Aarti Pharmalabs Limited — Q2 FY26 earnings call

Call held 11 Nov 2025

Management summary

Aarti Pharmalabs reported an 11% YoY increase in standalone revenue for Q2 FY26, driven by strong performance in Xanthine and CDMO-CMO segments. However, profitability was impacted by margin pressure in the API business and a significant Forex loss. The company is progressing with its Atali plant commissioning and Xanthine capacity expansion, while revising its full-year EBITDA growth guidance to 8-12%.

Highlights

  • Standalone revenue increased by 11% Y-o-Y to INR 417 crores in Q2 FY26.

  • CDMO-CMO segment contributed 10% to revenue and is expected to exceed its 30-40% growth target.

  • Atali plant inaugurated in September, with trial batches underway and full operation expected in 2-3 quarters, contributing meaningfully from FY27.

  • Xanthine expansion is on track to reach 9,000 metric tons per annum installed capacity by end of FY26.

  • Number of active CDMO projects increased to 59, with 39 in commercial stage.

Concerns

  • Standalone EBITDA decreased to INR 75 crores from INR 85 crores YoY, and PAT fell to INR 31 crores from INR 48 crores YoY.

  • Consolidated EBITDA decreased to INR 75 crores from INR 94 crores YoY, and PAT fell to INR 28 crores from INR 55 crores YoY.

  • API business experienced high margin pressure and a sales mix skewed towards lower margin APIs.

  • PAT was impacted by a Forex loss of around INR 7.4 crores in Q2 FY26.

  • Ganesh Polychem joint venture reported a loss, though lower than previous quarters.

Key financials

  1. Standalone Revenue ₹417 Cr +11%YoY
  2. Standalone EBITDA ₹75 Cr -11.8%YoY
  3. Standalone PAT ₹31 Cr -35.4%YoY
  4. Consolidated Revenue ₹418 Cr -8.7%YoY
  5. Consolidated EBITDA ₹75 Cr -20.2%YoY
  6. Consolidated PAT ₹28 Cr -49.1%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
    51% Revenue Contribution71% Volume - Beverage Customers29% Volume - Others59% Export Sales41% Local Sales
  • API and Intermediates
    39% Revenue Contribution55% Regulated Market31% Rest of World14% Non-Regulated Market
  • CDMO-CMO Services
    10% Revenue Contribution21 Customers59 Active Projects39 Commercial Stage Projects20 Development Stage Projects

Capital allocation

high confidence
  • Capex Capex disclosed
    • Atali plant for capacity addition ₹450 Cr
    • Xanthine capacity expansion to 9,000 MTPA
    We inaugurated the Atali plant in September and have started operations. Currently, we are in the process of taking trial batches of a few products for customer qualifications. More products are planned in upcoming months. We expect the facility to be fully operational in two to three quarters, thus contributing meaningfully to the revenue from FY '27. Xanthine expansion is ongoing as planned. We are now operating around 500 metric tons per month. The incremental capacity will get operationalized in phases, and we expect to reach 9,000 metric tons per annum installed capacity by end of this financial year.
  • Debt Debt disclosed
    • Forex hedge Company decided to keep foreign currency loans Forex open to save hedging costs, leading to Forex loss due to rupee depreciation.
    On the first question on the Forex loss, it is coming basically, as we all know, because of the sharp depreciation of rupee of almost more than INR 3 in this quarter, 30th September as compared to 30th June. And this is coming basically on the loan that we have foreign currency long-term loans that we have. We have 24 million of long-term loans.

Guidance & targets

Profitability

  • EBITDA growth Profitability · FY26 · High confidence 8% to 12%
    Looking forward, looking ahead for the full year, we revised our EBITDA growth guidance to 8% to 12% growth Y-o-Y in FY '26.

    — Piyush Lakhani

CDMO-CMO

  • CDMO-CMO growth CDMO-CMO · FY26 · High confidence exceed 30% to 40%

    Previously 30% to 40% → exceed 30% to 40%

    We are on track to achieve and exceed the earlier estimated sales target which is 30% to 40% growth Y-o-Y.

    — Piyush Lakhani

  • Revenue CDMO-CMO · in the coming two to three years · Medium confidence INR 1,000 crore
    So, given how things are on the CMO, CDMO side, how should we, overall, you have been talking about reaching, targeting INR 1,000 crore revenue in the coming two to three years.

