We are launching the five new products in the new manufacturing facility and they're all pharmaceuticals and this should lead to an increase in pharma numbers.
Dr. Aman Desai, Promoter and Whole Time Director, Aether Industries
In an exclusive interaction with Pravin Prashant, Editor, Indian Pharma Post, Dr. Aman Desai, Promoter and Whole Time Director, Aether Industries Limited talks about the company’s Capex, expansion plans, Panoli facility, business models, revenue mix, future plans, R&D activities, and sustainability plans, and net carbon zero plans.
Aether Industries is one of the fastest growing Speciality Chemical companies in India and to maintain growth, the company is investing a lot. What is the Capex plan for FY 2022-23 and areas where the company is investing?
We are growing significantly faster and to maintain growth we are pumping Capex and building infrastructure on the ground. Coming up is Site 3 facility at GIDC which is our second manufacturing facility where we are investing a Capex of Rs. 190 crore. We have also invested Rs. 65 crore in this fiscal in solar power plants and are also investing about Rs. 20 - 25 crore in our Indian pilot R&D plant. There is significant Capex outlined for the current and next fiscal year as we are building Site 4, the third manufacturing site with a Capex of Rs. 240 crore. In this financial year, the Capex will be about Rs. 275 crore for Site 3, solar power plants, and pilot R&D plant.
Update us about Site 3 Facility at GIDC, Sachin, Surat. Capacity of the plant and products that you are planning to manufacture?
When the product transitions from R&D lab into pilot plant, we include DCS (Distributed Control System) automation. So, the plant is completely automated which is significant differentiation as compared to almost any other company in India, especially at our level. All our production facilities are fully DCS as it provides a lot of reliability, reproducibility, and most importantly for us its inherent safety from process automation.
The Site 3 as well will be DCS process automated and a significant component of the Site 3 will be continuous flow reaction technology, which is one of our strongest core competencies. We are launching five new products in Site 3 and these are advanced Intermediate Pharmaceuticals, all of which are going to be manufactured by us for the first time in India and these represent almost Rs. 1,000 crore worth imports on an annual basis. We are launching these products for the first time in India and will be launched in a gradual manner starting from December, 2022. So, the commissioning of the plant will be done and the first product will be launched in December 2022. We should be exceeding the full stabilisation and maturity of Site 3 by the end of the first quarter next calendar year or the last quarter of fiscal year 2023.
In terms of the solar power plant, we have installed 16 MW plant which will offset 24,000 metric tonnes of carbon dioxide emissions per year and will take care of about 50% of the electrical load of our Site 1, Site 2, and upcoming Site 3 where we have invested Rs. 65 crore and is fully functional. Over the last six months, we have fully modernised and fully renovated our R&D centre into a brand new world class R&D centre with seven synthesis labs and 55 brand new temperature controlled R&D labs. If we talk about fiscal 2022, the Rs. 600 crores revenue that we generated in fiscal 2022 was generated from R&D capacity X which we have now tripled. R&D is the driver and the engine of the company from inception and it continues to be today.
Your company has purchased 125,000 square meter of space in Panoli. When are you planning to build this facility and what will be its capacity?
We are very pragmatic and practical in our expansion and have always tried to remain close to our homebase, Surat. In fact, Site 1, Site 2, and Site 3 are within 10 minutes of each other and that is by design because we are doing all the new products, new chemistries, new competences, and building the team from scratch. So one has to be practical and cannot go to Dahej or big chemical zones that are two and half hours away. We want to be close by so Site 5 in Panoli GIDC is 126,000 square metre or 11 acres and is only about 45 minutes away. Since the land is very scarce in the chemical zones, we are very excited about having already procured the Site 5 land which is 12 times the size of the current production Site 2 and so it represents tremendous potential and opportunities for building multiple blocks of production facilities. This fiscal year we will be launching Site 3, in FY 24, we hope to launch Site 4 and hopefully in FY 25 we will be launching Site 5 on a piecemeal basis.
Would you talk about Aether's business models?
We have three business models: large scale manufacturing, contract research and contract manufacturing which funnels into exclusive/contract manufacturing. The last business model which is the exclusive contract manufacturing, leading from research, is where we partner with customers for participating in the entire life cycle of their patented pipeline launch of molecules all the way towards commercialization. When it hits commercialization, it is multi-year contractual supply agreements based manufacturing and we envision Site 5 to be a mixture of both manufacturing plans of our own in-house R&D pipeline products as well as client/customer guided projects and manufacturing opportunities which will result from the various efforts we are doing in this previous models today. We are really excited about Site 5 which represents tremendous opportunities for manufacturing and growth for the company. We should be seeing the contributions of that and plans coming up on that side by FY25.
Any particular product that you are planning to manufacture in Panoli site?
