cash and cash equivalent of around INR 42 crores as at 31st December 2023.
Our CapEx outlay for 9 months FY '24 was INR 212 crores as informed in earlier calls about our strategy to fund CapEx through mix of internal accruals and debt. In this regard, we have taken INR 119 crores debt to fund the CapEx.
I would also like to highlight that total CapEx outlay for Ankleshwar unit has been revised from INR 190 crores to INR 310 crores. This was driven by specific requirement of additional machinery for CDMO contract as well as creating allied infrastructure.
With this, I conclude my remarks and request moderator to open the floor for a question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Rikin Shah from Omkara Capital.
Naresh-bhai, congratulations on gross margin and EBITDA margin expansion at even a stand-alone level, considering the environment we have been in. So my question was more to do with apixaban. So considering Bristol Myers have successfully removed apixaban generics in Netherlands, while France has also upheld the Factor Xa inhibitor patent, but Ireland has invalidated the patent and joined U.K. So considering these changes in Europe, what is our outlook for apixaban going forward?
Thank you, Rikin-bhai. As you rightly say, yes, there are some positive moves towards the apixaban launching in Europe. We already partner with 2 customers in Europe and 2 from India who have the hold in Europe. So we have started moving -- slowly, slowly started supplying this molecule. From Q1, it will be gradually ramped up and by Q2, it will be -- we are proceeding to start in a full throttle.
[Operator Instructions] The next question is from the line of Richa from Equitymaster.
My question is on this revised CapEx for this Ankleshwar facility. So earlier you were predicting a turnover of around 3x. So with this revised CapEx, is it only for some kind of value addition? Or do you expect the revenue also -- I mean the turnover also to remain 3x or if you could just highlight that opportunity of what is to be expected from this revised CapEx?
Thank you. It's both basically. We have the existing as well as the new agreement in pipeline. For that, we have to upgrade our system according to the requirement, and that will bring us the new revenue in -- so if our top line will be remaining in that line 3, 3.5x, which will be still it is like that.
Okay. And sir, for the electrolyte, if you could share some kind of timelines or some kind of estimate if you have because this seems to be a very fresh opportunity and it's not very clear what kind of revenue and what kind of -- over what kind of time duration we could see in this opportunity. So based on the MoUs that you've signed with the client and the government if you could just throw a little more light on this opportunity.
Electrolyte is right from beginning, we always say it's not part of our projection. The reason was we said this very early, 2 years, 2.5 years back, that it is -- it will be a slow moving project because of the several requirement and several compliances.
Now we reached the level where now we started manufacturing this quarter of this electrolyte and 2 additives, we started the manufacturing. And also we got several contracts, long-term contracts, and that help us to supply these molecule in Asia as well as in Europe and some quantity in U.S. as well. So this is how we started electrolyte additives.
In this additive segment also, we have developed another 6 more additives. These all are listed on our website as well. And these are -- the samples also is going to the customer. So that will bring -- so now the existing customers have more electrolyte additives from us, and that help us to grow this business.
And not only that, we have signed an agreement with one of the solution manufacturer to make their solution in India for -- particularly for them. And that is what we announced with the Government of Gujarat.
Okay. So -- but right now, yes, what you're suggesting is that a quantification, is it too early? Or any kind of estimate that you could share with us on those, sir?
So it's not too early. We -- it's gradually ramping up. So now we -- from this quarter, we manufacture and start supplying for the quantities to all 3 manufacturers who have already started placing order to us. And then slowly, slowly other customers will ramp up in that.
Parallelly, we also started manufacturing -- toll manufacturing for solution in India as well for the Indian consumption. And that is not related to our existing business. This is purely a toll manufacturing kind of JVs, which is we are making with one of the Asian clients for making in India.
Okay. And sir, when you say that electrolyte would have similar margins, is it in line with the specialty chemical or the company level margins as a whole?
It is in between both, it's above specialty and below the company pharma margin.
