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Aarti Pharmalabs Ltd
NSE:AARTIPHARM
Aarti Pharmalabs Ltd
NSE:AARTIPHARM
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Earnings Call Transcript
Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the Aarti Pharmalabs Limited Q1 FY '25 Earnings Conference. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.
Thank you. Good morning, everybody, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Aarti Pharmalabs Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter of financial year 2025.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.
Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review.
Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Rashesh Gogri, Chairman; Mrs. Hetal Gogri Gala, Vice Chairperson and Managing Director; Mr. Piyush Lakhani, Chief Financial Officer.
Without any further delay, I request Mr. Rashesh Gogri, to start with his opening remarks. Thank you, and over to you, sir.
Yes. Good morning, everybody. I welcome all the analysts and investors to this earnings call on this performance of Aarti Pharmalabs for the quarter and the year ended June 30, 2024. Our results documents were shared with you earlier, and I hope you would have got a chance to go through them.
To begin with, let me provide you the business highlights. The company operates three distinct areas within the pharmaceutical industry. One is xanthine derivatives, API and intermediates and CDMO/CMO. In the xanthine derivatives segments, we contributed 54% of the turnover in Q1 and despite aggressive competition from China, we have been able to leverage our relationship with our customers and grow our international revenues for the xanthine derivatives. As you may be aware, we are the -- one of the largest Indian pharmaceutical manufacturer of xanthine derivatives. Given our leadership and position and favorable outlook for the demand from the large corporations, we are seeing strong potential for this segment.
The API and intermediate business contributed 44% of the turnover in Q1. Out of this turnover, the regulated market contributed 55% and rest of the world market contributed 35% and the balance 10% was from the nonregulated market. This split is in line with our strategy to focus on regulated business, which offers higher profitability and stable demand. Given our strong focus in R&D and process innovation, we are able to provide necessary regulatory and IT support to our global customers. And this gives us a competitive edge over our competitors.
The third segment, CDMO/CMO has contributed 2.4% of the turnover in this quarter. We are presently working with 18 customers on 53 projects of which 27 projects are on the commercial stage at the customer's end and 26 are under different stages of development at customers end. This highlights our presence in late-phase projects.
The sales contribution of CDMO/CMO in this quarter is comparatively lower on account of long-lead orders, which we have delivery scheduled later in this year. These Q-o-Q fluctuations are part of the business as the products are typically multistage. We are thoroughly optimistic that we should be able to grow this segment by 25% to 30% Y-o-Y in financial year '25. The new R&D center dedicated to CDMO/CMO is gaining good traction and has strong pipeline, harnessing advanced technologies and modern equipment. This successfully catering to a substantial surge in the number of customer projects.
Let me now share key financial highlights. Consolidated financials, I am pleased to announce that in Q1 FY '25, the consolidated top line was INR 555 crores, which was 21% higher Y-o-Y. For the Q1 FY '25, the consolidated EBITDA from the operations was INR 96.4 crores as compared to INR 84.9 crores in the corresponding quarter of previous year, and that is an increase of 14% Y-o-Y. The consolidated PAT for the quarter was INR 65.3 crores, 18% higher Y-o-Y.
I will now share the progress and updates on the key expansion projects. Given the demand from several large corporations, we have announced the capacity expansion of xanthine for the -- in the last quarter, and we are in the process of acquiring adjacent land for the brownfield expansion of the project. We expect to complete this project in the beginning of FY '26 and thereby achieve a total production capacity of 9,000 metric tonnes per annum.
The Atali project, primarily focusing on CDMO/CMO and intermediate manufacturing is advancing as planned, and we expect to commission the site by Q4 FY '25. The semi-commercial block production at our U.S. FDA intermediate unit at Vapi is in final stages of completion and is expected to become operationalized -- fully operationalized in Q2 FY '25, as briefed last time.
This expansion will address the gap of small to medium batch sizes in the current system, in line with our plan of offering gram scale to tonne scale level batch sizes, ultimately adding our CDMO/CMO business. Lastly, setting up of a new solar power plant at Akola, Maharashtra is progressing well and estimated to get commissioned in the current quarter. This project is estimated to generate 1/3 of our power requirement in Maharashtra and it will reduce our manufacturing costs. We remain optimistic about the future and maintain our guidance to achieve EBITDA growth of approximately 10% to 12% in FY '25 and long-term goal of around 15% annual growth in the next 3 years.
