Aarti Drugs — Q2 FY26 earnings call

Call held 10 Nov 2025

Management summary

Aarti Drugs reported a strong Q2 FY26, with consolidated revenue growing 9% YoY to ₹652.9 crores, primarily driven by robust export demand. Profitability saw significant improvement, with EBITDA up 23% YoY to ₹84.4 crores and PAT increasing 29% YoY to ₹45.2 crores, leading to notable margin expansion. The new Sayakha manufacturing facility commenced operations, contributing to backward integration and raw material security. The company aims for 15-20% growth in FY27 and targets 15% EBITDA margins by H2 FY27, contingent on successful project ramp-ups.

Highlights

  • Q2 FY26 Consolidated Revenue of ₹652.9 crores, up 9% YoY.

  • Q2 FY26 Consolidated EBITDA of ₹84.4 crores, up 23% YoY.

  • Q2 FY26 Consolidated EBITDA margin at 12.9%, expanded 150 bps YoY.

  • Q2 FY26 Consolidated PAT of ₹45.2 crores, up 29% YoY.

  • Q2 FY26 Consolidated PAT margin at 6.9%, improved 110 bps YoY.

  • H1 FY26 Consolidated Revenue of ₹1,243.7 crores, up 8% YoY.

  • H1 FY26 Consolidated PAT of ₹99.1 crores, up 45% YoY.

  • New Sayakha manufacturing facility commenced commercial production on September 4, 2025, meeting 40-50% captive requirements.

  • Total debt reduced by ₹41 crores to ₹571 crores, with a consolidated debt-to-equity ratio of 0.39.

Key financials

3 periods

Headline

  • Consolidated Revenue
    ₹652.9 Cr
    YoY +9%
  • Consolidated EBITDA
    ₹84.4 Cr
    YoY +23%
  • Consolidated EBITDA Margin
    12.9%
  • Consolidated PAT
    ₹45.2 Cr
    YoY +29%
  • Consolidated PAT Margin
    6.9%
  • Total Debt
    ₹571 Cr
  • Debt-to-Equity Ratio
    0.39

Q2 FY26

  • CAPEX
    ₹45.6 Cr

H1

  • FY26 Consolidated Revenue
    ₹1,243.7 Cr
    YoY +8%
  • FY26 Consolidated EBITDA
    ₹158.8 Cr
    YoY +18%
  • FY26 Consolidated EBITDA Margin
    12.8%
  • FY26 Consolidated PAT
    ₹99.1 Cr
    YoY +45%
  • FY26 Consolidated PAT Margin
    8%

What they filed

Q1 FY27: revenue up 19.0%, net profit down 7.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue598 557 677 591 653 +9%602 +8%720 +6%703 +19%
EBITDA67 62 93 74 84 +25%55 −11%96 +3%98 +32%
Net profit35 37 63 54 45 +29%41 +11%55 −13%50 −7%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentRevenueYoY Growth
Standalone Business (Q2 FY26)₹578.9 Cr7%
API Business (Q2 FY26)——
Formulation Segment (Q2 FY26)₹82.4 Cr26%
Formulation Segment (H1 FY26)₹162.8 Cr19%

Guidance & targets

Capacity

  • Sayakha captive consumption for anti-diabetic series Capacity · end of FY26 · High confidence 100%
    once the facility reaches full utilization at the end of FY26, we expect to achieve 100% captive consumption for our anti-diabetic series.

    — Adhish Patil

  • Sayakha facility scale-up to fulfill captive requirement Capacity · next 6-12 months · Medium confidence entire captive requirement
    The plant is expected to scale up to fulfill the entire captive requirement over the next 6-12 months.

    — Adhish Patil

  • Salicylic acid production Capacity · Q4 FY26 · High confidence 300 tons per month (near-term), 500 tons per month
    Production visibility is improving with 300 tons per month achievable in the near-term and a targeted ramp-up to 500 tons per month for Q4 FY26.

    — Adhish Patil

Profitability

  • Salicylic acid plant EBITDA status Profitability · once it crosses around 800 tons per month · Medium confidence EBITDA positive
    We expect the plant to turn EBITDA positive once it crosses around 800 tons per month.

    — Adhish Patil

  • Consolidated EBITDA margins Profitability · sequentially, over medium-term · Medium confidence 15%

    From 13% today

    But definitely, we have certain drivers, which we are working on, which can help us to take this EBITDA margins on a consolidated basis back to 15%. It will take some time, maybe in sequentially quarter-on -quarter, we hope to see continuous improvements in this margin.

