Aarti Pharmalabs Limited — Q4 FY26 earnings call

Call held 26 May 2026

Management summary

Aarti Pharmalabs reported a mixed Q4 FY26, with revenue growth driven by strong performance in Xanthine and CDMO segments, which both achieved their highest ever quarterly revenues. However, profitability was impacted by higher operating costs, inventory issues, and a significant foreign exchange loss. The company is progressing with capacity expansions at Atali and Tarapur, and expects CDMO to lead growth in FY27, targeting 15-18% overall growth for the next 3-4 years.

Highlights

  • Q4 FY26 Revenue increased 9% YoY to ₹580 crores from ₹530 crores.

  • CDMO segment recorded its highest ever quarterly revenue of ₹155 crores, showing robust 32% YoY growth for full year FY26.

  • Xanthine derivative segment achieved its highest ever quarterly revenue, contributing 43% of Q4 FY26 turnover.

  • Atali Phase 1 is largely past startup issues and expected to be completely operational by end of Q1 FY27.

  • Board declared a final dividend of ₹2 per share, bringing total FY26 dividend to ₹3.50 per share.

Concerns

  • Q4 FY26 EBITDA declined to ₹134 crores from ₹141 crores YoY.

  • Q4 FY26 PAT decreased to ₹62 crores from ₹89 crores YoY.

  • Full year FY26 PAT stood at ₹176 crores, down from ₹257 crores in FY25.

  • Net foreign exchange loss of ₹33 crores was recorded in FY26.

  • Intermediate segment faced competitive pricing and difficulty in passing on cost hikes due to inflationary pressures.

Key financials

2 periods

Q4 FY26

  • Revenue
    ₹580 Cr
    YoY +9%
  • EBITDA
    ₹134 Cr
    YoY -5%
  • PAT
    ₹62 Cr
    YoY -30.3%

FY26

  • Revenue
    ₹1,798 Cr
    YoY +1.5%
  • EBITDA
    ₹406 Cr
    YoY -5.1%
  • PAT
    ₹176 Cr
    YoY -31.5%
  • Net Forex Loss
    ₹33 Cr

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

Share of FY26 Revenue
₹1,668 Cr Total
  • Xanthine Derivative ₹792 Cr 47.5%
  • API and Intermediate ₹600 Cr 36.0%
  • CDMO/CMO ₹276 Cr 16.5%

Capital allocation

  • Capex ₹400 Cr
    • Xanthine expansion
    • Debottlenecking at Tarapur Unit-4
    • Possible new production block at Atali
    • Atali Phase 1 capitalization (total capex for Atali was ~₹450 crores) ₹450 Cr
    • Xanthine expansion (total capex for Xanthine expansion was also significant)
    • Steroid block debottlenecking at Tarapur Unit-4
    • Brownfield expansion at Tarapur Unit-4 US FDA-approved API facility (anti-cancer and other blocks)
    • R&D for tides, peptides, and oligonucleotides
    • Normal replacement capex
    We have invested approximately Rs.400 Crores capital during the financial year 2026. And we plan to maintain a similar level of spending for the FY2027. The budget includes ongoing Xanthine expansion, debottlenecking at Tarapur Unit-4 and a possible new production block at Atali. The phase 1 of Atali, which comprised of 440 kL of reactor capacity, it is a multi-purpose block. Given the current visibility within the CDMO segment, we are assessing to put up a dedicated manufacturing block tailored to a specific project. Recently, the steroid block at Tarapur Unit-4 has undergone the debottlenecking resulting in capacity increase by about one-third of existing capacity. Similarly, there are a few more brownfield expansion initiative plan at our Tarapur Unit-4 US FDA-approved API facility in the financial year 2027 to increase the capacity of anti-cancer and other blocks. We have decided to invest in R&D of tides, that is peptides and oligonucleotides and this investment done in new R&D technologies will not yield immediate results, but has a good potential in the future and we would like to explore these newer technologies. See, I think last year we spent Rs.400 Crores and we spent Rs.200 Crores last to last year, so total Rs.600 Crores spent. This year we plan to spend another tentatively Rs.400 Crores going forward and of course, these are for the projects. Whereas, this entire Atali capex itself was close to Rs.450 Crores and also the capex for the Xanthine expansion was also, so these two were very large capex, which we had to do. I think it is a mix of capex where we will be completing the Xanthine in this current quarter. So there are certain projects which are ongoing on the Xanthine front. Also, we will be finishing our capitalization of the Atali earlier phase 1. We are starting phase two there also, so, all these projects and of course, debottlenecking. I think these largely three buckets were and fourth bucket will be, I think, normal capex that we have the replacement capex. So, more or less equally spread out among all four largely, plus or minus 20. And of course, we will also spend on R&D.
  • Debt Debt disclosed
    Rs.33 Crores is the foreign currency loss or notional loss that I incur on my foreign currency loans.
  • Dividend ₹2/share (final)
    I am pleased to inform you that the board has declared a final dividend of Rs.2 per share and this brings a total dividend of FY2026 to Rs.3.50 paisa per share.