I will now request moderator to open the forum for Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth.
And sir, first question is with regards to CDMO/CMO business. Of course, you have mentioned in your initial comments about the drop in the business and you have maintained your guidance of around 25% plus for CDMO revenue this year. Sir what we have been hearing and reading is there is some kind of shift from China to some of the large Indian companies with regards to CDMO/CMO orders coming in. So with regards to us, are we seeing any kind of new inquiries or larger inquiries coming, which probably you would not have anticipated a year ago? That is my first question.
Yes. As we have informed to you that earlier, we were having close to 40 projects that we were doing in this quarter, that number swelled to 53 projects. So this showcases that we have traction of new projects coming in our fold. And of course, we are filling large RFPs, a large number of RFPs. Out of which these are the projects that we have won with our innovator partners. So we are seeing large traction towards India away from China and Aarti Pharmalabs is also able to get more inquiries and projects.
And sir, one more thing about this. Typically, what kind of size -- average size of contracts or inquiries used to be coming to Aarti Pharma say, 6 to 12 months ago and how has it changed recently?
So basically, any CDMO/CMO project will require at least 6 to 12 months of cycle before it becomes -- you start commercial supplies and you understand overall demand. So we have a mix of commercial projects which are getting shifted and also late phase projects also coming to us. And overall, the inquiries have increased. If you see the number of additions that we have got this quarter have been significantly good and we anticipate that speed to continue.
Sir, I was just trying to understand the size of each of these projects. Some of these inquiries have they changed in last 6, 12 months? In terms of the ticket size which you are talking to your customers, or probably you're talking too much larger customers and thereby the size of each inquiry or order has changed?
Yes. So we are having projects in the entire spectrum. So we have some projects with specified technology that we have and certain projects which are getting shifted on the commercial. So the commercial sales have higher ticket sizes. And the newer projects where we are plugged in, in the system earlier. Also, they have smaller ticket. But as the product gets launched, the overall size of the business, depending on the product growth improves. So we have a mix of both. And overall, it really depends on the product, how big it is. But we have had bigger inquiries which are 1 million, 2 million-plus range in recent past as well.
Sure. And sir with regards to CapEx, so you have mentioned in your initial remarks about the various CapExes. So if you could break down the amount like xanthine last quarter, you had mentioned that we will freeze the exact number somewhere and share in this call. So what is the amount of CapEx being run for xanthine from 5,000 to 9,000 tonnes and the other CapEx specifications?
Yes. So we are anticipating close to INR 150 crores CapEx for the xanthine project. This will be spent across 2 sites that we use for the xanthine project. And the other projects that we have, as we have shared earlier, the Atali project has a total outlay of INR 375 crores, approximately INR 375 crores. And the solar project, which is on the verge of completion is around INR 90 crores.
So this year you spent somewhere around INR 150 crores on xanthine and INR 375 crores in Atali.
No, no, the -- xanthine also will get spread over next year. Atali, will be spent in this year because we will start Atali facility. Of course, it is a very large facility. So we may phase it basically in a couple of months, one by one, the entire facility can also start. So in a quarter, it will gradually -- the momentum will gain and we can operate the full Atali facility.
Sure. And last thing, sir. There is a sharp increase in employee expenses, anything to read over there? And also with regard to other expenses, like this quarter, we had INR 70 crores, previous quarter, it was INR 86 crores. So anything to read in this?
Employee expenses -- Piyush here. So employee expenses have increased in line with the growing business, and we also are incurring some employing more people because of the expansion at Vapi that is happening. So at Vapi also we are putting a 1-month block. And this also includes the commission amount also to the directors. So that is in line with the increment that we normally give every year. And other expenses, what was the question?
Other expenses, which were last year around INR 62 crores, fourth quarter it was INR 85 crores, INR 86 crores. And then this quarter, it has come down to INR 70 crores. So is this just a quarterly blip? Or is there anything to read in these other expenses?