We have Site 3 coming up and we are launching five products that have been finalized at once, Pharmaceuticals that have been validated at manufacturing scale in the current sites are being launched this year. In Site 4, we have more or less finalized the product mix that we're going into by the next fiscal year. In Site 5, we have not finalized yet but to give you an idea, we have close to 80-90 scientists in R&D. We have huge R&D strength and have about 30 to 40 different projects currently going on. If all of those 35 products lead to commercialization, we will be able to occupy Site 3, Site 4, and 50% of Site 5 already. We have a tremendous pipeline of products in the R&D right now and we are very confident that by the time we get to Site 5, we will have enough ammunition in the R&D pipeline to fill that up.
Are you looking at acquisition routes both within India or outside India to grow your revenue or are you looking only at greenfield expansion?
The current focus is on organic expansion and building our own plant at Site 3, Site 4, and Site 5. This is the main focus area of expansion and growth for the company. Mergers and Acquisitions (M&A) and inorganic expansions are being considered but on a very limited basis right now and preliminary discussions are going on. The idea is to start out small such as marginal acquisition activities primarily in the US or Europe because our global technology and business development team is residing there. The idea would be to focus on R&D capabilities and R&D infrastructure. If we do go ahead, it will complement our existing competences and get us access into areas of R&D which we don't have currently. Hence, the focus will primarily remain on R&D capabilities and R&D infrastructure. The ultimate manufacturing should funnel back to India and this is the current strategy of the company.
We are basically entering into R&D space with a customer network that we previously didn't have access to for example like innovative pharmaceutical companies, we don't currently have access to in our contract research and contract manufacturing business model and maybe into an activity. To have it ending with an R&D infrastructure in Europe and US which already has access to such a clientele would be kind of an idea that we are currently pursuing but focus is on R&D and to start small.
Aether has posted revenue of Rs. 590 crore and profit of Rs. 109 crore for FY 2021-22? What's the revenue and profit forecast for FY 2022-23?
We have grown well. With close to 50-52% CAGR over the last three years. Our growth track record has been really good. I really don't want to put out any forward-looking statements at this point. You have already seen the Q1 results which had a little bit of a softening effect of the global pharmaceutical downturn. Q2 will be similar, Q3 should start picking up, and from Q4 onwards, we should seek contributions from Site 3 which is the new manufacturing facility. So, we are bullish and upbeat about the current fiscal year performance and hopefully our plans will play out and we will see reasonable growth in the current fiscal year on a large scale.
In revenue mix, Pharma contributes 60% and Agro 25% of overall revenue. Do you see any change in revenue mix going forward?
Yes, pharma has been softening a little bit in the last quarter and current quarter as well, but eventually we will see it coming back strongly. In the current fiscal year, we are launching the five new products in the new manufacturing facility and they're all pharmaceuticals and this should lead to an increase in pharma numbers. We are also having a significant focus on the agrochemicals and material sciences space. The material sciences includes oil & gas space as well.
If you see historical numbers, three years ago it was 85% pharma and so over the last 3-4 years we have gradually balanced out the bucket. We have added even more to the agrochemical bucket and the material science market including oil & gas. The sustained goal of the company is to equalize the buckets and within the next two years by Site 3, Site 4, and Site 5, one should see more equalization of this bucket. The ultimate goal will be 35% pharma, 35% agro, and 30% material sciences including oil & gas.
Can you throw some light on the material sciences part of your business?
We have built various strategic partnerships at the highest technical levels with innovative multinational companies across the industry spectrum in the material sciences. For example, coatings and additives, specialty monomers, high performance photography, and oil & gas.
If you look at the list of customers that we have consent from to publish their names as a customer includes the likes of Saudi Aramco, which is the largest oil and gas company in the world. It includes the lack of Polaroid in Germany, the largest high performance photographic company in the world. It includes the likes of Altana and BYK Chemicals, multi billion dollar material science companies in Germany and Tosoh Finechem in Japan. These are just fifth of our actual customer list. We are participating in the pipeline and launch of molecules and all the way to commercialization. And when it hits commercialization, we will see a significant contribution of these opportunities in the material sciences space, thus equalizing the bucket.
Large Scale Manufacturing and Contractual/Exclusive Manufacturing contribute 67% and 24% respectively to overall revenue. Do you see any change in this revenue mix going forward?
This is a golden age for the Indian chemical industry. The West increasingly cannot manufacture and they even cannot scale up anymore. And that's where the pipelines and the innovators are, and China is having problems which are here to stay. They have been there for the last 5-6 years and they have no signs of letting up so India is the preferred destination of choice for innovators who are looking for partnerships in the contract research and contract manufacturing space.
The companies in India which are differentiated and have good infrastructure, focusing on competencies, creating a niche for themselves and who are building up infrastructure across R&D. I think there's an ocean of opportunities for them and we are lucky enough that we are able to pick and choose at this point the opportunities, the products, and the processes that we took up. And I think there's enough opportunities for everybody in this space.
