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.