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.