Aarti Pharmalabs Limited — Q1 FY26 earnings call

Call held 13 Aug 2025

Management summary

Aarti Pharmalabs reported a mixed Q1 FY26, with standalone EBITDA and PAT showing healthy growth of 14% and 9% respectively, despite a slight dip in standalone revenue. Consolidated figures were impacted by an accounting change for the Ganesh Polychem joint venture, making direct comparisons difficult. The company is progressing well on its Xanthine capacity expansion and the new Atali greenfield project, with commercial production expected soon. Management remains confident in achieving its full-year guidance for CDMO and API growth, driven by strategic focus on regulated markets and new capacities.

Highlights

  • Standalone EBITDA increased 14% Y-o-Y to ₹95 crores, demonstrating reasonable growth despite revenue dip.

  • Standalone PAT increased 9% Y-o-Y to ₹51 crores, indicating improved profitability.

  • Brownfield expansion for Xanthine derivatives (5000 MT to 9000 MT) is progressing, with commissioning in H2 FY26.

  • Greenfield project at Atali, Gujarat, has completed Phase-1 mechanical completion, with commercial production commencing end of Q2 FY26.

  • Gross margins reached 57% for the quarter, up from 48% YoY, driven by product mix towards regulated and export markets.

Concerns

  • Standalone topline slightly dipped to ₹375 crores from ₹394 crores YoY, partly due to a plant shutdown impacting sales by ₹15-20 crores.

  • Consolidated topline of ₹386 crores is not comparable to Q1 FY25 (₹555 crores) due to the Ganesh Polychem (GPL) joint venture accounting change, making year-on-year revenue optically lower.

  • Consolidated EBITDA saw a slight decline to ₹95 crores from ₹97 crores YoY, and PAT declined to ₹50 crores from ₹56 crores YoY.

  • API Intermediate sales were down to ₹155 crores from an average of ₹170-200 crores in previous quarters, attributed to shipping space unavailability and higher inventory.

Key financials

  1. Standalone Topline ₹375 Cr -4.8%YoY
  2. Standalone EBITDA ₹95 Cr +13.1%YoY
  3. Standalone PAT ₹51 Cr +8.5%YoY
  4. Consolidated Topline ₹386 Cr -30.4%YoY
  5. Consolidated EBITDA ₹95 Cr -2.1%YoY
  6. Consolidated PAT ₹50 Cr -10.7%YoY

What they filed

Q1 FY27: revenue up 38.9%, net profit up 52.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue458 538 564 386 418 −9%432 −20%583 +3%536 +39%
EBITDA94 129 146 93 74 −21%102 −21%113 −23%136 +46%
Net profit55 74 88 50 28 −49%48 −35%61 −31%76 +52%
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

  • Xanthine Derivative
    50% Share of Turnover65% Volume Split (Beverages)35% Volume Split (Others)57% Geographical Split (Export)43% Geographical Split (Local)
  • API and Intermediate
    41% Share of Turnover49% Subsegment (Regulated Market)43% Subsegment (ROW Market)8% Subsegment (Non-Regulated Market)53 US DMFs35 CEPs60 Commercial APIs
  • CDMO-CMO
    10% Share of Revenue21 Customers60 Active Projects33 Commercial Stage Projects27 Development Stage Projects

Capital allocation

medium confidence
  • Capex Capex disclosed
    • Brownfield expansion for Xanthine derivatives capacity increase from 5000 MT to 9000 MT per annum
    • Greenfield project at Atali, Gujarat (Phase-1 mechanical completion done)
    • Infra spend for Atali project (for future blocks) ₹150 Cr
    • Solar plant for cost savings
    Our brownfield expansion for increasing Xanthine derivatives from 5000 MT per annum to 9000 MT per annum is progressing as per our plan. The commissioning will be done in a phased manner across H2 FY '26. The greenfield project at Atali, Gujarat is in the final stages of completion. The mechanical completion of Phase-1 has been done. Commercial production will commence towards the end of Q2 FY '26. (Page 4); And there also we have done almost Rs. 150-Rs. 200 crore of infra spend, which is for future. So, currently we have just started with Block 1, for which mechanical closure we have done. (Page 18); Yes, I did mention earlier that annually it will have Rs. 25-30 crores cost saving for the current plant that we have operationalized. And then, of course, we have one more plant which is coming up, which is going to be the plant with the power purchase agreement that we will have with the joint venture. That will also have more savings. (Page 17)

Guidance & targets

Profitability

  • Standalone EBITDA Growth Profitability · FY26 · High confidence 12-15%
    Basically, the EBITDA guidance that we had given was on a standalone basis. So, this time, anyway, we have a standalone basis EBITDA increase of almost 14% Y-o-Y.

    — Rashesh Gogri

Revenue

  • CDMO Sales Growth Revenue · FY26 · High confidence 35-40%
    Based on the current order book, we are on track to achieve our target of FY '26 CDMO sales. (Page 4); As mentioned in my opening remarks, I have already told that we have order book of the guidance that we have issued 35%-40% growth. So, we are quite confident about achieving the same. (Page 7); Yes, I think we have guided 30%-40% growth this year on the CDMO part.

