Aarti Pharmalabs Limited — Q3 FY26 earnings call

Call held 10 Feb 2026

Management summary

Aarti Pharmalabs reported a challenging Q3 FY26 with revenue, EBITDA, and PAT declining YoY, partly due to ₹49 crores of goods in transit not being booked and initial operational hiccups at the new Atali plant. Despite these near-term pressures and softness in the API business, the company declared an interim dividend of ₹1.5 per share. Management remains confident in long-term growth, driven by increasing commercial CDMO projects, new API launches, and the Xanthine expansion, with corrective actions at Atali expected by Q4 FY26.

Highlights

  • Interim dividend of ₹1.5 per share declared, reflecting confidence.

  • Commercial CDMO projects increased from 33 to 40 in the last 9 months.

  • Xanthine expansion progressing as planned, with mechanical completion targeted by March '26 and incremental capacity in Q1 FY27.

  • New API launches expected in 2026, particularly in oncology and diabetic segments.

  • China's withdrawal of caffeine rebate expected to improve Xanthine pricing by 8-10%.

Concerns

  • Q3 FY26 Revenue declined to ₹425 crores from ₹471 crores YoY.

  • EBITDA for Q3 FY26 decreased to ₹103 crores from ₹115 crores YoY.

  • PAT for Q3 FY26 significantly dropped to ₹44 crores from ₹74 crores YoY.

  • ₹49 crores worth of goods in transit could not be booked as sales in Q3 FY26, impacting reported revenue and PBT by ₹19 crores.

  • Atali plant encountered initial operational hiccups, impacting production plans and delaying CDMO project deliveries.

  • API and Intermediates business experienced margin pressure and softness, contributing to revised FY26 EBITDA guidance of marginal growth.

Key financials

  1. Revenue ₹425 Cr -9.8%YoY
  2. EBITDA ₹103 Cr -10.4%YoY
  3. PAT ₹44 Cr -40.5%YoY
  4. Interim Dividend per Share ₹1.5

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 Derivatives
    49% Contribution to Turnover63% Volume Split - Beverages37% Volume Split - Other51% Geographical Split - Export49% Geographical Split - Local
  • API and Intermediates
    39% Contribution to Turnover52% Subsegment - Regulated Market34% Subsegment - ROW Market14% Subsegment - Non-Reg Market
  • CDMO/CMO
    12% Contribution to Turnover21 Customers59 Active Projects40 Commercial Stage Projects19 Development Stage Projects

Capital allocation

  • Capex Capex disclosed
    • Atali plant total project outlay ₹450 Cr
    • Atali plant capitalized amount ₹300 Cr
    • Xanthine expansion project (both sites) ₹150 Cr
    Rashesh Gogri: No. So we have done the capitalization of around INR300 crores and the total project outlay is around INR450 crores. So that balance, certain second phase is getting completed. And we will have that completion happening in next couple of months. (Page 6); Rashesh Gogri: Xanthine in total, the project that we have approved is around INR150 crores, with both the sites together. (Page 12)
  • Debt Gross ₹650 Cr · Net ₹650 Cr
    Rashesh Gogri: INR650 crores. (Page 13); Piyush Lakhani: Net debt around INR650 crores. We don't keep too much cash. (Page 17)
  • Dividend ₹1.5/share (interim)
    Rashesh Gogri: I'm pleased to inform you that the Board has declared an interim dividend of INR1.5 per share. (Page 3)

Guidance & targets

Profitability

  • EBITDA Growth Profitability · FY26 · Medium confidence largely in line with last year with only marginal growth
    Forward outlook: Looking ahead for the full year FY '26, we expect EBITDA to be largely in line with last year with only marginal growth.

    — Rashesh Gogri

  • Xanthine Realization Jump Profitability · going forward · Medium confidence 5% to 10%
    With that rebate withdrawal, overall 13% benefit that is getting accrued to the Chinese manufacturers when they export the API, that will away. And we are hoping that this will push the prices of the product up by at least 8% to 10% in future. ... I think, in the spot market, we have seen around 5% increase in the price from lower level. So we are seeing that the overall pricing has bottomed out.

    — Rashesh Gogri

Capacity

  • Xanthine Expansion Mechanical Completion Capacity · Q4 FY26 · High confidence by end of March '26
    The Xanthine expansion is progressing as planned, and we are targeting the mechanical completion by end of March '26.

    — Rashesh Gogri

  • Xanthine Incremental Capacity Availability Capacity · Q1 FY27 · High confidence in Q1 FY27
    The incremental capacity will become available for the production in Q1 FY '27.

    — Rashesh Gogri

Volume

  • Xanthine Overall Capacity Utilization Volume · within a year (from Q1 FY27) · Medium confidence 50% to 60%
    And then in a year, we should be at least able to utilize close to 50% to 60% of that capacity overall.

