Aarti Pharmalabs Q1 FY27 earnings call

Aarti Pharmalabs reported a robust Q1 FY27, with standalone revenue reaching ₹535 crores, marking a 42% year-on-year increase from ₹375 crores. EBITDA also saw a significant rise of 40% year-on-year to ₹133 crores, up from ₹95 crores. Profit After Tax (PAT) demonstrated strong growth, increasing by 49% year-on-year to ₹71 crores, compared to ₹48 crores in the prior year period.

The Xanthine Derivatives segment was a key growth driver, contributing 57% to the company's turnover and achieving its highest-ever quarterly sales. The volume split for this segment was 74% from beverage customers and 26% from other customers. Geographically, exports accounted for 79% of sales, with local sales making up 21%. The company aims for 20-25% global market share within the next two years and expects to reach over 80% capacity utilization by FY28.

The API and Intermediates business contributed 30% to the turnover in Q1 FY27. The sub-segment breakdown showed 58% from regulated markets, 14% from the rest of the world, and 28% from non-regulated markets. Management noted persistent pricing pressures in existing molecules and is initiating a special project focused on process intensification and cost reduction to mitigate these headwinds. The gross margin for the API business is expected to be around 45-50%.

The CDMO/CMO segment contributed 7% to the revenue, working with 22 customers and managing 57 active projects, of which 37 are commercial and 20 are in developmental stages. The company is targeting ₹1,000 crores in CDMO/CMO revenue and expects 40-50% growth for the current financial year. A new capex of ₹149 crores has been announced for Atali Block 2, adding 400+ kL reactor capacity, with groundbreaking expected in Q3 FY27 and completion within 12-15 months.

Q1 FY27 saw the completion of debottlenecking at the steroid block in Unit 4, Tarapur, increasing capacity by 33%. The additional capacity for Xanthine derivatives, initiated by the end of Q1, has been commercialized. Atali Block 1, with 440 kL reactor capacity, is set to become fully operational in Q2 FY27. The company's overall capex for Atali, including Block 1 and the newly announced Block 2, totals approximately ₹600 crores, with an expected asset turnover in excess of 1x for the dedicated facilities.

The company reported a gross margin of around 50% and maintained its full-year EBITDA margin guidance between 22% and 25% for standalone financials. While Xanthine prices are currently elevated due to raw material movements, they are not at their peak. The company noted that China's anti-involution policy, which removed rebates and tightened quotas, has structurally improved Xanthine margins. Management indicated that the Q1 performance was exceptional due to raw material price increases, which are now normalizing.

Aarti Pharmalabs has significantly invested in its R&D and scientific leadership. The company has built a CXO model, including a Chief Scientific Officer, CTO, and COO, and has dedicated R&D teams specializing in small molecules, oligonucleotides, peptides, scale-up, and process intensification. With over 250 scientists across three R&D centers (Nerul, Dombivali, Vapi), the company is enhancing its capabilities and strengthening its business development team with geographically distributed leads.