See, basically the variable expenses will move in tandem with how the top line is moving. So -- and the power cost is something which has gone up because it is going up in Maharashtra, mostly every year. So this year also it has increased. So compared to quarter 1 of last year, it will be definitely higher the power cost. The freight also has been going up and down. So quarter 4, the freight cost was much higher which has slightly come down in this quarter. And if you remember, in quarter 4 of last year, we had done some R&D product impairment also. So that's why the other expenses in the last quarter of the -- last quarter was higher which has slightly come down.
[Operator Instructions] The next question is from the line of Mahesh Vyas from UTI Asset Management.
Am I audible?
Sorry to interrupt sir, your volume is very low. Could you speak a bit louder.
Is it better now?
Yes, sir. Please go ahead.
Yes. My question is on, sir, when we look at the numbers, how one should read on a stand-alone or consolidated basis. If you look from stand-alone, it's around INR 394 crores and on consol, it's around INR 556 crores. So in our presentation, how one should read the segmental break up. On stand-alone, the 2.4% of CDMO is of stand-alone or on a consolidated?
Standalone.
And sir, then how -- what makes the -- what about the difference of this INR 150 crores, how it comes?
Yes. So we have associated company and a subsidiary company. So these are consolidated in the Aarti Pharmalabs results. Yes. So we have an associate company called Ganesh Polychem Limited and also, we have a 100% owned subsidiary, Aarti USA Incorporation, and which has some trading business, legacy business of the chemical trading business, which is still being undertaken in that entity, which eventually will shift or stop by the end of this year, once Aarti industries sets up its own subsidiary in U.S.A. So this is a legacy subsidiary which got transferred to Aarti Pharmalabs. That's why I request you to look at the stand-alone because in the consolidated result, almost INR 100 crores is the trading sales.
Okay. Okay. And sir, when we look at the Aarti Pharmalabs, how one should understand in terms of gross margins profile given that we are in three segments. So I'm not asking the actual numbers, but how one should look at the gross margins of the company and given the differential segments are there?
Yes. So I think at the overall level, we have a gross margin of around...
Which is about 50% to 55% overall.
50%, 52%, yes.
Okay. Okay. And sir, if you can just help us understand how one should read on an API in xanthine segment. How the margin profile stands, mid-teens, mid-20s or like?
EBITDA margin?
No, I'm asking on the gross margin basis, sir.
The gross margins?
Sorry, I mean EBITDA margins, EBITDA margins.
So gross margins are better in API and intermediates than the xanthine.
Okay. Okay.
CDMO/CMO enjoys the highest gross margin. And then it is average out in, it depends on number of stage products that I do for that particular quarter, and so that varies quarter-to-quarter.
Okay. Got it. And sir, how things stands on in the xanthine derivatives market? I mean whether those Chinese aggression has come down or slowed down or how one should look at going forward?
Yes. So Hetal here, China is as aggressive as ever. And the pricing have been reduced in the spot market. So we have a balance of contract and spot. So it is challenging for the spot business. China is becoming very aggressive still.
Yes. But still, as you have seen that we have been able to grow our export business overall. And this quarter, we have been able to do almost 57% of the xanthine was exported. So the relationship and the connects that we have, we are able to get -- increase the market share.
The next question is from the line of Vikas Sharda from NT Asset Management.
I have one question on the pollution control notice, which you disclosed for the Dombivli plant. So what was the reasons? And what's the plan for resolution or any financial impact for the year, if you could comment?
Yes. So we received a pollution notice from the MPCB at our Dombivli site. So in Dombivli site, one of the Dombivli site, where we had MPCB come in an issue notice for some gas-related issue. Basically, the natural gas-based boiler start-up related issue and which we had resolved immediately. So the issue was resolved within 7 days, and we could get the startup of the facility to 30 days -- 30, 35 days for us to get the approval from them to restart. So now the facility has restarted and we are operating all our facilities.
So, Vikasji, as you would have read, it is something which impacted many companies in the same business area or industrial area.
Understand. But the impact was only like 30, 35 days that 1%, 2% of revenue, so not material.
Yes, not material.
I understand. And it will be nice if you could disclose the Ganesh Polychem revenues and EBITDA separately in each quarterly results. So because that's also quite significant for you now?
Yes, yes. So we will. I think, of course, the annual, it is getting disclosed, but we will disclose the Ganesh Polychem data also from next time.
The next question is from the line of Dheeresh from WhiteOak Capital.
So you have like 27 commercial projects in CDMO/CMO, right?