Guidance & targets

Revenue

  • Revenue Growth Revenue · next three, four years · High confidence 15% to 18%
    Based on current project visibility and the operational ramp-up, we are targeting 15% to 18% growth in both revenue and EBITDA for next three, four years.

    — Rashesh Gogri

EBITDA

  • EBITDA Growth EBITDA · next three, four years · High confidence 15% to 18%
    Based on current project visibility and the operational ramp-up, we are targeting 15% to 18% growth in both revenue and EBITDA for next three, four years.

    — Rashesh Gogri

CDMO/CMO

  • Sales Growth CDMO/CMO · FY2027 per annum · High confidence 40% to 50%
    For immediate FY2027, we expect the CDMO/CMO business to lead the growth with a projected sales growth of 40% to 50% per annum.

    — Rashesh Gogri

CDMO

  • Revenue Line of Sight CDMO · going forward · Medium confidence USD 100 million
    And that is how we have projected line of sight of close to USD 100 million in CDMO segment going forward.

    — Rashesh Gogri

Dedicated Block (Atali)

  • Topline Potential Dedicated Block (Atali) · from a single block · Medium confidence Rs.250 Crores to Rs.300 Crores
    I think depending on how we configure this, it can have potential of close to Rs.250 Crores to Rs.300 Crores topline also from a single block.

    — Rashesh Gogri

Xanthine

  • Revenue Potential from New Capacity Xanthine · with new capacity expansion · Medium confidence well beyond Rs.1000 Crores
    And in terms of overall revenue we feel that with this current new capacity expansion, it can be well beyond Rs.1000 Crores from the Xanthine newly added capacity and already whatever that we are doing.

    — Rashesh Gogri

API/Intermediates

  • Sales Growth API/Intermediates · FY2027 · High confidence surpass FY2025 numbers (Rs.770 Crores)

    From FY26: Rs.600 Crores today

    So, I think we will be definitely able to surpass that number in FY2027 and further grow our API business beyond FY2025 number. That is what we are looking at. We will be able to surpass the FY2025 numbers of API / Intermediates. We were around Rs.770 Crores, so we should be able to surpass that in FY2027? I think it was 700. That is what the split I have. In FY2026, we did 600.

    — Rashesh Gogri

Capex Turn

  • Asset Turn for Dedicated Blocks Capex Turn · near future · High confidence 1.5x to 2x

    Previously 1x to 1.2x for Atali → 1.5x to 2x

    I think for the dedicated blocks, we anticipate capex turn of 1.5x to 2x. Of course, it depends on the number of stages that we are doing, if we are doing quite a bit of stages, then this capex turn can reduce, but the margins can grow. So I think for the near future, whatever the current visibility that we have, we are looking at 1.5x to 2x on the capex turnaround.