    — Rashesh Gogri

Capacity

  • Atali facility operational status Capacity · within 2-3 quarters · High confidence fully operational
    We expect the facility to be fully operational in two to three quarters, thus contributing meaningfully to the revenue from FY '27.

    — Piyush Lakhani

  • Xanthine installed capacity Capacity · end of this financial year · High confidence 9,000 metric tons per annum
    The incremental capacity will get operationalized in phases, and we expect to reach 9,000 metric tons per annum installed capacity by end of this financial year.

    — Piyush Lakhani

API Business

  • API performance API Business · second half · Medium confidence improve
    So, we will improve on our first half's performance in second half for the API business.

    — Rashesh Gogri

Ganesh Polychem

  • Profitability Ganesh Polychem · next year onwards (FY27) · Medium confidence reasonable profitability, near FY25 level (80-100% of FY25 PAT)
    So, this 2nd half will be soft. But I think next year onwards, again, we will be back with reasonable profitability. Yes, at least it will be near FY '25 level. It will be 80% to 100% of FY '25.

    — Rashesh Gogri

What to watch in Q3 FY26

Atali plant full operational status

within 2-3 quarters
Current Trial batches ongoing, inaugurated in September
Target Fully operational

Why it matters

Full operation of Atali is expected to contribute meaningfully to revenue from FY27 and is key to CDMO capacity.

We expect the facility to be fully operational in two to three quarters, thus contributing meaningfully to the revenue from FY '27.

Risks & concerns

  • API margin pressure

    medium

    API business saw high margin pressure and a sales mix skewed towards lower margin APIs due to increased competition and genericization.

    Management acknowledged

  • Forex loss impact on PAT

    medium

    PAT was impacted by a Forex loss of around INR 7.4 crores due to rupee depreciation on foreign currency long-term loans.

    Management acknowledged

  • Volatile launch years for new products

    medium

    The first two years after a product launch can be volatile due to market entry, competition, and inventory corrections, impacting margins.

    Management acknowledged

  • Rough year anticipated due to transitions

    medium

    The current year is anticipated to be 'rough' due to new products, cost reduction initiatives, and shifting of operations, with stabilization expected next year.

    Management acknowledged

Q&A highlights

7 direct
Gross and EBITDA margin decline Direct
So, overall, that is what grossly summarizes the overall changes in the number that you are seeing in the results. And also this quarter we had, of course, non-EBITDA based, I think, Foreign exchange loss was also one of the components which, of course, had an impact.

Explains the reasons for margin pressure, including intermediate manufacturing capacity usage for CDMO, genericization impact on older products, and forex loss.

Asked by Rahul Jain

Atali project cost and depreciation impact Direct
So, I think Q4, of course, we will do that. And then next year also, couple of quarters, we will still have to do this activity and then the ramp-up will come. So, that is what will happen. Of course, the expenses for that particular part of the block that we have commercialized, we will have to start expensing it out. And it will start hitting the P&L also.

Provides clarity on when the Atali plant's expenses and depreciation will start impacting the P&L, indicating a phased ramp-up.

Asked by Ankit Gupta

API segment growth to INR 1,000 crore by FY28 Direct
Yes, actually, we are looking at debottlenecking our anti-cancer block as well in the second half of the, you know, later part of this year, early next year, which will be enabling us to further look at meeting the targets of these launches. And these are very good products that we anticipate good growth.

Highlights the company's strategy to achieve long-term API growth through debottlenecking and new anti-cancer product launches.

Asked by Ankit Gupta

Forex loss in Q2 Direct
On the first question on the Forex loss, it is coming basically, as we all know, because of the sharp depreciation of rupee of almost more than INR 3 in this quarter, 30th September as compared to 30th June. And this is coming basically on the loan that we have foreign currency long-term loans that we have. We have 24 million of long-term loans.

Clarifies the cause of the Forex loss, attributing it to rupee depreciation against foreign currency long-term loans.

Asked by Vikas Sharda

Ganesh Polychem outlook Direct
Yes, I think the business will stabilize. Of course, not at the last year's level, but last year we had bumper year on that. And we actually pushed a lot of inventory in the last year, so that we can prepare for the shutdown of this one quarter shutdown that we had. Actually, there are some expansions where we have also planned the cost reduction process going forward.