Okay. And sir, last question from me. Our presence in the U.S. market seems to be much less as compared in Europe. So I mean, is there a conscious thought process of increasing the market share there? And if at all you are doing anything on that front if you could share with us?
So you're talking about the pharmaceutical business or you pertain to the specialty business?
Overall exposure when it comes to our geographical diversification, overall, our share from the U.S. market is really low as compared when we look at export breakup.
So pharmaceutical will remain like that because all the API generic manufacturers or maybe some innovative manufacturers, they are based in Europe. That is the reason why our pharmaceutical intermediate business is higher in Europe compared to U.S. In U.S., we have sales in pharma, but that's all goes for the CMO and CRM, CRAMS kind of business with the companies based in north U.S.
In terms of specialty chemicals, we have a very good presence in the U.S. selling several molecules from Gujarat Organics. And we are also in negotiation of several big contracts for Gujarat Organics product in U.S. So that will be -- upcoming years, it will be incremental in U.S. especially for specialty chemicals. Electrolyte definitely is a high market and that will be also going to be increasing U.S. supply in upcoming quarters.
[Operator Instructions] The next question is from the line of Jason Soans from IDBI Capital.
Sir, first question I wanted to ask you is our 9-month revenue stands -- growth stands at 14.4%. And last quarter, we had guided for a growth of 18% to 22% for this -- for FY '24, which probably looks tougher with all the prices, intermediate prices being driven down. So now I mean, would you want to probably guide for the next year FY '24 and '25, by any chance, what can we expect in terms of revenue?
So as we have guided 18% to 20% growth...
Sorry, I will take this question. If you remember in the last call, we revised our guideline from 18% to 20% to 15% to 18% because of topline erode. And that will be one of the reasons that we had revised our guideline. And considering current order in hand, we are -- it looks like we are in a same space where we have to reach.
Okay. So you're saying FY '24 will probably be in the range of 15% to 18%?
Yes, yes.
Okay, okay, okay. Sure, sure. So any estimates for FY '25, sir, by any chance, if anything you would like to share on this?
FY '25 will be somewhere around 17% to 20%, between that, or maybe 22%.
17% to 20%. Yes, because I believe even -- I mean, of course, Fermion, et cetera also, those -- that volume also will start to pick up in FY '25. So that will also be good and that will aid the top line as well.
Yes. And not only that, also some new like electrolyte will start contributing and then some other new projects, which are in discussion also comes. So conservatively, it will be between 17% to 22%, and then it may go up, but conservatively, it will between 17% -- 17% why because if we see some more erosion, that's how. Otherwise, we are fully confident about 22%.
Okay, okay, okay. Sure, sir. And sir, my next question is, of course, our -- when you look at going back, our margins have been around 22%, 20% going back. Now of course, there is price erosion. And of course, a host of companies across the specialty chemicals are facing pressure. Now our margin also moderated around 14%, 15%, 16%.
Now for the same, what kind of margin are you looking at? We had a word before where you were talking about -- you spoke about resorting to a spot pricing method basically because -- to cater to Europe customers and basically for customer attention. So just wanted to know your -- what's the update on that? I mean still the spot pricing will continue? Or how are you looking at margins from -- for '24, '25 going ahead?
See, basically, what we say in the last -- we are trying to perform accordingly. So last quarter, we announced that we will focus on margin, and this quarter, we successfully bring it to 15%. In our next quarter, overall, it has to go to 18%, between that. So that will be our spot, well, we -- you want. And from that onwards, once again, we start journey towards the 23%, which we had announced in the past.
Okay. Sure, sir. And sir, I just wanted to -- your view, I mean, there is a lot of talk about Chinese pressure, raw material prices coming down, realization is coming down. Now what is your sense, sir, in the market, how do you see -- do you think prices have bottomed out after almost 9 -- 8 to 9 months of correction? What is your sense on how prices will move ahead? Or is there more pain we can see -- could you give me some color on it? Like how are you seeing the prices for advanced intermediates chemicals going ahead?
