Aarti Pharmalabs Limited

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).

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.

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.

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.

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.

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.