Aarti Drugs — Q3 FY26 earnings call

Call held 4 Feb 2026

Management summary

Aarti Drugs reported an 8% YoY consolidated revenue growth to INR602.9 crores in Q3 FY26, with strong performance in its formulations segment. However, EBITDA declined 10% YoY to INR56.3 crores due to challenges like weak antibiotic demand, China shipment delays, a voluntary plant shutdown, and sub-optimal utilization of new facilities. The company is optimistic about an inflection point with stabilizing realizations and expects improved performance and margin expansion in coming quarters as new capacities ramp up and operational efficiencies improve.

Highlights

  • Consolidated revenue increased by 8% YoY to INR602.9 crores in Q3 FY26, driven by 7% volume growth in standalone business.

  • Formulations segment showed strong traction, with revenue up 58% YoY to INR76.6 crores, contributing positively to margins, especially from export markets.

  • PAT for Q3 FY26 grew significantly by 58% YoY to INR40.5 crores, translating to a PAT margin of 6.7%.

  • The Sayakha facility, operationalized in September '25, achieved nearly 30% utilization in its first quarter and is expected to ramp up to 50% by March/April 2026.

  • Management believes the business has reached an inflection point with stabilizing realizations and improving volume momentum, with January sales showing an encouraging trend.

Concerns

  • EBITDA for Q3 FY26 declined 10% YoY to INR56.3 crores, with EBITDA margin at 9.3%, primarily due to several factors.

  • Weaker antibiotic demand led to lower capacities being utilized and margin pressure.

  • Delays in shipments from China disrupted supply chains and extended lead times, adding to cost pressures.

  • A one-time voluntary shutdown for refurbishment in one plant temporarily constrained production.

  • New greenfield facilities operated below optimal utilizations in their initial ramp-up phase, impacting profitability.

Key financials

2 periods

Headline

  • Consolidated Revenue
    ₹602.9 Cr
    YoY +8%
  • Consolidated EBITDA
    ₹56.3 Cr
    YoY -10%
  • Consolidated EBITDA Margin
    9.3%
  • Consolidated PAT
    ₹40.5 Cr
    YoY +58%
  • Consolidated PAT Margin
    6.7%

9M

  • Consolidated Revenue
    ₹1,846.6 Cr
    YoY +8%
  • Consolidated EBITDA
    ₹215 Cr
    YoY +9%
  • Consolidated EBITDA Margin
    11.6%
  • Consolidated PAT
    ₹139.7 Cr
    YoY +49%
  • Consolidated PAT Margin
    7.6%

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

SegmentRevenueExport Contribution
Standalone Business₹530 Cr37%
API Business (Standalone)——
Formulation Segment₹76.6 Cr67%

Capital allocation

high confidence
  • Capex ₹150 Cr
    • Oncology dossier development ₹50 Cr
    • 25 tons boiler/cogen boiler (greenfield project)
    • Cardiovascular product expansion
    • Antifungal capacity expansion
    • CDMO in chlorosulfonation chemistry
    • Methylamine derivatives
    • New molecules
    • Solar power plant and energy-related improvements
    • Oncology facility capex ₹50 Cr
    • Oncology product development and regulatory ₹50 Cr
    Having said that, I would still maintain that around INR150 crores to INR200 crores of capex you can expect for the next 2 years each, considering the formulation, oncology expansion and all the ideas I just spoke about. (Adhish Patil, Page 7) No. So part would be the oncology dossier development and part is related to big 25 tons boiler, which will be going onstream in this quarter. It is a cogen boiler, big boiler, so it will be also generating power along with the steam. And it is part of one of the greenfield projects. (Adhish Patil, Page 6) We are already doing contract manufacturing for a few MNCs as far as a few spec chem products are concerned. So we want to expand in that line as well. Plus the methylamine chemistry, which was newly introduced through Sayakha plant, we are looking at exploring the options of various derivatives, which will be a part of that chemistry itself. (Adhish Patil, Page 8) The facility capex in both phases, what we initially did and we have a brownfield expansion going on would be about INR50 crores. And in terms of the product development and regulatory related, it would be about, again, INR50 crores to INR60 crores every year for the next 3 years. (Vishwa Savla, Page 13)
  • Debt Gross ₹540 Cr Maturity: equally split between long-term and short-term, almost 50-point-something percent each
    Current debt is roughly around INR540 crores total debt at the consol level. On the standalone level, it would be around INR392 crores. And in both the divisions, the debt is equally split between long-term and short-term. It's almost 50-point-something percent each. (Adhish Patil, Page 9)

Guidance & targets

Volume

  • Volume Growth Volume · FY27 · High confidence 12% to 15%
    So probably we can expect around 12% to 15% volume growth in FY '27 with both the projects going smooth, the greenfield projects I'm talking about.