See, what I understand in last 1 quarter is that I think the pricing for the China is almost on the rock bottom. It may have to go -- from here on would either stabilize or it has to go upward. And based on the raw material prices, the prices for the final product will be stabilized or it may go up. So I think this quarter is almost on a stabilized quarter, I can say like that. And from year onwards, the next 1 or 2 quarters, it will be reached to the normal level, and it may go up.
And it may go up. So any signs of Chinese competitive intensity, sir, decreasing? Or is it same level or any view on that? Or...
For my product, there is no direct impact of the Chinese competition. But for my end user has some impact from the Chinese supply. So that has now -- that is also now because of the spot business theory, we can able to read off that as well.
Sure, sir. And sir -- yes.
That is the reason why our volume growth is there 25%.
Sure, sir. That's a very good strategy, sir, I would like to commend you on that. I mean, of course, so much competition is there in the market and we resorted to the spot business to retain your customers, it's a very, very commendable strategy.
Sir, my next question, I just wanted to ask you, I mean, you have spoken about electrolytes manufacturing. And just wanted to know from you what is the capacity you are looking at setting up for this? I mean, what we know is in a lithium-ion battery around 9% to 10% of the cost is electrolytes and a lot of customers -- and I believe it cannot be transported a lot. So a lot of the electrolytes have to be made in-house or domestically.
So of course, other players, listed players are also -- one of the listed players already had a big -- already has a big, what you say, electrolyte building capacity. They've announced CapEx. They've announced a technological partner also in that. So sir, I just wanted to know from your perspective, how are you looking at the electrolytes business? Are you looking to induct some technological partner for this business to -- because clearly, what happens is this is always a slow process, approvals, et cetera, take a lot of time.
So could you give me some sense of what capacity you're trying to make or any technological partner you would like to take up to scale up this business faster? What is the potential you're seeing or capacity? Could you just give me some details on this?
So you are talking about the electrolyte additives or you're talking about the final electrolyte?
No, sir, the final electrolytes.
Okay. Final electrolyte is really a business, which is like a CDMO kind of business. Here is -- I can't speak more on that. But thing is that whoever the partner is very strong in the world. So they just want to have a base over here. We don't want to go and sell directly. We just make for them. So it's like a [indiscernible] business for us in terms of sales, because we are doing just a CDMO for them.
Okay. So it's a plain vanilla, a contract manufacturing for them, that's what you're saying?
Yes.
Okay, okay, okay. Sure, sir. And this will be -- so basically, there are various recipes in it. So basically, what the client will tell you, you will manufacture for them. That is how it will be?
Yes, yes, yes.
Okay. So do you see a lot of volume coming in? Or this will be a slow-moving project? How do you see it?
No, this will be a very fast-moving project because they are already in the market and controlling world market at a very high level. So this is a base for them, additional manufacturing platform for them to cater the Asia and some Europe market as well as some IRA market also for them. So it's -- where -- the regional, where they will sell is up to them. Our job is to make a final solution and deliver to them.
Okay, okay. Because they will give you the technology and everything, the recipe, and you'll be making for them basically.
Exclusively making for them.
Exclusive.
It's [indiscernible] business. In additive is fully Ami Organics' technology, Ami Organics' own project. And the solution is fully CDMO where we just give them the production support.
Okay, okay. And sir, so next, I mean, electrolyte additives, sir, I mean 2, 3 quarters back also, we had heard some sales coming in. I think we have a 500 tonne capacity in Jaghadia where we can start up this electrolyte additives, but sir, I mean, orders still have to come in? Or how is it -- can you tell me the status of the electrolyte additives piece?
So we signed several agreements, long-term supply agreement with the customer. And now we have started commercially producing these additives and we supply -- start supplying -- we develop the production line, we develop the packaging line and everything, shipment and now we start supplying the commercial supply to them.
And that is what we had announced also publically that we now is commencing the production for electrolyte additives and ongoing capacity will be -- it will be incremental and it may go up to 4, 5-fold of total existing capacity in upcoming years.
So revenue from this will be probably coming in from FY '25 only?