    — Rashesh Gogri

Capex Intensity

  • Capex Intensity Capex Intensity · from FY2028 · High confidence come down
    Yes. From FY2028 onwards, that is what will happen but we had to do more capex greenfield in this year. And capacity of Xanthine also required some greenfield and some brownfield, so which we had to. Got it. Got it. So the capex intensity will come down from FY2028? Yes.

    — Rashesh Gogri

What to watch in Q1 FY27

Atali Phase 1 Operational Status

by the end of current quarter (Q1 FY27)
Current Largely past startup issues, corrective actions in place
Target Completely operational

Why it matters

Full operationalization of Atali Phase 1 is crucial for supporting CDMO and intermediate production and realizing returns on significant capex.

Atali is now largely past startup issues which were encountered during the ramp-up of phase 1. With the corrective actions majorly in place, we are progressing well with the production scale up and phase 1 is likely to become completely operational by the end of this current quarter.

Risks & concerns

  • Geopolitical tensions and inflationary pressures

    medium

    Ongoing war, geopolitical tension in West Asia caused logistics hurdles, rising energy costs, and strained profitability, particularly in the intermediate segment.

    Management acknowledged

  • Competitive pressure and market headwinds in API segment

    medium

    Persistent competitive pressure and market headwinds are affecting the API product portfolio, making cost passing difficult for existing orders.

    Management acknowledged

  • Foreign exchange loss

    medium

    A net foreign exchange loss of ₹33 crores was recorded in FY26, impacting PAT.

    Management acknowledged

  • Working capital increase due to large CDMO projects

    medium

    Large CDMO projects with one-time or two-time deliveries require significant inventory financing by the company as customers do not pay in advance.

    Management acknowledged

  • Startup issues and higher capex for greenfield projects

    low

    Atali Phase 1 encountered startup issues, and greenfield projects like Atali require higher initial capex compared to brownfield expansions.

    Management acknowledged

Q&A highlights

5 direct, 1 evasive
Dedicated block at Atali and its revenue potential Partial
We are exploring putting up this dedicated block, which can manufacture several of these potential long-term projects for us. And we are working on overall capacity and working with the customers on what kind of visibility they are able to give us in the coming quarters. And once we have some strong understanding of that, I think in the future quarter, we will let you know. We have very strong pipeline of these products. And these products can have very good revenue in future. And that is how we have projected line of sight of close to USD 100 million in CDMO segment going forward. I think depending on how we configure this, it can have potential of close to Rs.250 Crores to Rs.300 Crores topline also from a single block.

Analyst sought specifics on a new dedicated manufacturing block, and management provided a pipeline value and potential revenue range, indicating future growth drivers.

Asked by Ankit Gupta

API segment growth for FY27 and surpassing FY25 numbers Direct
For FY2027, I think, you rightly mentioned that FY2026 was a soft year. And of course, it was marred by inventory issues and the issues at our customer's end. We are looking at growth in FY2027 going forward, because we actually de-grown in last quarter, last year or earlier year. So, I think we will be definitely able to surpass that number in FY2027 and further grow our API business beyond FY2025 number. That is what we are looking at. We will be able to surpass the FY2025 numbers of API / Intermediates.

Analyst questioned the API segment's recovery, and management confirmed expectations to surpass FY25 revenue levels in FY27, indicating a turnaround for this segment.

Asked by Ankit Gupta

Xanthine segment pricing power and peak revenue from new capacity Direct
Yes, as you rightly mentioned, the costs have gone up because of the Middle East conflict and we have been pushing our customer for the price increase and we have had some success on that. And it is quite logical that we cannot absorb the full cost of the Middle East conflict, which for certain products was quite heavy. And in terms of overall revenue we feel that with this current new capacity expansion, it can be well beyond Rs.1000 Crores from the Xanthine newly added capacity and already whatever that we are doing. And in this current quarter only, we have been able to do over Rs.200 crores. Significant percentage of sales has happened in the current quarter also. Rs.227 Crores was what we did in the current quarter.

Analyst inquired about the ability to pass on cost increases and the revenue potential of Xanthine, to which management confirmed some success in price increases and projected significant revenue from expanded capacity.