Yes.
Sir, on a per project basis, the average value is less than like $1 million. So it looks low to me. So can you just explain on that a little bit?
So the commercial projects at the commercial, at the customer end is that we have started supplying to them...
Second alternate source lot of places.
Yes. So what happens is that it takes some time for slowly building up because we will give them the validation quantity, and then they will move us to the actual market as their product gets launched or the product site transfer happens from one vendor to the other, and that is when they plug in new vendors. So all that process -- so we are in that process. So I wouldn't say that all the products are commercially and at their full potential, out of which the half of the projects are still at the early stage. So this potential will grow significantly.
How would this be split between patented products and generic products?
All are patented products only. Whatever we are saying in CDMO/CMO are all patented products.
Okay. And they are a combination of APIs as well as intermediates or they're all largely skewed towards one?
Only intermediate. And intermediates are classified as early stage intermediate and late-stage intermediate. So there will be GMP intermediate and key starting raw materials. So we are present in both the segments. So we also offer GMP intermediates, yes.
Okay. And how will it be split between development projects and commercial projects?
That we have mentioned. So that it is a 50-50, approximately 50% are on path to become commercial. Whereas 50% are still developmental project where initial work is being done at our end and at the customers' end.
Typically in Phase 1 to Phase 3.
Okay. And in API and intermediate...
Sorry to interrupt sir, could you please fall back in that question? The next question is from the line of Pujan Shah from Molecule Ventures.
Yes. Okay. So total CapEx, which will be outlaying for the FY '25 would be INR 375 crores, plus INR 90 crores, but assuming xanthine derivatives would be around INR 75 crores?
So basically, the outlay, what we are saying is around INR 500 crores to INR 550 crores would be the CapEx that would be done in this year.
INR 500 crores would be a good number, Piyush.
And we have been commissioning the Vapi in Q2 FY '25. What could be the revenue potential in FY '25 and how we have been out looking in terms of revenue in FY '26 as well.
So basically, the total volume that will get generated, volume per KL in this manufacturing block that we have put up is only 30, 40 KL.But it is going to bridge the early stage or R&D requirements of our customers for the clinical phase development where they need smaller batch sizes and stuff. So overall, it may not add too much value, but overall, it will accelerate the pipeline at our end.
Okay. Okay. And sir, in the CDMO side, if you look at the -- like if our contribution is just 11%, that is INR 41 crores on a stand-alone basis. So assuming we have been like -- we are giving a guidance of 25%, 30% growth. Are we due to like the -- even though we have been many molecules on the commercial side. So we have been very conservative on that basis? Or like because the FY '24, the base is very small.
See, FY '24, we did close to INR 170 crores of CDMO/CMO business, and we have guided for a 25%, 30% growth over and above that. So it will not be a Q-o-Q every quarter you will see 1/4 of that. The certain quarters may have higher sales and certain quarters may have lower sales. But -- and then we are also taking up multistage products. So multistate products takes time. So overall, we have a good order book, and that's why we have given this guidance on my call.
Sorry to interrupt sir, but the current participant has been disconnected. We will move on to the next question. It's from the line of Ankit Gupta from Bamboo Capital.
Again, a question on the CMO/CDMO side. So if I was looking at your data for molecules, which are on the commercial stage. So we -- last year, in Q1, we had 16 molecules in the commercial stage and we ended Q4 at 21 molecules. And now in this quarter itself, we have added 6 more commercial molecules at around -- and we are ending at around 27 molecules in the commercial stage. So there has been a significant addition which is happening on the commercial stage molecules as well. So normally, what we have seen in CMO/CDMO, is that most of the innovators tie up with CMO/CDMO, during the development phase itself at Phase I or even the discovery stage. So however, in our case, we have seen significant shift in -- or significant addition in the commercial stage molecule. So if you can explain about this?
And secondly, on the same segment in commercial stage molecules, normally in the year 3, year 4 is where we start seeing significant pickup in sales and sales for many large molecule reach to their peak. So where are we in that phase for our commercial molecules out of this 27%, when do you see peak sales coming in for many of them?