Yes, yes. Maybe in this quarter, if we got an opportunity to ship, or otherwise it will be from the next quarter. But firm orders are in hand. So we are already moved in the production.
The next question is from the line of [ Daga ] from ValueQuest.
Am I audible?
Yes, you're audible, ma'am.
Bhavin-sir, first, I have a question for you, more like a bookkeeping question. If you can help us with the segmental EBITDA numbers for the pharma intermediate and specialty chemical business?
So if we want to give EBITDA number for pharma and specialty, both stand at 15.9%.
Sorry, sir, can you come back, 15.9% is?
For both the business, we have an EBITDA of 15.9% for the quarter.
Sir, but can you split that between what is the margin for specialty chemical?
I'm telling you 15.9% for pharma and 15.9% for specialty.
So specialty also includes Baba Fine Chem. That is why the margin looks higher?
So now onwards, Baba Fine Chem is part of our specialty business. So margin is accordingly.
Okay. And what would be the revenue number for Baba Fine Chem this quarter?
Specific number, we are not giving on -- over the call or this thing. So I refrain from sharing those numbers.
That's okay. Sir, my second question is more on the additives business. So you mentioned about certain long-term contracts, that you have firm contracts. And I think we only have a 500 tonne capacity for the additives. So what is the kind of capacity expansion that you expect to be there?
Standard capacity, what we have right now is 500 metric tonnes each, and that is our first goal to fulfill. And then parallelly, we are adding more capacity for the upcoming demands of the electrolyte additives.
Sir, would you like to share how much capacity are you going to add more?
2,000 metric tonne each of the final additive.
2,000 each for 2 additives that you're going to supply?
Each, each.
[Operator Instructions] The next question is from the line of Jishan Singhi from Krijuna Research & Analytics.
I would like to ask that as you mentioned that you are doing a plain vanilla type contract in electrolytes. So I just want to know the differentiation between additives and electrolyte. Does this both are different?
So additive is used to make electrolyte. So electrolyte is having a lot of components and whereas additive is just 1 component of the electrolyte.
Okay, okay. So as you said, that you have inbuilt these additives in your house, right?
Yes, sir.
So is this unique product you're having? Or does this product have some competitive intent?
If I correctly understand, you want to ask that you are making an additives, which will give us the competitive advantage for make electrolyte. Is it correct?
Yes. Yes, sir. [Foreign Language].
Yes. So this is one of the reasons that we got this CDMO because we have in-house electrolyte additives, which can be used for making the solution. But these additives we use only 3% to 4% of the solution. So it's not great impact on the final solution, but the partner chose us because of several other parameters in which we fulfill their requirement.
Okay. And can you give me the size of market in this electrolyte segment?
Sorry? Peg your pardon, can you repeat your question?
I mean, what can be the estimated market size for this electrolyte segment? And what is your addressable size in that?
It's varying based on the final price of the -- when we entered, it was very big, like around $1 billion. And currently, the price of their raw material is -- price of the final product is down by 20%. So it all depends on the current market size. So it's very difficult to give the real -- exact number and then also application in the area of the country or geography, that also depends on the market size.
Okay. And what is your addressable or your share in this?
We are talking about the capacity. So currently, we have 500 tonnes each, and we are going to install more 200 -- 2,000 tonnes each. So this is our addressable market for next 2 years.
One minute, sir. As you said, 500 tonnes each, so what does this mean? Can you please clarify more?
There are 2 products, VC and FEC, which is we have already executed and that -- for that, our capacity is 500 metric tonne each.
Okay, okay. So this...
Continue, sir.
Okay. And for these 2 products, you're doing contract manufacturing?
That is different thing.
Okay, okay. And [Technical Difficulty].
Sorry, we lost your voice.
Jishan, the line for you was in...
Revenue or turnover size from this new facility that you have started?
It will be somewhere around 3x.
Okay, in Ankleshwar, it is -- okay, 3x. Okay, that means 3x as a turnover you say, right?
Yes.
