Acutaas Chemicals Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Guidance raised, but caution on new sectors: FY25 revenue growth guidance lifted from 25% to 30%, yet management flagged slower-than-expected demand recovery in generics and deferred timelines for EV battery chemicals.
• Pharma intermediates and CDMO drove the quarter: Revenue grew 43.2% YoY, powered by a 53% surge in pharma intermediates and the early ramp of a major CDMO contract, while specialty chemicals lagged on semiconductor weakness.
• Margins snapped back sharply: EBITDA margin hit 19.8%, up 543 bps YoY, as product mix improved, raw material costs stayed low, and operating leverage kicked in; management sees the trend continuing.
• The CDMO pipeline is filling, but details are now opaque: A second large contract is nearing validation, another is in advanced talks, and management stopped disclosing product-level CDMO data, citing competitive damage from past transparency.
• What to watch next quarter: Whether the Ankleshwar block two starts commercial supply on time, the pace of CDMO contract signings, and any stabilization in Baba Fine Chem’s semiconductor-exposed business.

Revenue Growth Drivers

• Pharma intermediates surged: 53% YoY growth came from strong volumes in key molecules and an earlier-than-expected CDMO contract ramp; top therapy areas include anti-cancer, anti-depressant, anti-psychotic, anticoagulants, and cardiovascular.
• CDMO ramp just beginning: The Fermion contract started contributing only in the latter part of Q2, so the full quarterly impact is still to come; the product is currently approved in Japan and Europe, with full regulated-market utilization expected in FY26.
• Specialty chemicals split: The segment grew just 7.6% YoY, dragged down by de-growth at subsidiary Baba Fine Chem; excluding BFC, the business grew more than 25%.
• Baba Fine Chem weakness: Demand from the part of the semiconductor industry BFC serves remains subdued; management calls it temporary and is optimistic about a recovery in FY26, with samples already sent to customers in Korea and Japan.
• Generic pricing stabilized, but recovery slow: Pricing has stopped falling and is at its lowest, but the upward movement is taking longer than expected; demand improvement is also slower than anticipated.

Management: "Thank you Prashant for bringing this question, because some people will might be thinking that 30% with Fermion contract why it's so low. So, it's slowly, slowly ramping up into FY25, so we already get in a few markets of these and slowly, slowly FY26 will be the fully utilize of all the regulated market with them."

Margin Recovery

• Gross margin led the charge: At 43.4%, up 239 bps YoY and 136 bps QoQ, driven by a better product mix as the business shifts from spot to contract arrangements and raw material costs sit at their lowest.
• Operating leverage amplified the gain: EBITDA margin reached 19.8%, up 543 bps YoY and 312 bps QoQ; improved process and operational efficiency contributed despite top-line pressure.
• Finance costs fell: Debt repayment during the quarter reduced interest expense, further aiding the bottom line.
• Margin trend expected to hold: Management sees the improvement continuing through Q3 and Q4, supported by stabilizing pricing, operating leverage from higher sales, and the full ramp of CDMO volumes; FY26 should also benefit.
• Working capital tightened: Working capital days improved to 108 in H1 FY25 on better debtor and inventory management, generating strong cash flow of ₹46 crore, or 60% of EBITDA.

Management: "So, the first target of our is to reach to FY21 where we were at 23% margin and from then onwards, our main target is to go beyond 25% and between 25% to 30% is our target to be reached in next three years."

CDMO Pipeline & Disclosure Shift

• Fermion contract scaling: The product has patent protection until 2032-33 in most key markets, with potential extension from two newly approved applications and another in phase three clinical trials; demand may increase as new applications are approved.
• Second large CDMO contract progressing: Validation batches have been sent to the customer and are nearly qualified; once approved, the contract will be signed and supply should start by Q4 FY25 or Q1 FY26.
• Third contract in advanced talks: One additional CDMO contract is in an advanced stage of finalization and expected to be signed by the end of this financial year, with sizable revenue starting next year.
• Broader originator engagement: The company is working with originators in Europe, the USA, and Japan; some projects are in the sampling stage, others are advancing, and they are expected to mature and generate revenue from next year onwards.
• Disclosure policy tightened: Management will no longer disclose CDMO product names, customer names, or segment-level revenue and margins, citing competitive damage from past transparency around the Fermion contract.

Naresh Patel: "Related to Fermion, whatever the mistake we had done in the past by saying product names, customers, product and everything that created a lot of problem for us in terms of competition arise, which is now we learn this mistake and hence onwards, we will be not disclosing CDMO name, products names and all, but we will give you the cumulative guidelines."

Capacity Expansion & Projects

• Ankleshwar block one complete: One production block is finished; the remaining two blocks were delayed by extended heavy rains in Q2 but are expected to be completed in the current quarter (Q3 FY25).
• Block two supply timeline: Commercial supplies from block two should begin in Q4 FY25; full utilization of the entire Ankleshwar capacity is expected to take around three years.
• Captive solar plant delayed: Completion pushed to end of Q3 FY25 (December 2024) due to heavy rains in Gujarat; energy savings and EBITDA contribution now expected from Q4 FY25.
• Electrolyte additive CAPEX underway: Civil structure plans are in place, construction is starting soon, and machinery ordering has begun; the project is expected to be completed in H1 of calendar year 2025, with incremental capacity of around 2,000 metric tonnes each for VC and FEC at Jhagadia.
• Revenue from electrolyte additives: Validation quantities have already been supplied at large commercial scale; revenue could start as early as Q3 or Q4 FY25, depending on when customers place orders.
• Enchem JV on hold: The joint venture with Enchem remains at status quo while terms are discussed; management is cautious and will proceed only when there is good visibility in the Indian EV market.

End-Market Outlook

• Pharma intermediate demand: An uptick is expected in H1 of calendar year 2025, with pricing slowly moving upwards from its current floor.
• EV battery chemicals deferred: Major car makers and industry players are postponing additional investment in EV battery capacity; the company is taking each step cautiously and will commit CAPEX for electrolyte additives only after securing firm contracts.
• Semiconductor weakness to persist: The part of the industry BFC serves is seeing stagnant demand; management expects the pain to continue for a couple more quarters, though it hopes the tide will turn soon.
• Long-term growth ambition intact: Management expects to sustain a 20-25% CAGR over the next three years, and a 25% CAGR over the long term up to 2035-2045, driven by CDMO and specialty chemicals.

Naresh Patel: "Even though I fully believe in the future of EV and switch to EV, only point where I differ is the timeline. I believe EVs will take center stage, but it will be later than sooner."

Guidance & Commitments

Key Metrics