Yes. So as you rightly mentioned that we have been growing our overall commercial product basket. So the number that we are giving here is the number of projects which we have cumulatively, which are active. So we have 27 active projects that we may sell, in particular quarter in a few of them, and we may sell in certain years, also a few of them. But these are the active projects where the drug is still active, and we have been approved as a source for the drug product via intermediate or CGMP products. So -- and this may be in Phase III and above. So that is what we call it the products which are going for commercialize close to 27.
Yes. And as you rightly mentioned that a lot of partners are getting selected at phase, early phase, but there is always a shift which is happening when the product is getting bigger and bigger, and approvals are coming in. The innovator changes the strategy and then decides who is going to be the reliable supplier for them for the future of the patent life of the product. And that is Phase III plus stage. And that is where we are trying to get more projects. And at that stage also the medicinal development, which they have done with early phase gets knocked off and the new vendors get entry.
Yes. So normally for this commercial molecule that we have, how many alternate -- how many suppliers will be there for the intermediates that we supply to innovators on an average, if you can tell like there'll be like normally, we have seen it's normally not more than 2, 3.
Yes, it's not more than 2, 3 suppliers.
Okay. And the earlier suppliers would be the ones which we -- which had worked with the innovators at the development stage. And now because of the increasing volumes we have been added as a vendor.
Either increasing volume or China Plus One or the current vendor is not qualified to do anything which is very large volume commercial requirements or commercial-grade production. So that is where we specialize, our specialty how we are able to commercialize the projects, which are at Phase III and support the innovator for the entire patent life of the product.
And given the kind of pace we have seen on...
Sorry to interrupt sir, Mr. Ankit, could you please hold back...
Just a follow-up on this. I'll just finish it up. The kind of pace that we have seen an addition of molecules in Q1, do you think this will continue for the near to medium term given the legislation, which has been passed in the U.S. recently against China for the CDMO.
Yes. Yes. Yes. The BIOSECURE Act has forced U.S. companies to shift away from China. And that's why other non-Chinese suppliers of these intermediates and the GMP intermediates are seeing more inquiries, and we are benefiting from this.
The next question is from the line of Nitesh Dutt from Burman Capital.
First question on CDMO/CMO. So we have been hearing a lot of chatter around BIOSECURE Act that you just mentioned. Are you seeing any specific opportunities opening us for you as well because of this act?
Yes. So that is what I mentioned to the previous caller also that in 6 months, we have added 9 commercial projects from 16 to 27, and we have a strong pipeline of early phase projects also. So overall now, we have total projects also 53 projects are currently live with various customers, which are 18 customers. So we have added two more customers and also added more projects from our existing customers. So we are getting more and more traction from our current customers, which have seen the advantage of placing these projects with us because of our previous supplies to these customers.
Got it. Second question on xanthine. This quarter, I believe we have done a revenue of INR 210 crores versus INR 180-odd crores in the last 5 to 6 quarters. And this is despite the pricing pressure, et cetera, you mentioned from China. So what has led to this jump in revenue, any volume uptick we are seeing or one-off prices in this quarter?
So overall, we have seen in xanthine and allied segments. So we have seen more volume that we have been able to do and xanthine is not alone caffeine. So there are other project -- products also which are part of this segment that the way in which we are reporting. So overall, we are seeing good growth overall for the current quarter and we are pretty confident that we will continue doing similar or better going forward.
Okay. Just last question on gross margins. I think there's some compression there. This quarter, we are at 48%. I'm talking about stand-alone versus 54% last quarter and your guidance of 50% to 52%. So the 48% number this quarter is it because of lower contribution of CDMO/CMO or any raw material pricing pressure that you are seeing? And should it get back to 50% levels by next quarter?
Yes, yes. So that is definitely the CDMO/CMO segment revenue is less this quarter. And of course, it will get picked up in subsequent quarters of this year and which will rationalize overall percentage. But as you know that the industry is becoming more and more competitive. So overall, there is, of course, pricing pressure as well on the API segment also.
The next question is from the line of Dhwanil Desai from Turtle Capital.
Sir, my first question is on xanthine. I think Hetal ma'am that Chinese aggression continues in that segment. So I think in last call, we had a view that the prices have almost bottomed out. So are we -- are the prices falling from last quarter basis also? And also this competition or the aggression is only on the caffeine side or the other products in the xanthine basket as well?
Yes. So what has happened is that overall, the prices are falling from last quarter. And of course, the raw materials are also falling from earlier quarter. So we are seeing overall cost of goods also coming down so that we are able to maintain our overall margins in this segment.