    — Adhish Patil

Profitability

  • EBITDA (Sayakha/Salicylic at full scale) Profitability · full-scale potential · Medium confidence upwards of INR50 crores
    It's a very rough number. It run at full-scale potential, the EBITDA can be slightly upwards of INR50 crores.

    — Adhish Patil

Margin

  • Standalone API Gross Margin Margin · FY27 · High confidence 36%
    No, I think 36% gross margin is fair to assume. It is not that tough to achieve 36% gross margin.

    — Adhish Patil

  • EBITDA Margin Margin · next year · High confidence 12% to 13%
    See, first of all, initially, we would like to hit the target of 12% to 13% because right now, it was struck down well below that.

    — Adhish Patil

  • EBITDA Margin (Steady State) Margin · steady-state · Medium confidence 14% to 15%
    And then from there, the ideal steady-state margins when everything starts going smoothly, should be somewhere in 14% to 15% range.

    — Adhish Patil

Capacity

  • Sayakha Utilization Capacity · March and April 2026 · High confidence nearly 50%
    It has achieved nearly 30% utilization in its first quarter of operations, and we expect to ramp this up to nearly 50% by March and April 2026 and upwards to that in the following quarters.

    — Adhish Patil

  • Sayakha Utilization Capacity · within 12 months · High confidence 80% to 90%
    Hopefully, within 12 months, we should be almost there till 80%, 90%.

    — Adhish Patil

  • Salicylic Acid Production Capacity · within 12 months · High confidence 1,000 tons per month
    But within 12 months, probably we should try to hit that 1,000 tons per month mark.

    — Adhish Patil

  • Metformin Production (Existing Facility) Capacity · next couple of quarters · High confidence 1,800-1,900 tons per month
    So we already have reached around 1,450 to 1,500 tons per month. We'll be scaling it up to 1,800-1900 tons per month in the existing facility.

    — Adhish Patil

  • Metformin Production (Long-term) Capacity · long-term strategy · Medium confidence 2,500 to 3,000 tons per month
    The one project which was left out in this was the expansion of metformin facility to almost around 2,500 to 3,000 tons per month. That was our long-term strategy.

    — Adhish Patil

  • Oncology Pills Capacity Capacity · peak capacity · High confidence 300 million pills
    And our capacity roughly would be 300 million pills for oncology? Yes, that's right, 300 million.

    — Vishwa Savla

Capex

  • Oncology Facility Capex Capex · initial phases · High confidence INR50 crores
    The facility capex in both phases, what we initially did and we have a brownfield expansion going on would be about INR50 crores.

    — Vishwa Savla

  • Oncology Product Development & Regulatory Capex · next 3 years · High confidence INR50 crores to INR60 crores every year
    And in terms of the product development and regulatory related, it would be about, again, INR50 crores to INR60 crores every year for the next 3 years.

    — Vishwa Savla

Efficiency

  • Oncology Asset Turn Efficiency · peak capacity · High confidence 1.5 to 1.75
    Okay. And can we expect an asset turn of 1.5 here? Yes, we can expect about 1.5 to 1.75 peak capacity.

    — Vishwa Savla

What to watch in Q4 FY26

Sayakha facility utilization ramp-up

March and April 2026
Current nearly 30% utilization
Target nearly 50% by March and April 2026

Why it matters

Key to improving overall performance and operating leverage from new greenfield facilities.

The facility of Sayakha, which operationalized in September '25 has transitioned into the scale-up phase. It has achieved nearly 30% utilization in its first quarter of operations, and we expect to ramp this up to nearly 50% by March and April 2026 and upwards to that in the following quarters.

Risks & concerns

  • Weak Antibiotic Demand

    high

    Reduced overall market pull, leading to lower capacities utilized and margin pressure.

    Management acknowledged

  • Salicylic Acid Dumping

    high

    Chinese dumping continues, impacting realizations; company plans to apply for antidumping duty from April onwards.

    Analyst acknowledged

  • China Shipment Delays

    medium

    Disrupted supply chains, extended lead times, straining production schedules and adding to cost pressures.