Asked by Meet Katrodiya

Atali project OpEx hit and US FDA approval Evasive
I think we are not sharing these granular details now. No, Atali plant is going to supply the intermediaries. So, it is not getting any inspection for the FDA. But I think we have started doing the work for innovators there. For which we have got several innovators come and approve our site.

Management declined to quantify the OpEx impact from the newly commercialized Atali project, and clarified its role as an intermediate supplier not requiring FDA inspection, which could be a point of investor interest regarding operational costs and regulatory status.

Asked by Yash Doshi

EBITDA margin contraction due to raw material prices and logistics, and pass-through strategy Partial
On the overall expenses have been nearly similar to what we have got in previous year, Piyush, you want to answer. Quarter-on-quarter, the EBITDA margins have remained almost flattish. So are you asking compared to the last year? Last year, obviously, we have added a few facilities. So those will take time to ramp up. But then the cost, we are basically incurring at full capacity. So that is where the cost has gone up a little compared to last year. And that is what is impacting the margin. Yes, as I mentioned in my speech, already we are able to do some pass on in CDMO as well as the Xanthine segment. In API / Intermediates segment, on the already orders which we have on hand, it is difficult to change those orders because these are all high value drugs. In the future, we will try to get some increase going forward.

Analyst questioned the reasons for margin contraction, and management attributed it to new facility ramp-up costs and explained the differentiated ability to pass on cost increases across segments.

Asked by T Manish

Confusion regarding reported financial numbers for API, CDMO, and Xanthine segments Direct
Yes, I think there are some undistributable certain sales, which is some trading activity sales or some other number which gets knocked off. The CDMO sales for this quarter is Rs.155 Crores and for the entire year it is Rs.276 Crores for your clarification. In Xanthine, sales for this financial year is Rs.792 Crores and for this quarter is Rs.227 Crores, so please note these numbers here.

Analyst sought clarification on discrepancies between management's verbal statements and presentation figures for key segment revenues, which management addressed by providing precise figures.

Asked by Rahul Jain

Impact of raw material cost on margins and quantification Direct
No. So overall, I think, as you rightly mentioned, in Xanthine, we have several raw materials, which are urea and methanol and methanol based derivatives. So all these prices have gone up by 2x of whatever they were earlier and in certain other raw materials, of course, the prices have also gone up by 30% to 40%. We are requesting our customers to take a proportionate price increase for this. In case of API, I think largely the impact has been because, as, we are into high value, low volume API. I think largely the impact is on the solvents and Aarti Pharma has a lot of solvent recycling capabilities. So, that is being fully utilized. Even our Atali plant also has solvent recycling facility. So wherever permissible as per GMP, we try to recycle this solvent so that this impact can be minimized. But still, I think this impact remains. Also, of course, the logistics impact also remains. I think anywhere between 5% in raw material, we are seeing this overall impact of solvents and other cost escalation 5% to 7%.

Analyst asked for quantification of raw material cost impact on margins, and management provided specific figures for price increases in key raw materials and an overall cost escalation range.

Asked by Preet Jain

Foreign currency loss and its impact on EBITDA guidance Direct
Yes, so Rs.17 Crores is the total forex loss for the quarter and the Rs.13 Crores is on one of the contracts. So that is where the difference is. The Rs.17 Crores, as I mentioned earlier also, it comprises of my gain on the operations that is my receivable on exports less payable on the imports and then there is the loss on the contracts, the foreign currency contracts that we enter into and then there is a third portion, which is the increase on my foreign currency loans. So, that is basically, net effect of that is Rs.17 Crores. Got it. And when you look at say EBITDA or when you guide for EBITDA, you exclude this line item or you include that? Yes. Exclude.

Analyst sought clarity on the foreign currency loss and its treatment in EBITDA calculations, confirming that the guidance excludes this non-operating item.