Yes, apart from caffeine, the other -- xanthine also prices have come down.
Yes. Other prices are also coming down a little bit.
Is it more of an adjustment for the RM price falling, right? It's not a price war kind of a situation.
Yes. Yes, it is more of a raw material correction.
Okay. Second question sir, on the CDMO side. I think we ended last year with almost 11%, 11.5% contribution. And this year and next year, we have guided for a very strong growth. So at an overall revenue mix the proportion will get higher. So last year, on a stand-alone, we ended with 50% gross margin. So at CDMO proportion grows to lets say 20% plus. We should move up in the gross margin trajectory. Is that a right assumption to make? And if so, will it be like 53%, 54% kind of a range? Or can you guide something on that?
No, it depends on number of stages that we are doing in the CDMO/CMO projects and so it is a function -- the gross margin is a function of number of stages. Suppose I have a 7-stage product, then my gross margin goes up to 70% also, because everything I'm doing in-house whereas there could be a 2-stage product where my margin is less. So it depends on the number of products that are in which kind of segment and how many stages we are doing. Typically, we end up doing 3, 4 stages in the CDMO/CMO space.
But we have a few projects where we have much more longer stages, which we have been processing currently and which has -- which will have a positive impact on the overall gross contribution also and gross margins from coming, yes. But overall gross margins, we can't give a real guidance. Overall, we can give the guidance on the growth because overall occupancy of our facility is a function of how many stages we are doing. And as we occupy more and more our facility, the gross margins will go up for the particular product.
Okay. And on the xanthine expansion...
I'm sorry to interrupt, sir. The next question is a follow-up question from Mahesh Vyas from UTI Asset Management.
Sir, when we look at the CDMO business, how would have been our capacity utilization in last couple of years? And how -- once we are coming up with the Atali project, how you see the -- how the capacity utilization and the asset then one should take off on it.
Yes. See, currently, we are using the facility for CDMO/CMO and intermediate and API combined. So overall, I think our occupancy is 85%. Atali, we are going to add 400 to 500 kl, close to 500-kl of capacity, reactor volume capacity and which will significantly increase our capacity almost by 25%, 30% from the current level. So -- and this is going to be Phase I of Atali, and of course, we can build multiple every year. We envisage to build similar block or at least 250 to 300 kl capacities in Atali. So we are well poised to match the capacity and keep certain free capacity so that we can meet the demand and surge of demand of our CDMO/CMO customers as well as API and intermediate customers.
The next question is from the line of Dheeresh from WhiteOak Capital.
Just following up from the earlier question, the current reactor capacity in combined, excluding xanthine is about 200 kl, right -- 2000 kl, 2000 kl, sorry?
It is not 2,000 or 200. Will get you the real number offline. So currently, we are adding close to 500 kl, 450 to 500 kl in Atali, which will be around 25% addition, yes. So we have close to 1000 kl.
Sorry -- 1000 kl. Okay. And right now, it was combined for API and CDMO. With the new block, you will carve out CDMO capacity separately or still be fungible across both?
Yes. It will be fungible between intermediates and CDMO/CMO because both the businesses require multipurpose assets. And this multiple purpose, for example, currently, our Vapi site has hydrogenation block, which was commercialized earlier in this year -- in last year. So that we don't propose to put up a hydrogenation block in Atali because here, we have got sufficient capacity to do the hydrogenation. So depending on the requirement of the project, we'll move the product stages around both the facilities.
Okay. Understood. And sir, one last question. So you are explaining that we've moved from 16 to 27 commercial projects, and we are doing mainly patented products only intermediate. So are these -- like can you just give a qualitative understanding of are they in the early stages of their commercial launch or are in their life cycle management of -- from a patent early stage.
Most of them are in early stage of the commercial, but there are a few in life cycle stage as also. But more than 50%, 60% is in early stage.
By revenue?
Part of the 27. Yes.
The next question is from the line of Pranav Shikare from Navneet.
Yes, sir. So sir, my question is on regarding on the margin front. So we had like a 21% margin in last quarter. And this time, we have debt to 17%. So any guidance on it like why there is so much of fall in the margins and any guidance on hitting the peak margins again?
Piyush, you want to take this question?