    Management acknowledged

  • Voluntary Plant Shutdown

    medium

    One-time shutdown for refurbishment ahead of European audit, temporarily constrained production.

    Management acknowledged

  • Sub-optimal Utilization of New Facilities

    medium

    New greenfield facilities operated below optimal utilizations in initial ramp-up phase, putting pressure on profitability.

    Management acknowledged

  • API Pricing Pressure (Antibiotics)

    medium

    Negative rate variance in Q3 primarily due to antibiotic segment, though overall prices have stabilized since September.

    Analyst acknowledged

Q&A highlights

8 direct
Formulation Business Strategy Direct
So currently, we are doing both. We are working on formulations of APIs that Aarti drugs is manufacturing in-house, but we are not restricting to that, especially on our pipeline. We are focusing more on niche categories into the oncology and cardio-diabetic range.

Clarifies the strategic focus of the formulations business, indicating a broader scope beyond just existing APIs and a move into niche, higher-value segments like oncology.

Asked by Vishal from Systematix

Oncology Investment Breakdown Direct
Firstly, the oncology is still pre-revenue. We have not started commercial sales from the oncology side yet because the products are still in pipeline and filing stage. The first product will be commercialized in this quarter, in Q4. In terms of the capacities, in absolute terms, in terms of tablets, about 90% of the capacity is in the general plant. But in terms of the potential revenue over the next 3 years, about 40% of the revenue can be generated from oncology. And in terms of the investment, would that be in the same proportion, the revenue proportion? Yes, it would be slightly higher because on the product development part also, we are investing more into the oncology. So the investment would be probably about 40% to 50% on oncology.

Provides specific financial and operational details on the oncology segment, including its pre-revenue status, future revenue potential, and the proportion of investment allocated to it, indicating a significant strategic focus.

Asked by Vishal from Systematix

Q3 Impact Quantification Direct
So both these included, probably at the EBITDA level, it could have created a drag of roughly INR8 crores, INR8.5 crores. And at the PBT level, probably it would be around some INR14 crores, INR15 crores. But that is it will change soon for the Sayakha facility. For the salicylic facility, it will change gradually in this quarter and the June quarter. And as far as the other lower production capacity utilization, I don't have an exact number, but what has happened, we have sold a lot from the FG stock in this particular quarter. So if you see the numbers, around INR30 crores of sales has come from the existing stocks and not because of the fresh production. And because of that, we have estimated that roughly it would have impacted around 1% in the gross margins because when we sell from stock, the inventory valuation typically has 80% raw material content and 20% overhead component. So that 20% would be amounting to INR6 crores. So that has created a drag in gross margins, which we see for the December quarter.

Quantifies the financial impact of operational challenges (new facilities, shutdowns, inventory sales) on Q3 EBITDA, PBT, and gross margins, providing clarity on the quarter's underperformance.

Asked by Resham Jain from VVD Asset Managers

FY27 Volume Growth Expectation Direct
We can expect that and the main reason is the growth which we expected in FY '26 hasn't come to that extent. So which means that the growth will be pushed right into FY '27. So probably we can expect around 12% to 15% volume growth in FY '27 with both the projects going smooth, the greenfield projects I'm talking about.

Provides specific forward guidance on volume growth for FY27, linking it to the delayed realization of FY26 growth and the successful ramp-up of new projects.

Asked by Dhwanil Desai from Turtle Capital

Gross Margin Trajectory Direct
No, I think 36% gross margin is fair to assume. It is not that tough to achieve 36% gross margin. Yes. Overall one is the regulated market sales plus the sales pickup from our E22 plant, which is U.S. FDA plant and the backward integration which is improvement in salicylic acid will definitely give a lot of impact on the overall gross margin. So these are the main assumptions.

Confirms the achievability of a 36% gross margin for standalone API in FY27 and outlines the key drivers, including regulated market sales, US FDA plant contribution, and backward integration.

Asked by Dhwanil Desai from Turtle Capital

Capex Plan Beyond FY26 Direct
Having said that, I would still maintain that around INR150 crores to INR200 crores of capex you can expect for the next 2 years each, considering the formulation, oncology expansion and all the ideas I just spoke about.

Outlines the company's ongoing capex strategy for the next two years, detailing the various strategic areas of investment beyond the previously planned INR600 crores, including metformin forward integration, oncology, and other expansions.