Right.
Okay, okay. So 3x and if you consider this INR 310 crores as an asset, right? So it will be more or less INR 900 crore revenue, right?
I don't know, sir. You have to calculate that. I can't speak on numbers.
Okay, okay. Okay, sir. Okay. And my next question is that, the Baba Fine Chemicals, which you have acquired, is this for specialty chemical segment or electrolytes? Because basically for this...
It is a semiconductor. It's not -- we included it in specialty, but it is an application in the semiconductor industry.
Okay, semiconductor industry, okay. So -- and so I would also like to know that what will be the -- like you mentioned, 3x for your Ankleshwar facility, then the same applies for the Baba Fine Chemicals?
No, Baba Fine Chem is -- there is no expansion over there. It is an established business, which is we are running them, and there is no capital currently infused in that company.
Okay. Then how much does it contribute to your top line?
Currently, it is somewhere around INR 40 crores, INR 45 crores, and it can go up to -- it can be incremental up to 3x from here.
INR 40 crores, INR 45 crores?
Yes.
[Technical Difficulty].
The next question is from the line of Rikin Shah from Omkara Capital.
So I just wanted to ask whether in terms of technology, we have mentioned that we have developed 6 more electrolyte additives. So are they new blends for the same salt? Or are they blends for some other salt?
No. So these are the new additives, which are used for depends on the salt and depends on the formulation. So it's one maybe buy by someone, second maybe not buy by the same one. So its all depend on the formulation, recipe. We developed these all 6 which can be either used by one and same application, somebody is used another one. So this is how it will be.
The next question is from the line of Nikhil from Perpetual Capital Advisors.
Sir, in the last quarter, you had earlier mentioned that the company is looking to launch a UV Observer product in the specialty chemical business. So just wanted to know how is the response? Or when do we see the ramp-up for this product?
Your voice was not clear. Can you -- I'm extremely sorry. Can you repeat it, please?
Yes. Is it clear now?
Yes.
Yes. So last quarter, you had mentioned that the company was looking to launch a UV Observer product in specialty chemicals. So has that happened and how do we see the ramp-up going forward for it?
Thanks for bringing this. Yes, we had already supplied validation quantity around several metric tonnes. It will be ramp-up from Q1 FY '25.
Okay, okay. And any other new products in specialty chemicals? I think it's almost 2 years or maybe 3 years now that the company has acquired the specialty chemical plant. I think the potential was to hit close to INR 200 crores, INR 250 crores of top line on an annual basis. When do we see that or maybe it's slightly lower now due to the correction in prices?
Yes. So price is always a factor to revise the timeline, but volume is increasing. So once we hit the volume, we are not worried, because sooner or later when price ramp up, volume will give us a revenue what we desire.
Okay. So let me put it this way. What is the current capacity utilization in this plant? And when do you expect to hit optimum capacity utilization?
So currently, it will move from 45% to 54%, 55% ramp-up has happened in last 1 year, and it will be fully utilized by '26.
Okay, okay. And anything on the timeline of ramp-up of the Fermion contract? Do we see some part of it in -- at the end of the current fiscal year? Or do we start seeing it from Q1 and it being ramped up to its full capacity in a year's time?
So currently, we are in process of qualifying some validation batches, which will be in this quarter and then it will be -- will take a quarter for -- 1 or 1.5 quarter for valuation at their end, then it will be gradually exponentially ramp up, up to the end of FY '25.
Okay, okay. One last question from me is this INR 300 crore toll manufacturing opportunity that you spoke about, have you given the timeline? I'm sorry, I joined the call a bit late.
We already -- about the -- the timeline is very -- it has to be next year only, FY '25, but we are in process of finalizing the term sheets and everything. So once we -- it will be, we will announce on that.
Okay. And the plant would take close to 12 months to come up full fledged. Got it, got it. Yes.
The next question is from the line of [ Akshat Vijay ] from Hem Securities.
Hello? Am I audible?
Yes, you're audible, sir.