If we look at three years ago, the large scale manufacturing choice of our own products which are primarily import substitutes was about 75-80% of the bucket. In the last quarter, I believe it was 55% largely for manufacturing and 35% was exclusive manufacturing. And so the goal is also to equalize these buckets. During the entire last fiscal year, the CRAMS business model led to Rs. 48 crore revenue. This is just the revenues from the research and the pilot plant not into manufacturing because that goes into the exclusive manufacturing bucket. In the first quarter of this fiscal year, we've done almost Rs. 20 crore of CRAMS revenues. And this shows the growth that we are already seeing in numbers on this business model and we foresee this trend to continue. The goal would be to ideally have 40% large scale manufacturing, 40% exclusive manufacturing, and 20% CRMAS business model bucket distribution. I think that will happen in about two to three years.
Export contributes 65% of total revenue. Do you see it changing moving forward?
With the five new products that we will be launching in this year, these are import substitutes and will contribute more to the domestic market as compared to the export bucket. But today if you see the 65% includes deemed export sales and if you just look at the geographical split it's about 60:40 right now and we anticipate this to stay more or less similar because of the contribution from domestic bucket that will happen from Site 3 and so we anticipate this to be a 16-point lead going forward.
The company's tagline talks about two things - Elementally Innovative which means R&D is one aspect and the company is also looking at new materials. What was the thought behind the company's tagline?
I, along with my father, was attending a conference in Portugal 9-10 years ago when we were split up from the earlier company and I made the decision to move back to India. It was a conference on continuous flow technology and that's where we coined our tagline. Historically speaking, fire, earth, water, and air, and Aether is the universal element from which every element is born.
We're not doing discovery, we're not inventing, but we are innovating across the cycle of R&D management and production chemistry, technology, and engineering. And so it's just not the chemistry and not the scientist but automation engineers and chemical engineers in the production plant also innovating at each mode of operation that we are in. So, the idea is to innovate continuously, leading to competitiveness, and sustainability of our processes which makes us globally the leader in the products and the process we enter into.
What portion of revenue are you investing in R&D? What's the R&D budget for FY 2022-23?
In terms of promoter family, it's half technocrats and half commercial people.Father and I are technocrats and my brother and mother are commercial people. R&D is the growth driver and growth engine of the company from day one and it continues till today and it will be for the next 30 years.
We are investing significantly and quarter one R&D spend was 7%. If you look at the Indian speciality chemicals and Indian chemical companies in general, I think it is 7-8% R&D spend is more on pharmaceutical companies in the pharmaceutical API manufacturers and formulators of the country. We look at specialty chemicals especially in our area and we are at the same level. So our averages are more towards the pharmaceutical companies of the country which is likely to be higher than the other spectrum companies in our level. So we anticipate this to be 7% year on year. As a percentage of revenue of a company and as the revenues grow, this absolute number will also grow. We will invest into state-of-the-art modern analytical capabilities, which is very essential for the success of synthetic R&D and continue to build pilot plants, invest into automation, and hire the best engineers and scientists.
Presently, the company has an employee strength of 700 employees. Employee count at the end of FY 2022-23 and divisions where you are planning to recruit?
R&D infrastructure and manpower is much more significant as compared to anybody else in India in our space and at our level and we will continue to do that. We have a fantastic team in place and we call them Aetherians. We are 700 by the end of this fiscal year and by March 2023, the number will most likely be 800 and by the next two years will be touching 1,000. The average age of the company today is 32 and so it's a very young and dynamic company. We still try to retain a startup culture in the company where we always say that our biggest strength is immediate decision, strong execution, and flexible business model.
Would you talk about patents and areas where you are innovating personally?
I try to devote at least 25% of my time towards R&D and innovation rather than newer projects and newer processes as does my father and is also spending about 23% of my daily time towards R&D and innovation. We are into process research and process development and go taking molecules towards commercialization after the discovery is done. And so there's less process innovation that happens and process patents are very difficult to enforce in the eastern part of the world and so there's always a struggle between patenting version keeping as a trade versus keeping as a trade secret. We have historically gone on the latter side and kept all our innovations as trade secrets. However, in the contract manufacturing, we partner with customers for the launch of their innovative innovator policy or towards commercialization, there are a lot of innovations happening which are patented in partnership with the customers and there are multiple examples today where we have taken forward many joint patents with our customers.
Sustainability practices to be followed by the company in FY 2022-23. Are there any plans of making the company Net Carbon Zero by 2030?
We are trying to do our best in, for example, we have 100,000 litre per day in house zero liquid discharge water treatment plants and so we are trying to treat the water at source. This is a very modern cutting edge based treatment plant that has been installed and is already operational. We have been taking concrete steps towards ESG and staying in sync with the global norms especially the European norms which are far ahead of any of the norms of any other countries. For example, this year we have invested into a fully operationalized 16 MW solar power plant which will offset 24,000 tonnes of CO2 load each year and get a 50% of the electrical load of our Site 1 and Site 2 and the upcoming Site 3. A significant step towards ESG and will be looking at having many more of these steps in the years to come. I think at some point there will be no choice for companies but to comply with these ESG norms and we're trying to stay ahead of the curve.
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