Asked by Resham Jain from VVD Asset Managers

Salicylic Acid Pricing & Dumping Direct
Yes. So Chinese dumping is still on. But due to dollar rates going up, we are getting a little better realization than last quarter. But we are also trying to apply antidumping duty from beginning of next year against Chinese imports, which will take up 6 to 8 months, 9 months, whatever time after April because we are not eligible as of now. So maybe from April onwards, we are eligible to apply for antidumping duty also.

Addresses the persistent challenge of Chinese dumping in salicylic acid, detailing the current impact on realizations and the company's proactive steps to apply for antidumping duties, which could improve future profitability.

Asked by Yash Doshi from Unifi Capital Private Limited

API Pricing Trajectory Direct
Yes, what we have observed is that overall negative rate variance in December quarter with respect to September '25, that is quarter-on-quarter, it is roughly around 2% to 2.5%. But having said that, the entire reason for that is the antibiotic segment. The other segments, frankly speaking, in some of the other segments, we have seen positive growth as well in the prices. So it is product specific. So we will still maintain the stance that the prices have stabilized from September onwards. Just product-specific variations are there a little bit. But more or less, the prices have already stabilized. So we don't see any reduction of prices from this point.

Provides a nuanced view on API pricing, acknowledging continued pressure in antibiotics but noting stabilization in other segments and an overall belief that prices have bottomed out since September.

Asked by Aditya from Sowilo Investment

3 min read 6 chapters

Detailed narrative

Q3 FY26 Performance Overview

Aarti Drugs reported a consolidated revenue of INR602.9 crores for Q3 FY26, reflecting an 8% year-on-year growth compared to INR557.1 crores in Q3 FY25. For the nine months ended December 2025, consolidated revenue stood at INR1,846.6 crores, also an 8% YoY increase. However, consolidated EBITDA for Q3 FY26 declined by 10% YoY to INR56.3 crores, resulting in an EBITDA margin of 9.3%. Despite this, PAT for Q3 FY26 saw a significant 58% YoY increase to INR40.5 crores, with a PAT margin of 6.7%.

Operational Challenges and Mitigation

The quarter's performance was impacted by several factors, including weaker antibiotic demand leading to lower capacity utilization and margin pressure. Delays in shipments from China disrupted supply chains and extended lead times, adding to cost. Additionally, a one-time voluntary shutdown for refurbishment in one plant temporarily constrained production, and new greenfield facilities operated below optimal utilization in their initial ramp-up phase. Management estimated these issues caused an INR8-8.5 crores drag on EBITDA and a 1% impact on gross margins due to selling from existing stock.

Formulations Business Traction

The formulations segment demonstrated strong growth, with revenue increasing 58% YoY to INR76.6 crores in Q3 FY26, and exports contributing 67% to this revenue. This growth, particularly in export markets, aligns with the company's strategy to move towards higher-value offerings and improve overall business quality. The company is focusing on niche categories like oncology and cardio-diabetic ranges, developing products for international markets, and has a dedicated oncology US FDA approved manufacturing site.

Capacity Expansion and Utilization

The Sayakha facility, operationalized in September '25, achieved nearly 30% utilization in its first quarter and is targeted to reach 50% by March/April 2026, and 80-90% within 12 months. The salicylic acid facility is currently producing above 300 tons per month but utilization was lower than expected; the target is to reach 1,000 tons per month within 12 months. Metformin capacity is being scaled up to 1,800-1,900 tons per month in the existing facility, with a long-term strategy to reach 2,500-3,000 tons per month.

Capital Expenditure and Debt Profile

The company anticipates annual capex of INR150-200 crores for the next two years, focusing on oncology dossier development, boiler/cogen projects, cardiovascular and antifungal expansions, CDMO, methylamine derivatives, and new molecules. Oncology-specific investment includes INR50 crores for facility capex and INR50-60 crores annually for product development over the next three years. Consolidated debt stands at INR540 crores, with standalone debt at INR392 crores, split almost equally between long-term and short-term.

Outlook and Margin Trajectory

Management expects an inflection point with stabilizing realizations and improving volume momentum, with January sales showing positive trends. They project 12-15% volume growth in FY27, driven by new projects. The target for standalone API gross margin is 36% for FY27, and overall EBITDA margin is expected to reach 12-13% next year, with an ideal steady-state range of 14-15% as operations stabilize and new capacities achieve optimal utilization. The company also plans to apply for antidumping duty against Chinese imports for salicylic acid from April onwards.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Healthcare earnings calls