Aarti Drugs — Q4 FY26 earnings call

Call held 23 May 2026

Management summary

Aarti Drugs reported a strong sequential recovery in Q4 FY26, driven by robust formulation growth and ramp-up of its methylamine plant. Despite facing macroeconomic headwinds and elevated input costs, the company achieved significant QoQ EBITDA growth. Management outlined plans for continued capacity expansion and margin improvement, while addressing challenges in salicylic acid production and potential impacts of high API prices on domestic antibiotic demand.

Highlights

  • Consolidated revenue for Q4 FY26 stood at INR721.1 crores, reflecting a 6% year-on-year and 20% quarter-on-quarter growth.

  • EBITDA for Q4 FY26 was INR96.6 crores, indicating a 72% quarter-on-quarter growth.

  • Formulation segment revenue grew 41% year-on-year to INR91.3 crores in Q4 FY26, driven by direct exports in the non-oncology portfolio.

  • The new methylamine plant achieved a production rate of nearly 1,000 tonnes per month in March 2026, with utilization expected to reach 55-60% in the June quarter.

  • Exports contribution to overall revenue increased from 35% in FY25 to 38% in FY26, with regulated market contribution growing to 73%.

Concerns

  • FY26 was challenging due to macroeconomic and geopolitical uncertainties, including global trade disruptions, tariffs, and pricing volatility.

  • Elevated input costs (freight, packaging, utility, energy, crude, gas) and inconsistent raw material availability impacted operations.

  • PAT declined 12% year-on-year to INR55.3 crores in Q4 FY26.

  • Salicylic acid production was shut down due to variable losses and pending equipment installation, impacting profitability.

  • High API prices, especially for antibiotics, could lead to lower domestic demand and affect volume growth.

Key financials

  1. Consolidated Revenue ₹721.1 Cr +6%YoY
  2. Consolidated EBITDA ₹96.6 Cr +1%YoY
  3. EBITDA Margin 13.4%
  4. Consolidated PAT ₹55.3 Cr -12%YoY
  5. PAT Margin 7.7%
  6. Formulation Revenue ₹91.3 Cr +41%YoY

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

  • API Business (Q4 FY26 contribution to stand-alone revenue)
    37.8% Antibiotic19.6% Anti-protozoal11.9% Anti-inflammatory15% Antidiabetic10% Anti-fungal5.7% Rest
  • Formulation Business (FY26)
    65% Exports Share

Capital allocation

high confidence
  • Capex ₹300 Cr
    • Increasing existing capability and capacity doubling (OSD, EDQM block) for formulation business
    • Developing basket of oncology products
    So, all put together, we feel that at least in the next two to three years, definitely around INR300 crores to INR400 crores of capex might go in. But again, that will be a safe capex, more of increasing the existing capability rather than entering into altogether new products. Whereas, a part of this capex will also go in formulation for developing our basket of oncology products, because that requires heavy capex.
  • Debt Debt disclosed
    So based on today's financials, this much is quite easily doable. As of today also, our consolidated long-term debt is around INR328 crores and short term would be around INR248 crores. And the debt-to-equity ratio is also historically lowest as of today in this quarter.

Guidance & targets

Capacity

  • Methylamine plant utilization Capacity · June quarter · High confidence 55-60%
    But going forward, we are expecting that in June quarter, we should easily cross around 55%, 60% of utilization for that plant.

    — Adhish Patil

  • Methylamine plant utilization Capacity · within a year · High confidence >70%
    And within a year's time, we believe that we should be operating upwards of 70% utilization of the methylamine plants.

    — Adhish Patil

Volume

  • Internal volume growth target Volume · Medium confidence 10-15%
    So, the internal target would always be in the range of 10% to 15% growth.

    — Adhish Patil

  • Volume growth (striving for) Volume · Medium confidence 8-10%
    Nevertheless, we will always strive for achieving a volume growth of 8% to 10%.

    — Adhish Patil

  • Antibiotics volume growth Volume · FY27 · Medium confidence flattish
    Volumes probably can be a bit flattish because anyways, the volumes of FY 2026 were not that great for antibiotics. So, it won't go further down is what we believe.

    — Adhish Patil

Margin

  • Gross margins Margin · High confidence maintain Q4 level
    So, we don't expect much movement in gross margins as such. Definitely in Q4, we did fairly good in terms of gross margins. So, we would like to maintain this kind of gross margins.

    — Adhish Patil

Profitability

  • EBITDA margin Profitability · FY27 · Medium confidence 13.5-14%
    we would still like to target EBITDA margins anywhere between 13.5% to 14% for this FY 2027.