    — Rashesh Gogri

  • API Business Growth Revenue · Going forward · Medium confidence at least more than 10%
    Yes, in the API business also, we are looking at reasonable growth, I think, going forward. So, EBITDA growth will be at least more than 10%.

    — Rashesh Gogri

  • Xanthine Segment Topline Revenue · 2-3 years · Medium confidence ₹1,000 crore plus
    Yes. Overall, I think 2 years down the line, we are looking at Rs. 1,000 crore plus topline for this segment. And I think we are quite confident with the increased capacity, we will be able to achieve in 2-3 years' time good optimized capacity utilization.

    — Rashesh Gogri

  • CDMO Segment Revenue Revenue · 3-4 years · Medium confidence USD 100 million or ₹1,000 crore
    As I mentioned, in 3-4 years, we want all segments to grow up to USD 100 million or Rs. 1,000 crore, whichever reaches faster, so that is what the target is.

    — Rashesh Gogri

Capacity

  • Xanthine Capacity Utilization Capacity · 3 years · Medium confidence 80-90%
    So, ultimately, out of 9,000, we may optimally utilize 7,500-8,000 out of which 50% will go to the beverages and export customers.

    — Rashesh Gogri

Business Mix

  • CDMO Segment Share of Sales Business Mix · Going forward · Medium confidence 25-33%
    So, it can go anywhere between 25% and 33% of our sales.

    — Rashesh Gogri

Cost Savings

  • Solar Plant Annual Cost Savings Cost Savings · Annually · High confidence ₹25-30 crores
    Yes, I did mention earlier that annually it will have Rs. 25-30 crores cost saving for the current plant that we have operationalized.

    — Rashesh Gogri

Market context

  • API Intermediate Products Global Market Share Market Share · Overall aspiration · Low confidence at least 10% plus
    Yes. That is what our overall aspiration is that any product that we do should be at least 10% plus of market share of the global.

    — Rashesh Gogri

What to watch in Q2 FY26

Xanthine Brownfield Expansion Commissioning

H2 FY26
Current Progressing as per plan
Target Commissioning in H2 FY26

Why it matters

Increased Xanthine capacity from 5000 MT to 9000 MT is crucial for future revenue growth and market share.

Our brownfield expansion for increasing Xanthine derivatives from 5000 MT per annum to 9000 MT per annum is progressing as per our plan. The commissioning will be done in a phased manner across H2 FY '26.

Risks & concerns

  • Non-linear performance of EBITDA/topline due to CDMO business

    medium

    CDMO-CMO turnover can be concentrated in specific quarters, leading to bumps in topline and bottom-line growth.

    Overall, we have to look at a few quarters and then see how the overall growth trajectory is to really consider. Because there will be certain quarters where due to multiple stages of processing that we are doing, we may end up doing more earlier stages processing and the invoicing may happen in the later quarters, which may impact the topline and the bottom-line growth.

    Management acknowledged

  • Impact of new greenfield capex (Atali) on margins

    medium

    Greenfield capex (Atali) will have more OPEX initially, which needs to be covered by utilization over time, potentially impacting margins.

    Yes, I think the two CAPEXs are of different types. So, one of the CAPEXs is greenfield CAPEX, where I think whatever you said is true whereas the second CAPEX is brownfield. And in brownfield, I think the cost will not go up as much. So, we will have an advantage that with the higher capacity also, costs remain low. Whereas in the greenfield, we will have more OPEX which will have to be covered over a period of time with the utilization. So, I think we are going to have a mix of both.

    Analyst acknowledged

  • Geopolitical turmoil and US tariffs

    low

    Current tariff rules do not impact pharma products, and Xanthine derivatives are on the exempt list.

    For the last couple of months, there have been a lot of geopolitical turmoil and globally there has been a business uncertainty due to US tariffs. However, the current tariff rule do not impact our pharma products and even Xanthine Derivatives like caffeine are under the exempt list and I see minimum impact on our sales.

    Management downplayed

Q&A highlights

5 direct
Impact of plant shutdown on sales Direct
The plant shutdown sales impact would be around Rs. 15-20 crores.

Quantifies the direct revenue loss due to operational issues in the quarter.

Asked by Rahul Jain

Decline in API Intermediate sales Partial
No, if you see in this quarter, we have had higher inventory because the shipments were little impacted towards the end of the quarter due to unavailability of shipping space. And I think that would have some impact of some amount of sales. But overall, API business, we have been able to have good pace.

Explains the temporary reasons for the dip in API sales, suggesting it's not a demand issue but logistics/inventory.

Asked by Rahul Jain

Sustainability of high gross margins Direct
Yes, I think in terms of margin, of course, this year was a higher margin. Because this inventory had an impact. And overall, the products that we have sold were more into regulated markets, beverages customers and export markets. That has yielded us better pricing than the lower price market on the Xanthine segment. Overall, I think, it is the product mix that we have played and which has yielded better margins.

Clarifies the drivers of margin expansion (product mix, inventory impact) and suggests it's sustainable due to strategic focus.