Yes, I didn't get the name. But this particular question has already been answered. So basically, if you look at quarter-on-quarter, you'll see some up and down because the CDMO/CMO business, which basically contributes or which is the highest margin business for us. That basically goes up and down on quarter-on-quarter basis. As you have seen in the last quarter, it was 18%, its contribution to the overall revenue of the quarter, which has come down to 2% in this quarter. So that has been the major reason.
[Foreign Language] Another major reason is also, if you are looking at a consolidated number, I think better view to look at the gross margin for the Aarti Pharmalabs will be stand-alone. So in the stand-alone, our margins are more consistent. If you see 22% -- 21% to 23%, it will move around with the CDMO up and down in terms of EBITDA margin. So I think that will be a better number for tracking than the consol because consol has some trading activity also, which eventually will get stopped by the end of this year.
The next question is from the line of Harsh Nagda from Vivid Financial Services.
I just wanted to ask about the xanthine prices trend last year and this year? And what are we anticipating with the trend moving forward?
Yes. So xanthine has many molecules. So I think we won't be able to share. But overall, the pricing has come down by around 15%, 20% over last year in the spot market.
Okay. So what are we expecting that trend to move on further?
Yes, we expect the trend to -- the prices to stabilize at this level as long as the raw material prices are stable or go up only. So we don't anticipate it to come down unless the raw material prices fall further.
The next question is from the line of Jay Shah, an Individual Investor.
Can you hear me?
Yes.
Congratulations. I had a broader question on the business front. So like you just said that because of the U.S. BIOSECURE Act and even China Plus One, you are seeing a lot of inquiries. But at the same time, we are kind of congested on the capacity utilization, at least in terms of the near future. So what kind of conversations are then keeping the customers engaged because we will not be immediately able to at least start the CDMO phase for them. So how are they showing confidence in us, I mean, apart from our chemistry skills and our lineage because of Aarti Group. So how is it that customers are willing to wait that 6 or 9 months till Atali, it's -- is ready?
Yes. So as we have mentioned that we -- our facilities are fungible across intermediate as well as the CDMO/CMO. So we have flexibility to buy those intermediates and substitute the capacity for CDMO/CMO and keep the customer, give the customer the capacity availability. So that is one thing. Another thing is that these projects, whatever that increase that we are seeing, of course, will take 6 to 8 months or a year to get mature. And by that time, we will also have our facilities. So early phase, as we've mentioned, we have now this smaller reactor up to from 50-liter to 2 kl.
We have already added 1 block in our Vapi site, which got commissioned in this quarter. So with that we will be able to meet their validation requirements or early phase requirements to qualify our product for future. So we have that capacities in place. So we don't see any concern on the capacity front for the CDMO/CMO business for now.
Okay. Okay. That's it from my side. Thank you so much and all the best for the future.
Thank you.
The next question is from the line of Amit Luri, an Individual Investor.
My question was regarding the trading business, which we have discussed right now. So can you please throw some light on what is the -- actually the annual turnover of the so called company. And the profit margin currently, quarterly, as well as annually, and what impact it will have going forward. As you said, that the same business will not going to continue from next year.
See, we have a subsidiary called Aarti Pharma -- Aarti USA Incorporation, which was constituted prior when it was a combined business of Aarti industries and Aarti Pharmalabs. And essentially, we were catering the customers in U.S. require generally door delivered products. So all door delivered products were catered for both the businesses using this company. And then in pharma, we have certain registrations and investments from this entity as well. So this entity was retained in Aarti Pharmalabs as a subsidiary. And Aarti Industries was supposed to create a new company in U.S.A. to handle their door delivered business in U.S.A. So that will happen by end of this quarter, hopefully. And a large portion of turnover, around 80%, 90% of the -- last year, we did close to INR 200 crores, I think INR 190 crores, INR 200 crores of this turnover.
And this year also, this quarter, we have done a large turnover in this segment. So that will get shifted. But of course, the margin profile is only 1% to 2% in this business. So it will not have an impact on profitability or EBITDA of the company, only the top line which we have been just helping Aarti Industries meet the customer requirement will get shifted.
Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to the management for their closing comments.
I would like to thank all the participants on this call to attend this call. Thank you very much.
On behalf of Aarti Pharmalabs Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.