    — Adhish Patil

  • EBITDA improvement (gross contribution) Profitability · FY27 · High confidence at least 100 bps
    Yes, we can expect that in terms of gross contribution. At least 100 basis points, we can definitely target.

    — Adhish Patil

  • Methylamine plant profitability Profitability · within 3-4 months · Medium confidence start showing results
    and probably within 3-4 months, the real profitability of Sayakha plant will start showing results.

    — Adhish Patil

Product Launch

  • Salicylic acid derivatives plant Product Launch · end of May or mid of June · High confidence operational
    And fourth is your derivatives plant, which will come up by the end of May or by mid of June.

    — Adhish Patil

Market Entry

  • API US market product flows Market Entry · within 12-18 months · Medium confidence start
    the flows will start within 12 months to 18 months is what we expect.

    — Adhish Patil

Revenue

  • Formulation business revenue Revenue · next 3-5 years · Medium confidence INR1,000 crores
    And we are expecting to grow our formulation business at least till INR1,000 crores in the next three to five years.

    — Adhish Patil

Amortization

  • CWIP amortization Amortization · High confidence major chunk post 24 months
    So, most of the CWIP will start getting amortized over the next 24 months. So, there might be some portion that will be amortized this year and next year, but the major chunk would be post 24 months.

    — Vishwa Savla

Price

  • Antibiotics price growth Price · FY27 · Medium confidence very big price growth
    So, there is price growth right now. I mean, if we talk year-on-year, in FY 2027, we are expecting a very big price growth in antibiotics.

    — Adhish Patil

What to watch in Q1 FY27

Methylamine plant utilization ramp-up

next quarter
Current ~40% in Q4 FY26, ~60% in Q1 FY27 (first half)
Target 55-60% in June quarter

Why it matters

Verification of the ramp-up of this key backward integration project is crucial for operational efficiency and margin improvement.

But going forward, we are expecting that in June quarter, we should easily cross around 55%, 60% of utilization for that plant.

Risks & concerns

  • Macroeconomic and geopolitical uncertainties

    high

    Global trade disruptions, trade tariffs, GST changes, and pricing volatility towards the end of FY26.

    Management acknowledged

  • Elevated input costs and raw material supply chain constraints

    high

    Freight, packaging, utility, energy-related costs, crude and gas-based raw material supply chain constraints due to West Asia war, and inconsistent availability of key raw materials.

    Management acknowledged

  • Impact of high API prices on domestic antibiotic demand

    medium

    If crude prices remain very high, domestic demand for older generation antibiotic molecules might go down, as observed during the Russia-Ukraine war in 2023.

    Management acknowledged

  • Salicylic acid production issues and variable losses

    medium

    Production was shut down due to variable losses, pending installation of new equipment for phenol recovery, and challenges with effluent treatment and labor shortage for the derivatives plant.

    Management acknowledged

Q&A highlights

8 direct
Methylamine plant ramp-up and utilization targets Direct
in June quarter, we should easily cross around 55%, 60% of utilization for that plant. And within a year's time, we believe that we should be operating upwards of 70% utilization of the methylamine plants.

Provides specific timelines and targets for the ramp-up of a key backward integration facility, crucial for future profitability.

Asked by Shashank Goyal

Salicylic acid production status and profitability Direct
we were making variable losses in salicylic acid, because we were not able to recover and reduce the raw material cost because of lack of that equipment. We took a call to shut that production... once all the equipments are operational, once we test it, once the variable costs are in check, and then we will restart the production of salicylic acid.

Explains the reason for the production shutdown, the steps being taken to resolve issues, and the strategy to focus on derivatives for better margins.

Asked by Shashank Goyal

Volume growth expectations given new capacity Direct
the internal target would always be in the range of 10% to 15% growth. Right now, what is happening that with a very high pricing in the antibiotic segment, last time what we observed was the domestic demand had gone down.

Clarifies the company's internal volume growth aspirations and acknowledges potential headwinds from high antibiotic prices affecting domestic demand.

Asked by Dhwanil Desai

Gross margin outlook for the coming year Direct
So, we don't expect much movement in gross margins as such. Definitely in Q4, we did fairly good in terms of gross margins. So, we would like to maintain this kind of gross margins.

Sets expectations for margin stability, indicating that Q4 FY26 gross margins are a sustainable level despite various market factors.

Asked by Dhwanil Desai

Drivers for formulation segment growth Direct
the current growth is coming from our direct exports in the non-oncology portfolio. Since we have a growing list of products that we are getting approvals across regulated markets, that is the business that is growing quickly, and that is why our export business is also increasing, which is leading to better margins as well.

Identifies specific growth engines for the formulation business, highlighting the importance of direct exports and regulated market approvals for margin expansion.