    — Rashesh Gogri

  • Xanthine Capacity Utilization Volume · by FY28 · Medium confidence 85% to 90%
    I think the efforts are going to basically achieve to 85% to 90% of that capacity by that time.

    — Rashesh Gogri

Revenue

  • API Quarterly Run Rate Revenue · next couple of quarters · Medium confidence INR200 crores
    Yes. I think the first milestone is, as you rightly mentioned, quarterly INR200 crores. And then the next milestone will be higher than that, quarterly. These are the milestones. I think -- yes, so that is what we will try to scale it up to. ... It's not going to happen in next quarter, but I think it will take a couple of more quarters to come to that.

    — Rashesh Gogri

  • CDMO Sales Revenue · FY27 · Medium confidence INR1,000 crores
    Mohammed Patel: Okay. We are expecting INR1,000 crores of CDMO sales. So then we should expect FY '27 growth also to be similar to FY '26 number? Rashesh Gogri: That is the target that we have, yes.

    — Rashesh Gogri

Debt

  • Net Debt to Equity Ratio Debt · by Q4 FY26 · Medium confidence 0.3 to 0.35
    I think we should look at net debt to equity of around 0.3 between 0.3 and 0.35, depending upon how Q4 goes.

    — Piyush Lakhani

What to watch in Q4 FY26

Atali Plant Operational Resolution

next quarter
Current Initial hiccups impacting production
Target Resolution by end of Q4 FY26

Why it matters

Successful stabilization of Atali is crucial for future CDMO and intermediates capacity ramp-up and revenue recognition.

Rashesh Gogri: Those challenges we anticipate to get over in the current quarter and the batches have progressed well now.

Risks & concerns

  • Atali plant operational stabilization

    medium

    Initial hiccups at the new Atali plant impacted production and delayed CDMO project deliveries, leading to a revised FY26 EBITDA outlook.

    Management acknowledged

  • Softness and margin pressure in API and Intermediates business

    medium

    The API business continues to face margin pressure and softness, contributing to the revised FY26 EBITDA guidance.

    Management acknowledged

  • Project delivery delays in CDMO

    medium

    Certain CDMO project deliveries were pushed by a few months, making it difficult to exceed the FY26 revenue guidance for the segment.

    Management acknowledged

  • Generic API pricing degrowth

    medium

    Generic API prices inherently tend to go down, requiring volume-led growth strategies like capacity expansion and debottlenecking.

    Management acknowledged

Q&A highlights

5 direct
CDMO business growth visibility for FY27 Partial
I think we will be able to give that guidance of CDMO/CMO growth post our budgeting exercise, which we will do in next month. But we are looking at good growth.

Analyst sought specific FY27 growth guidance for CDMO, but management deferred a numerical target, indicating it's still under review despite positive sentiment.

Asked by Ahmed Madha

Atali plant operational challenges and resolution timeline Direct
Yes. Basically, see, we were trying to validate several products there. And in the validation, there were certain challenges that the company faced at Atali site because of the newer staff and newer nature of the plant. So those issues are getting settled, with the operational team getting strengthened and the process team also being stationed there because all the entire new set of reactions and the equipment that we have commercially started in Phase 1 are all large equipment. So that's where we are taking much larger batch sizes. Those challenges we anticipate to get over in the current quarter and the batches have progressed well now.

Clarified the nature of 'hiccups' at the new Atali plant (staff, new processes, large batch sizes) and provided a timeline for resolution (end of Q4 FY26), which is critical for future capacity ramp-up.

Asked by Ahmed Madha

Impact of goods in transit on Q3 financials and Q4 outlook Direct
This is Piyush Lakhani. The impact is essentially what we have given in our note. So if we had been able to book the revenue in quarter 3, then our top line would have been higher by that amount, INR49 crores, and the PBT would have been higher by the same amount, INR19 crores. ... So currently, it is being shown as a stock, stock in transit. So that's why it is carried at INR30 crores -- INR30-point-something crores, which otherwise would have been INR49 crores if we had been able to book the revenue. ... Correct, correct, yes. (referring to booking in Q4)

Quantified the exact financial impact of unbooked sales (₹49 crores revenue, ₹19 crores PBT) and confirmed it would be recognized in Q4, providing clarity on Q3 underperformance and Q4 potential.

Asked by Rahul Jain

Xanthine ramp-up and capacity utilization targets Direct
Yes. See, currently, as I have informed all of you in the last call that we are currently running at around 500 tonnes per month capacity and slowly ramping it up. With the new capacities coming up, we are adding close to 300 tonnes per month additional capacity. So, we will have that available. But I think quarter-by-quarter, we will have, in the first quarter, maybe 300, 400 tonnes manufactured. Second quarter, we will manufacture more. And then in a year, we should be at least able to utilize close to 50% to 60% of that capacity overall.