Yes. So my first question is that have you lost any market share? Because the reason for the subdued performance is only the pricing pressure, right? There is no loss of market share.
No.
Okay. And for the Ankleshwar facility, you mentioned that 1/3 of the facility will be dedicated towards the Fermion deal, and the balance 66% will be used for your other pharma business. So have you already started getting orders for that 66% facility? Are you in talks with some other customers?
Yes, we are actively in negotiating a discussion with the firm.
Okay. But nothing is finalized right now, right?
Yes, it will take time. Need to be finalize several issues, [indiscernible] cost and everything because is a CMO, CMO it takes some time.
Okay. And the last question is on the margins. Like as you mentioned in your previous con calls that you are focusing a lot on the specialty chemical segment. And now this electrolyte is also coming in and both of them have lower margin than pharma, right? So obviously, currently, this China thing is going on, pricing pressure is there, but 3, 4 years down the line, do you expect that we can ever reach that FY '21 EBITDA margin level of 24%? The operating leverage will also have a role here. So what will be the margin guidance or outlook 3, 4 years down the line?
3, 4 years down the line, definitely, it will be between 23% to 26%, between that.
Okay. 23% to 26%. Okay. Okay, that's it from my side.
The next question is from the line of [ Vishal Agarwal ] from [ Leo Capital ]. [Operator Instructions].
My question is on the electrolyte business. Just so that it's clear, you said that you have a CDMO contract which is for manufacturing a solution which will use your electrolyte additives and that is only for one client. And on top of that, the electrolyte additive ability that you have, that you are able to sell to multiple clients. Is that correct? These are 2 different businesses but related to electrolytes?
Yes.
Okay. And in terms of revenue potential, for the CDMO one, how large is the opportunity for the CDMO one?
It is truly difficult to say right now because it's confidential and we need to be -- we will announce once the event we sign the [indiscernible].
Understand. And that -- as part of the CDMO, you will not be making the entire electrolyte, you will be making the solution which goes into the electrolyte. So what portion of the electrolyte value is the solution?
No, this solution is known as electrolyte.
Sorry, you think the solution is not an electrolyte?
No, solution is an electrolyte.
Okay, the solution is an electrolyte. So you -- as part of the CDMO, you will be making the final electrolyte, of which additive is one component, but the rest of the recipes will come from your partner, so to say?
Yes, they will supply us for themselves.
Understand. And in that kind of a business, what sort of margin profile would you expect? Would it be in line with your API business?
No, it's a CMO. So there we have to see the -- how much operating leverage and all we will get, based on that the margin will be decided. So that is yet to announce because these all depends on the recipes and quantities and energy and also it's very difficult right now to announce about the margin of CMO and this is a specialty chemical CMO. It's not like pharma. So it's a different way.
So you would expect a lower margin than the pharma CMO?
Pharma CMO is the top one always. You cannot compare pharma with the specialty CMO.
I understand. And so that I understand it right, you are saying that this electrolyte solution that will be under CMO and that obviously will be proprietary to that one client. So you cannot sell it to anyone else. You cannot use that or --- I'm assuming you cannot use that ability to create electrolytes and market it generally. What you can sell generally is only the additives, which you are making yourself?
Ami Organics' USP is not to compete customer. So we follow strictly this rule. So we never compete our customer. So if we do CMO for our client, we never sell that product to anybody else.
Understand. But you see enough revenue potential to grow with that client itself that there is a lot of market opportunity just you don't need to...
Yes, yes, yes.
Got it, got it. And just coming back to your API business in pharma, there you have 2 parts: one is with innovators; and the other is generics. For both of these, what's the competitive advantage that we have? Are we exclusive with our clients? Or -- I know you have mentioned earlier also that Chinese players are not competition for us. But then who is competition? And how does what happens in China impact us in terms of long-term margin profile for this business?