Asked by Vikas Sharda

3 min read 8 chapters

Detailed narrative

Q4 FY26 Performance Overview

Aarti Pharmalabs reported a 9% year-on-year revenue increase in Q4 FY26, reaching ₹580 crores. However, EBITDA for the quarter saw a slight decline to ₹134 crores from ₹141 crores in the prior year. Profit after tax for Q4 FY26 was ₹62 crores, down from ₹89 crores. For the full financial year FY26, revenue stood at ₹1798 crores, with EBITDA at ₹406 crores and PAT at ₹176 crores, notably impacted by a ₹33 crore net foreign exchange loss.

Segmental Performance Highlights

The Xanthine derivative segment achieved its highest ever quarterly revenue, contributing 43% of the Q4 FY26 turnover, with sales of ₹227 crores. The API and intermediate business accounted for 28% of turnover, with FY26 revenue at ₹600 crores. The CDMO/CMO segment also recorded its highest ever quarterly revenue of ₹155 crores, representing 29% of Q4 turnover, and demonstrated a robust 32% year-on-year revenue growth for the full FY26, primarily from Phase 3 and commercial molecules.

Expansion Projects and Capacity Updates

The company invested approximately ₹400 crores in capital during FY26 and plans a similar spend for FY27. Atali Phase 1, with 440 kL reactor capacity, is largely past startup issues and is expected to be fully operational by the end of Q1 FY27. Xanthine derivatives expansion is progressing, with incremental capacity available by the end of Q1 FY27, aiming for a ramp-up to 9,000 metric tons per annum. Debottlenecking at Tarapur Unit-4 has increased steroid block capacity by one-third, with further brownfield expansions planned for anti-cancer and other blocks in FY27.

Financial Outlook and Growth Guidance

Aarti Pharmalabs is targeting 15% to 18% growth in both revenue and EBITDA over the next three to four years. For FY27, the CDMO/CMO business is expected to lead this growth with a projected sales increase of 40% to 50% per annum. The API segment is anticipated to surpass its FY25 revenue of ₹770 crores in FY27, recovering from a soft FY26. The company also has a projected line of sight of close to USD 100 million in the CDMO segment going forward.

Raw Material and Cost Pressures

The company faced significant environmental shocks, including logistics hurdles and rising energy costs, particularly due to geopolitical tensions in West Asia. Raw material prices for Xanthine, such as urea and methanol, have doubled, while other materials saw 30-40% increases. Overall, a 5-7% cost escalation was observed in raw materials and solvents. While cost increases have been partially passed on in the CDMO and Xanthine segments, it has been challenging for existing orders in the API/Intermediates segment due to their high-value nature.

Capital Allocation and Investments

The company's capex plan for FY27 is approximately ₹400 crores, allocated across Xanthine completion, Atali Phase 1 capitalization, Atali Phase 2 initiation, debottlenecking, normal replacement capex, and R&D. The total capex for Atali Phase 1 was around ₹450 crores, and Xanthine expansion also involved substantial investment. The company is also investing in R&D for newer technologies like peptides and oligonucleotides, which are expected to yield future potential. For dedicated blocks, a capex turn of 1.5x to 2x is anticipated, with capex intensity expected to decrease from FY28 onwards.

CDMO Strategy and Customer Engagement

Aarti Pharmalabs focuses on late-phase projects in its CDMO segment, with 35 projects currently in the commercial stage and 19 under development. The company is assessing a dedicated manufacturing block at Atali for long-term projects, which could generate ₹250-300 crores in topline from a single block. The company has seen increased inquiries, partly driven by customers seeking to diversify away from China, and is engaging with existing customers on new projects while also exploring early-phase work in new chemistries like peptides and oligonucleotides.

Foreign Exchange Impact

The company reported a net foreign exchange loss of ₹33 crores for the full financial year FY26. This loss primarily comprises gains on operational receivables (exports) less payables (imports), losses on foreign currency contracts, and an increase in foreign currency loans. Management clarified that this foreign exchange loss is a notional loss on foreign currency loans and is excluded when guiding for EBITDA.

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