    — Adhish Patil

  • EBITDA margin run rate Profitability · end of FY27 (H2 FY27) · Medium confidence 15%
    then at least towards the end of FY27, we should start hitting that run rate of 15%, that is what we target internally, the rest depends on the market conditions, but then we can target 15% at the end of FY27, I am not talking about the entire FY27, but let us say H2 or something like that.

    — Adhish Patil

  • EBITDA margins from Sayakha project Profitability · at full capacity · High confidence 18% to 20%
    But what we still expect is from this project, at least, we should try to make around 18% to 20% EBITDA margins is what we feel from this Sayakha project.

    — Adhish Patil

Market Entry

  • Metformin in US market Market Entry · post FY26 · Medium confidence targeting
    We are targeting Metformin in the US market post FY26 once ongoing validation processes are completed, an important milestone in our plan to re-enter the regulated market with higher-margin products.

    — Adhish Patil

Revenue

  • Additional top line from new products (Bicalutamide, anti-diabetics) Revenue · next six to nine months · High confidence Rs.60 to Rs.70 crores
    So, these new products combined should give us an additional top line of anywhere between Rs.60 to Rs.70 crores.

    — Vishwa Savla

Domestic Demand

  • Domestic demand for antibiotics Domestic Demand · from Q4 onwards · Low confidence slight pickup
    So, we hope that from Q4 onwards, there should be some slight pickup in the domestic demand. But we will come to know within two to three months.

    — Adhish Patil

Tax Rate

  • Tax rate Tax Rate · next three years (FY27) · High confidence around 25%
    For the next three years, it should be ideally in the range of 25%.

    — Adhish Patil

Revenue Growth

  • Value growth Revenue Growth · H2 FY26 · Medium confidence high single digit

    Previously early teens (volume growth) → high single digit

    For the H2, we will definitely aim towards, high single digit value growth for H2 FY26.

    — Adhish Patil

  • Growth Revenue Growth · FY27 · Medium confidence 15%-20%

    Previously 15% CAGR → 15%-20%

    So, definitely FY27 looks promising. If everything goes well, then we can try for 15%-20% growth for next year.

    — Adhish Patil

Capacity Utilization

  • Salicylic acid captive consumption Capacity Utilization · ongoing · Medium confidence roughly 50%
    Yes, yes, ballpark would be, roughly 50% we will try to consume captively.

    — Adhish Patil

  • Salicylic acid utilization for 15-20% growth Capacity Utilization · for FY27 · Medium confidence at least 60%
    So, more than utilization, let say, what our total potential was, earlier what we had thought of, as compared to that, it should be at least 60% utilization roughly.

    — Adhish Patil

Capex

  • Investing cash flows Capex · FY26 · High confidence Rs.150-200 crores
    and we estimate around Rs.150-200 crores of CAPEX investing cash flows in this particular year.

    — Adhish Patil

  • Investment for Metformin expansion Capex · FY27 · Medium confidence around that much similar kind of investment
    And we have some expansion plans for Metformin as well for next year. If everything goes smoothly, then we might require around that much similar kind of investment in FY27 as well.

    — Adhish Patil

Debt

  • Debt-to-equity ratio Debt · ongoing · High confidence 0.4 to 0.7

    From 0.5 to 0.7 (historically) today

    But our target is to keep the debt-to-equity ratio between 0.5 to 0.7. ... So, our target would be in 0.4 to 0.7 range debt-to-equity ratio.

    — Adhish Patil

Market context

  • Global API pricing stability API Pricing · H2 FY26 · Medium confidence stability
    We are also witnessing early signs of stability in global API pricing, which should support both volume growth and price recovery in H2 FY26.

    — Adhish Patil

Risks & concerns

  • Soft domestic demand, particularly in the antibiotic category.

    medium

    Domestic demand for antibiotics remains soft, impacting overall volume growth in the API segment, though robust export demand is offsetting.

    Management acknowledged

  • Salicylic acid plant ramp-up and cost improvement challenges.

    medium

    The salicylic acid plant is still in stabilization, currently incurring losses, and its successful ramp-up and cost efficiency improvements are key for achieving overall growth targets.

    Management acknowledged

  • HCL gas leakage incident at Tarapur T-150 unit leading to voluntary closure direction.

    low

    An isolated HCL gas leakage incident on September 8, 2025, led to a temporary closure direction for one process, but management states no material financial/operational impact due to inventory and alternate sourcing.

