Aarti Drugs

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.

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.

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.

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 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.

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.

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.