Asked by Rahul Jain

Confidence in 12-15% EBITDA guidance given Q1 flatness Partial
Overall, we have to look at a few quarters and then see how the overall growth trajectory is to really consider. Because there will be certain quarters where due to multiple stages of processing that we are doing, we may end up doing more earlier stages processing and the invoicing may happen in the later quarters, which may impact the topline and the bottom-line growth.

Highlights the non-linear nature of CDMO business, implying that Q1 performance might not be indicative of full-year trend and growth could be back-ended.

Asked by Rahul Jain

Ganesh Polychem break-even and contribution Direct
In Ganesh Polychem, last year, we had good EBITDA of around Rs. 60 crores. And this year, we took a plant shutdown to modify and do some modification at our plant. So, post that, I think we have restarted our plant in July. And I think in the current quarter, we will reach to normalcy of volume and demand.

Provides context on Ganesh Polychem's past performance and indicates a return to normalcy in Q2 FY26 after a shutdown.

Asked by Aejas Lakhani

CDMO segment growth drivers Direct
As mentioned in my opening remarks, I have already told that we have order book of the guidance that we have issued 35%-40% growth. So, we are quite confident about achieving the same.

Reiterates confidence in CDMO growth target, implying strong underlying demand and order visibility.

Asked by Aejas Lakhani

Xanthine segment peak revenue potential with 9000-ton capacity Partial
If we are able to capture a reasonable market of, say, 10%-15% of our total demand in pharma, then of course, we can expect a higher topline. But if we have to offload the product in spot market, then it can be a little bit on the lower side. It all depends on how the approvals are coming to.

Explains the variability in Xanthine revenue potential based on market capture (pharma vs. spot) and regulatory approvals, indicating a nuanced outlook beyond just capacity.

Asked by Madhav

US market exposure and tariff impact Direct
Yes, currently our US sales would be around 8%-10%. But I think we don't have any tariff impact currently. ... Yes. Pharma and Annexure 2.

Clarifies the limited direct exposure to US sales and confirms that current pharma products and Xanthine derivatives are exempt from tariffs.

Asked by Vivek Gautam

3 min read 6 chapters

Detailed narrative

Q1 FY26 Financial Performance Overview

Aarti Pharmalabs reported a standalone topline of ₹375 crores for Q1 FY26, a slight decrease from ₹394 crores in the previous year. Despite this, standalone EBITDA grew by 14% year-on-year to ₹95 crores, and PAT increased by 9% to ₹51 crores. The consolidated topline stood at ₹386 crores, which is not directly comparable to Q1 FY25 due to a change in accounting for the Ganesh Polychem joint venture. Consolidated EBITDA was ₹95 crores (down from ₹97 crores YoY) and PAT was ₹50 crores (down from ₹56 crores YoY).

Business Segment Performance and Drivers

The Xanthine Derivative segment contributed 50% to the Q1 turnover, with 65% from beverages customers and 35% from others, and 57% of sales being exports. The API and Intermediate business accounted for 41% of turnover, with a strong focus on regulated markets (49%). The company increased its US DMFs to 53 and CEPs to 35, with 60 commercial APIs. The CDMO-CMO segment contributed 10% of revenue, working with 21 customers on 60 active projects, 33 of which are commercial. Management expects to achieve its FY26 CDMO sales target.

Capacity Expansion and Project Updates

The brownfield expansion to increase Xanthine derivatives capacity from 5000 MT to 9000 MT per annum is on track for commissioning in H2 FY26. The greenfield project at Atali, Gujarat, has completed mechanical completion for Phase-1, with commercial production expected by the end of Q2 FY26. An initial infra spend of ₹150-200 crores has been made for future blocks at Atali. A new solar plant is expected to generate annual cost savings of ₹25-30 crores.

Impact of Ganesh Polychem JV Accounting Change

The consolidated topline is optically lower year-on-year because the Ganesh Polychem (GPL) joint venture, effective Q1 FY26, is now accounted for using the equity method of consolidation. This means GPL's turnover is no longer included in consolidated revenue, but its share of profit continues to be reflected in EBITDA and PAT, making these metrics comparable year-on-year. Ganesh Polychem had an EBITDA of around ₹60 crores last year and is expected to return to normal volume and demand in the current quarter (Q2 FY26) after a plant shutdown for modifications.

Margin Profile and Future Outlook

Gross margins for the quarter were strong at 57%, up from 48% YoY, attributed to a favorable product mix towards regulated and export markets. Management clarified that a disclosure change in financials moved certain consumables from cost of materials to other expenses, impacting comparability with older gross margin figures. While Q1 consolidated EBITDA was slightly down, management maintains its 12-15% standalone EBITDA growth guidance for FY26, acknowledging that CDMO business can lead to non-linear quarterly performance with invoicing potentially concentrated in later quarters.

Geopolitical Risks and US Tariffs

Management addressed concerns regarding geopolitical turmoil and US tariffs. They stated that current tariff rules do not impact their pharma products, and Xanthine derivatives like caffeine are on the exempt list, leading to minimum impact on sales. The company's US sales are around 8-10% of total revenue. They emphasized that their complex APIs are primarily targeted at regulated markets where Chinese competition is limited, and their backward integration for Xanthine provides a competitive advantage.

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