Provided specific current and projected Xanthine production volumes and utilization targets, detailing the ramp-up trajectory for a key segment.

Asked by Rahul Jain

API business pricing trends and future outlook Partial
See, generic API business, the prices never increase. They always go down only. Ultimately, the game has to be played where you increase the capacity. In our generic block also, we have put the Block 5 expansion a couple of years back. That is available with us. And then, we have also mentioned that, in this year, we are also going to do the debottlenecking of the steroid block. For our oncology block also, we will do the debottlenecking eventually.

Management acknowledged the inherent pricing pressure in generic API but highlighted capacity expansion and debottlenecking as strategies to drive growth, indicating a volume-led approach.

Asked by Rahul Jain

Impact of China's caffeine rebate withdrawal on Xanthine pricing Direct
Yes. So I think there is an interesting development is that China has announced that they will withdraw the benefit -- rebate benefit on caffeine and its salts. With that rebate withdrawal, overall 13% benefit that is getting accrued to the Chinese manufacturers when they export the API, that will away. And we are hoping that this will push the prices of the product up by at least 8% to 10% in future. ... So with this, I think we are in a favorable position to do the exports to U.S. Imports will -- and the other markets also, we will have a higher -- overall pricing should improve, I think, going forward.

Identified a significant external factor (China's policy change) that is expected to positively impact Xanthine pricing and Aarti's competitive position, especially in the US market.

Asked by Madhav Marda

CDMO sales target for FY27 Direct
Mohammed Patel: Okay. We are expecting INR1,000 crores of CDMO sales. So then we should expect FY '27 growth also to be similar to FY '26 number? Rashesh Gogri: That is the target that we have, yes.

Management confirmed an analyst's stated target of ₹1,000 crores for CDMO sales in FY27, providing a key growth metric for the segment.

Asked by Mohammed Patel

2 min read 6 chapters

Detailed narrative

Q3 FY26 Financial Performance Overview

Aarti Pharmalabs reported a challenging Q3 FY26 with revenue at ₹425 crores, a decline from ₹471 crores in the prior year. EBITDA also saw a reduction to ₹103 crores from ₹115 crores, and Profit After Tax (PAT) significantly decreased to ₹44 crores from ₹74 crores YoY. The company declared an interim dividend of ₹1.5 per share. A notable factor impacting Q3 financials was ₹49 crores worth of goods in transit that could not be booked as sales, which would have increased revenue and PBT by ₹19 crores if recognized.

Segmental Performance and Outlook

The Xanthine Derivatives segment contributed 49% to Q3 turnover, with 51% from exports. The API and Intermediates business accounted for 39% of turnover, facing continued margin pressure. The CDMO/CMO segment contributed 12% of revenue, working with 21 customers on 59 active projects, of which 40 are commercial. Management expects API business to see new launches in 2026, particularly in oncology, and anticipates 2026-27 to be a better year for API overall.

Expansion Projects Update: Atali and Xanthine

The Atali plant commenced production of qualifying batches in Q3 FY26. However, initial operational hiccups, attributed to newer staff and plant nature, impacted production. Corrective actions are underway, with resolution expected by the end of Q4 FY26. The Xanthine expansion is on track for mechanical completion by March '26, with incremental capacity becoming available in Q1 FY27. The company aims for 50-60% overall utilization of the expanded Xanthine capacity within a year.

Capital Expenditure and Debt Profile

The company has capitalized approximately ₹300 crores for the Atali plant, with a total project outlay of ₹450 crores, and the balance of certain second-phase work is expected to complete in the coming months. An additional ₹150 crores is allocated for Xanthine expansion across both sites. Gross debt stands at ₹650 crores, with net debt also around ₹650 crores. The management targets a net debt to equity ratio of 0.3 to 0.35 by Q4 FY26.

Xanthine Market Dynamics and Pricing

A significant development is China's decision to withdraw the 13% rebate on caffeine and its salts, which is expected to lead to an 8-10% price increase for Aarti Pharmalabs' Xanthine products. This, coupled with a 20% duty on Chinese products in the US market, positions Aarti favorably. The company is currently operating Xanthine at around 500 tonnes per month and aims to reach 800 metric tonnes per month post-expansion, with a target of 85-90% utilization of its 9,600 tonnes annual capacity by FY28.

Revised FY26 Outlook and FY27 Targets

For the full year FY26, EBITDA is expected to be largely in line with the previous year, with only marginal growth, a revision attributed to delays in Atali plant stabilization and softness in the API business. While specific FY27 guidance will be provided post-budgeting, management confirmed an analyst's target of ₹1,000 crores for CDMO sales in FY27. The company also aims to restore API quarterly run rates to ₹200 crores in the next couple of quarters.

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