    Management downplayed

Areas of evasion (1)

  • Other income specific quarterly breakdown

Q&A highlights

3 direct
R&D pipeline, commercialization, and revenue contribution from new products in regulated markets. Direct
We will be commercializing first product in US in this quarter, which is Bicalutamide, and we are also expecting to commercialize a few anti-diabetic products in Europe, UK and other regulated markets, ex-US, between the next six to nine months. So, these new products combined should give us an additional top line of anywhere between Rs.60 to Rs.70 crores.

Provides specific product names, target markets, timelines, and quantifiable revenue contribution from new launches, indicating future growth drivers.

Asked by Rehan Syed

Timeline for achieving the 15-16% EBITDA margin target. Direct
So, the thing is, if we achieved all the volumes in FY27 as promised, then at least towards the end of FY27, we should start hitting that run rate of 15%, that is what we target internally, the rest depends on the market conditions, but then we can target 15% at the end of FY27, I am not talking about the entire FY27, but let us say H2 or something like that.

Clarifies the timeline for achieving a key profitability target, linking it to volume achievement and providing a specific quarter (H2 FY27) for reaching the desired run rate.

Asked by Jainam Ghelani

Expected EBITDA margins from the new Sayakha amine facility. Direct
But what we still expect is from this project, at least, we should try to make around 18% to 20% EBITDA margins is what we feel from this Sayakha project.

Quantifies the significant margin potential of a major new backward integration project, highlighting its contribution to overall profitability improvement.

Asked by Nilesh Ghuge

2 min read 6 chapters

Detailed narrative

Strong Q2 FY26 Performance Driven by Exports and Margin Expansion

Aarti Drugs reported a robust Q2 FY26 with consolidated revenue growing 9% year-on-year to ₹652.9 crores, primarily fueled by strong export volumes. Profitability saw significant improvement, with EBITDA increasing 23% YoY to ₹84.4 crores, leading to a 150 basis points expansion in EBITDA margin to 12.9%. Net Profit after Tax (PAT) also surged 29% YoY to ₹45.2 crores, with PAT margin improving by 110 basis points to 6.9%.

Strategic Backward Integration with Sayakha Facility Commencement

The new manufacturing facility at Sayakha, Gujarat, commenced commercial production on September 4, 2025, marking a significant milestone in backward integration. This facility, producing Dimethylamine, Monomethylamine, Trimethylamine, and their derivatives, is already meeting 40-50% of captive requirements for the anti-diabetic series. Management expects to achieve 100% captive consumption for anti-diabetic products by the end of FY26 and targets 18-20% EBITDA margins from this project.

Salicylic Acid Chain Progress and Future Contribution

The Tarapur facility's salicylic acid chain continues its stabilization phase, with production visibility improving to 300 tons per month in the near term and a targeted ramp-up to 500 tons per month for Q4 FY26. The plant is expected to turn EBITDA positive once it crosses approximately 800 tons per month. This project aims to convert India's import dependence into domestic supply, with management acknowledging current losses but expressing confidence in quality acceptance and future cost improvements.

API Segment Outlook and New Product Launches

The API segment experienced a 9.33% volume growth in Q2 FY26, largely due to over 30% volume growth in exports, offsetting soft domestic demand in antibiotics. The company is witnessing early signs of stability in global API pricing, which is expected to support volume growth and price recovery in H2 FY26. New product commercializations, including Bicalutamide in the US and anti-diabetic products in Europe/UK, are anticipated to add ₹60-70 crores to the top line over the next 6-9 months.

Profitability Targets and FY27 Growth Aspirations

Aarti Drugs aims to restore its consolidated EBITDA margin to 15% by the end of FY27 (H2 FY27), driven by improved utilization, product mix, and new capacities. Despite a single-digit revenue growth for FY26, management is optimistic about FY27, targeting 15-20% growth, contingent on the successful ramp-up of the salicylic acid project and continued performance of the Sayakha facility.

Prudent Capital Allocation and Debt Management

The company incurred CAPEX of ₹45.6 crores in Q2 FY26 and estimates total CAPEX for FY26 to be around ₹150-200 crores, with similar investments planned for Metformin expansion in FY27. Total debt reduced by ₹41 crores to ₹571 crores in H1 FY26, resulting in a consolidated debt-to-equity ratio of 0.39. Management aims to maintain a debt-to-equity ratio between 0.4 and 0.7, balancing leverage for ROE enhancement with a consistent dividend payout policy.

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