There are competitors from other generic -- API -- intermediate manufacturer based in India or maybe Europe or maybe client himself. So it all depends on where we are selling and what is the, say, for example, a regulated market with the originator, they have 2 different geography. They have to -- they themselves is also one of the approved client for themselves to manufacture. And for generic business, there are Indian small manufacturers, also some big manufacturers are also our competitors. So all depends on the product to product and application and geography.
And you're saying, basically, there may be other API manufacturers also listed in the DMF other than you yourself and they are a competition, they are not Chinese guys necessarily, but they are a competition.
Yes, they are directly competing to our client, if they have a DMF themselves filing the same application.
Understand. And we think the Chinese guys essentially compete with your end clients because they may be manufacturing the end product which your clients is making. So that puts pressure on the pricing for your end clients and indirectly puts pressure on you. Is that right?
Yes. Nowadays, Chinese CEPs and DMF filing is incremental. So that create a little bit pressure on our client in final implication.
Understand, understand. Got it. And then just lastly, for the electrolyzed opportunity, the CDMO one that you spoke about, is that a very CapEx-intensive business? Or it's more about process efficiency and there's not much CapEx involved? The reason I ask that is as you scale up that CDMO business, is it like it will have a lot of lead time for you to identify location and do the CapEx or it can be scaled up very quickly?
A CapEx-intensive business this is but it's a long-term secure business.
Understand. And it would take several years to ramp up because you would have to do the CapEx and so on?
Yes. It will take a normal timeline to ramp up any business, the standard timeline, the same it will be applied to this as well.
Any sense on the timeline, sir, like how much time would it take?
I can't say on that right now.
The next question is from the line of Mithun from MMM Capital. As there's no response from the current participant, we will move to the next participant in the queue, which is Aayush Rathi from IDBI Capital.
Hello? Am I audible, sir?
Yes, you're audible, sir.
Sir, I had only 2 basic questions. First, on the finance cost. In this quarter, we have a finance cost of INR 25 million. So for modeling purposes, for the next quarter also, we will have the same finance cost?
Yes. So it will be on the same line, a little higher than this, because as we are doing additional CapEx, so there will be borrowing on the books, and it will be little on the higher side.
All right. So as in your opening remarks, you mentioned INR 119 crores debt has been taken for Ankleshwar facility. So what kind of debt to equity are we looking at on an overall basis?
It would be around 37% equity, and rest is debt.
All right. Got it. And so like one last question on the strategy side. So you mentioned that on the electrolyte part of business, there's one customer who are making solutions. So in the long run, are we planning to also doing the business of electrolytes or like completely focus our business on electrolyte additives? So what remains our main focus?
No, we completely focus on our electrolyte additive business only. This is an additional opportunity, which is the CDMO. This has nothing to do with our original planning of additives.
All right. So we plan to stay in the additive business more and focused more over here?
Yes.
The next question is from the line of Piyush Jain, an individual investor.
Naresh-bhai, good performance, 25% volume growth. I just want to understand a few quick things here. When we'll start booking the sales from electrolyte? I believe we have...
No, we already got an order. So now sales may be in this quarter or maybe next quarter, we will be invoicing. In terms of revenue for the electrolyte? Sorry.
Electrolyte. Or maybe your contract with Fermion, or maybe a broader way, our contract with Fermion, when this will...
No, contract with Fermion is already, in this quarter, we are doing validation batches for them. So that will be -- that will be commenced from this quarter. And for electrolyte additives, we got an order and we started production for that as well. And for electrolyte, is still premature. We are in finalizing the so many things, then we put up the plant and it will then come through. It will take a longer time for electrolyte CDMO.
Okay. And this Baba Fine Chemicals, this quarter's numbers, Baba Fine Chemicals' numbers included in this quarter's revenue?
Yes, in consolidation, Baba Fine Chem is included.
Okay. So just to understand, earlier con call, we have said Baba Fine is around 40% type of EBITDA margin business. So are our EBITDA is able to hold because of the Baba Fine contribution or Baba Fine contribution is not too much that can change the margin profile here?