Asked by Dhwanil Desai

Key geographies driving regulated market contribution Direct
this would be mainly Latin American markets. Still, European market, and U.S. market would be our target market for more and more regulated sales going forward.

Provides insight into the company's strategic focus for expanding into higher-value regulated markets.

Asked by Jay Jain

Timeline for US FDA approvals and DMF filings for APIs Direct
See for API, we got the approval for U.S. FDA already last year, the plant approval. And there are a few antibiotic, anti-inflammatory and a few other therapies where we are actively marketing those products in the U.S. market and the flows will start within 12 months to 18 months is what we expect.

Offers a timeline for commercialization and product flows into the lucrative US API market following regulatory approvals.

Asked by Jay Jain

Overall capex plan and CWIP breakdown Direct
So, all put together, we feel that at least in the next two to three years, definitely around INR300 crores to INR400 crores of capex might go in... So, most of the CWIP will start getting amortized over the next 24 months.

Confirms the company's capex outlook for the medium term and clarifies the amortization schedule for existing Capital Work-in-Progress, including oncology-related investments.

Asked by Resham Jain

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Detailed narrative

Q4 FY26 Performance and Sequential Recovery

Aarti Drugs demonstrated a strong sequential recovery in Q4 FY26, with consolidated revenue reaching INR721.1 crores, marking a 6% year-on-year and 20% quarter-on-quarter growth. EBITDA saw a significant 72% quarter-on-quarter increase to INR96.6 crores, resulting in an EBITDA margin of 13.4%. While PAT experienced a 12% year-on-year decline to INR55.3 crores, it showed a robust 37% quarter-on-quarter growth, indicating improved operational performance towards the end of the fiscal year.

Operational Environment and Mitigation Strategies

FY26 proved challenging due to a confluence of macroeconomic and geopolitical uncertainties, including global trade disruptions, tariffs, and pricing volatility. The company also grappled with elevated input costs for freight, packaging, utilities, and energy, alongside inconsistent raw material availability, partly attributed to the West Asia war. To mitigate these pressures, Aarti Drugs implemented operational initiatives such as process optimization, alternate sourcing strategies, energy efficiency measures, and tighter planning, ensuring continuity of operations.

Segmental Growth: API and Formulations

The stand-alone business, primarily API, contributed approximately 88% to the consolidated revenue, with 63% from the domestic market and 37% from exports. Key API therapeutic categories included antibiotics (37.8%), anti-protozoal (19.6%), and antidiabetic (15.0%). The formulation segment was a significant growth driver, with Q4 FY26 revenue increasing 41% year-on-year to INR91.3 crores and FY26 revenue growing 16% year-on-year to INR330.5 crores. Exports accounted for 65% of total formulation sales, driven by approvals in regulated markets for non-oncology products.

Methylamine Plant Ramp-up and Backward Integration

The new methylamine manufacturing facility at Sayakha, a crucial backward integration project, ramped up meaningfully, achieving a production rate of nearly 1,000 tonnes per month in March 2026. Utilization reached around 40% in Q4 FY26 and is projected to increase to 55-60% in the June quarter and over 70% within a year. This integration is expected to significantly reduce dependence on externally sourced inputs for metformin, thereby supporting margin improvement and operating leverage, with profitability expected within 3-4 months.

Salicylic Acid Production Challenges and Future Strategy

Salicylic acid production was temporarily halted due to variable losses, stemming from the inability to recover and reduce raw material costs effectively. The company is awaiting the installation and testing of new equipment for phenol recovery, after which production will restart. Additionally, Aarti Drugs is focusing on the commissioning of a derivatives plant by May or June, as selling derivatives offers higher margins and greater scope for expansion, alongside efforts to address effluent treatment and antidumping duties.

Capital Allocation and Financial Health

Aarti Drugs plans a capex of INR300-400 crores over the next two to three years, primarily for increasing existing capabilities, doubling formulation capacity (OSD, EDQM block), and developing oncology products. The company reported a healthy financial position with consolidated long-term debt of INR328 crores and short-term debt of INR248 crores, noting that its debt-to-equity ratio is at a historically low level. This robust financial health supports its strategic investments and growth plans.

Outlook and Margin Targets for FY27

For FY27, Aarti Drugs aims for an internal volume growth target of 10-15%, striving for 8-10% overall. Despite ongoing uncertainties from the West Asia war, the company targets an EBITDA margin of 13.5-14%, potentially reaching 14-14.5% if conditions improve. They anticipate significant price growth in the antibiotic sector for FY27, although volumes are expected to remain flattish. The formulation business is targeted to reach INR1,000 crores in revenue within the next 3-5 years.

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