Aarti Pharmalabs Limited

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.

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.

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.

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^⏳.

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.

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.

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.

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.