See, we need to understand, every business has a different growth pattern. So electrolyte has a different margin. Semiconductor specialty chemical has a different margin. On top of that, the margins of Baba -- the consolidation of Baba business was done in Q2 FY '24 also. So it's not only in this quarter. It has been for full year. So it's already there in -- it was there in last quarter as well.
Okay, okay, okay. And one more thing, this INR 300 crore CapEx, which we have said. So when we will start deploying this CapEx?
The INR 300 crore CapEx for electrolyte will take some time, whereas for Ankleshwar is already ongoing, which will be finished by -- very soon for this upgradation of the new facility.
Any internal target, Naresh-bhai, to achieve INR 1,000 crores revenue by, let's say, 2 years, 3 years, anything? Not asking for guidance or numbers, but you might be having some target because we are doing so many contracts with Fermion, electrolyte, so many things going -- ongoing. Any thought process that by when we will be able to achieve INR 1,000 crore number, 2025, '26?
My sense is at least midway.
The next question is from the line of [ Dinesh ] from [ Kriti Creation ].
Sir, I'm speak in Hindi. It's better for me.
Okay.
[Foreign Language].
[Foreign Language].
[Foreign Language].
[Foreign Language].
The next question is from the line of [ Krishna Kumar ], an individual investor.
Yes. Can you hear me, sir?
Yes, yes.
Yes. Sir, regarding the Baba Chemicals, you said that right now, there's INR 42 crores of annual revenue. So you wanted to take it to INR 200 crores. So when can we expect the INR 200 crores potential revenue, in which year?
No, no, it's not like that. See, when we acquired, it was INR 42 crores, when we acquired that business, it was -- the last year, it was INR 42 crores, INR 45 crores. And then this year is a consolidation, where we are integrating, changing the name of the company and all and then approval from the customer and so that this year will be either muted or a little bit lower because it's -- semiconductor industry is a very different industry than the other industry, where approval and qualification from end-to-end customer is needed. So that procedure is going on. And then in 2 to 3 years, it will be ramped up to the top line, what we say.
Okay. And one more question related to same thing, sir. Recently, we saw the announcement of Micron semiconductor in Gujarat for the new manufacturing facility. Are we doing any supply into this company?
Micron might be or -- might be a consumer of our end suppliers. So maybe -- we cannot say this because it all depends. It's a very closely held business community in semiconductor. So we are supplying to someone who might be supplying to them.
Okay. Perfect. And one more thing, sir. Regarding the promoter selling. I mean, it's not promoter, it's an individual, the previous side promoter. So can we expect some more selling in these 2, 3 quarters? Or is it already over?
Sorry, can you repeat your question, please?
I mean, the -- like a side promoter selling, like I don't remember the name of that promoter. So he was -- I think he was a key investor. But recently, he sold some of his stake. So can we expect remaining selling in these 2, 3 quarters? Or he is going to continue, Girishkumar Chovatia...
No, no, no, he will not go -- he's not a promoter. He was a sitting partner during the inception of the company, and then he qualified as a promotor and then de-qualified as a promoter as well, and he will not going to sell anything in the next 3 quarters, which is what -- which is what he said. I cannot stop anyone, I cannot stop you to buy or to sell. So on behalf of any stakeholder, I cannot commit anything on that. And he's already...
Yes, because in one of your interview video, you said that if he intents to sell anything, he'd inform you before that. So do you have any intent to buy some more from that...
No, no. He says that -- in a good note, he says that if he have to sell, he will inform me if I have to buy first and then he can sell to open market. Last time when he sell this 13%, I purchased 1% from him. So he offered me also. So I purchased -- so in last sale, I myself purchased 1% from him. So it's good to know that I have belief in my company, and I increase my stake in that way.
Ladies and gentlemen, due to time constraints, we will take that as the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, Ambit team, for hosting our conference call. Thank you, everyone, for your patience, and we hope we have been able to answer most of your queries. If we have missed out on any of your questions, kindly reach out to our IR adviser, E&Y, and we will get back to you offline. Thank you very much, and have a nice evening.
Thank you. On behalf of Ambit Capital, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.