Provides an outlook on Ganesh Polychem's stabilization and return to profitability, albeit not at peak levels, after a period of shutdown and cost reduction efforts.

Asked by Vikas Sharda

Increase in operational and employee costs Direct
Apart from that, we had one-off charges for certain manufacturing facility upgradation, which we did, particularly for Xanthine, what we have done is we have to keep ourselves approved with the large customers for both the facility fungibility we had created. For that, we had to spend a lot of money.

Explains the increase in costs due to one-off facility upgradation charges for Xanthine and efforts to maintain operational stability during expansion.

Asked by Shubham Aggarwal

Stabilized run rate of depreciation for Atali Partial
We will have to work that number and get back to you.

Management could not provide a specific number for the stabilized depreciation run rate for the Atali plant, indicating some uncertainty or lack of immediate data.

Asked by Shubham Aggarwal

Xanthine capacity and pricing Direct
We are operating at 500 tons per month now, this month. So, yes. I think the pricing has bottomed out, basically. And of course, it has not moved from bottom significantly, but it has stabilized.

Confirms current Xanthine production levels and indicates that pricing has stabilized after bottoming out, which is positive for future segment profitability.

Asked by Shubh Mehta

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Detailed narrative

Q2 FY26 Financial Performance Overview

Aarti Pharmalabs reported a standalone top line of INR 417 crores for Q2 FY26, an 11% increase year-on-year from INR 377 crores. However, standalone EBITDA declined to INR 75 crores from INR 85 crores in the prior year, and PAT decreased to INR 31 crores from INR 48 crores. Consolidated figures showed a top line of INR 418 crores, EBITDA of INR 75 crores, and PAT of INR 28 crores, all lower than Q2 FY25. The PAT was significantly impacted by a Forex loss of approximately INR 7.4 crores during the quarter.

Segmental Performance and Margin Dynamics

The Xanthine Derivative segment contributed 51% to the Q2 turnover, with 71% from beverage customers and 59% from export sales. The API and Intermediates business accounted for 39% of turnover, facing high margin pressure and a sales mix skewed towards lower-margin products. The CDMO-CMO segment contributed 10% to revenue, working with 21 customers on 59 active projects, with 39 already in the commercial stage. Management noted that overall gross and EBITDA margins were affected by intermediate manufacturing for CDMO projects taking up capacity, genericization of older API products, and the Forex loss.

Strategic Projects and Capacity Expansion

The Atali plant was inaugurated in September 2025 and has commenced trial batches for customer qualifications. It is expected to be fully operational within two to three quarters, contributing meaningfully to revenue from FY27. The Xanthine expansion is progressing as planned, with current operations at 500 metric tons per month, aiming to reach an installed capacity of 9,000 metric tons per annum by the end of the current financial year. These expansions are designed to avoid impacting current running capacity.

Revised Guidance and Future Outlook

The company revised its full-year FY26 EBITDA growth guidance to 8% to 12% year-on-year. The CDMO-CMO segment is on track to exceed its earlier estimated sales growth target of 30% to 40% year-on-year. Management anticipates an improvement in the API business performance in the second half of FY26. For Ganesh Polychem, stabilization and reasonable profitability, near FY25 levels (80-100% of FY25 PAT), are expected from FY27 onwards after a period of shutdowns and cost reduction.

Capital Allocation and Debt Management

The Atali project involved a CAPEX of approximately INR 450 crores, adding 440 KL of capacity, with 340 KL already commercialized. The company's foreign currency long-term loans, amounting to 24 million USD, were kept open to save hedging costs, which led to the reported Forex loss due to rupee depreciation. Expenses related to the commercialized portion of the Atali plant are expected to start hitting the P&L from Q4 FY26, with a clearer impact of INR 4-5 crores per quarter anticipated.

CDMO Strategy and Pipeline Development

Aarti Pharmalabs is actively increasing its CDMO funnel by establishing a presence in Europe and planning to appoint a dedicated BD person for North America. The company focuses on Phase 2-3 molecules and aims to increase its wallet share with existing customers while also pursuing new products. The goal is to become a preferred source for innovators, ensuring supply chain security, although innovators typically maintain multiple sources.

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