Summary
Aarti Drugs Limited - Q3 FY26 Earnings Call Summary Tuesday, February 04, 2026 11:00 AM
Event Participants
Executives 4 Adhish Patil (COO & CFO), Harit Shah (Whole-Time Director), Harshit Savla (Joint Managing Director), Vishwa Savla (MD, Pinnacle Life Science)
Analysts 5 Aditya (Sowilo Investment), Dhwanil Desai (Turtle Capital), Resham Jain (VVD Asset Managers), Shashi Ranjan (Shashi Ranjan Hospitality), Vishal (Systematix)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue (Consolidated) | ₹602.9 crores | +8% YoY; Driven by strong formulation exports despite API pricing pressure. |
| EBITDA (Consolidated) | ₹56.3 crores | -10% YoY; Impacted by low utilization, Chinese supply delays, and plant refurbishment. |
| EBITDA Margin | 9.3% | -190 bps YoY; Dragged by ₹8.5 crore loss from new facilities and inventory liquidation. |
| PAT (Consolidated) | ₹40.5 crores | +58% YoY; Sharp increase due to favorable base effects and formulation mix. |
| Standalone API Revenue | ₹530.0 crores | 88% of total revenue; Volume growth of 7% offset by a 5% negative rate variance. |
| Formulations Revenue | ₹76.6 crores | +58% YoY; Strong traction in export markets which contribute 67% of segment sales. |
| Net Debt | ₹540.0 crores | Consists of ₹392 crores standalone; split 50:50 between long-term and short-term debt. |
Geographic & Segment Commentary
- Formulations: Significant growth driven by exports, which now account for 67% of segment revenue. The company secured EU-GMP approvals for its Baddi facility (General and Oncology blocks) and plans to commercialize its first oncology product in Q4 FY26.
- API Therapeutic Mix: Antibiotics remain the largest contributor at 35.1%, followed by Antiprotozoal (19.8%), Antidiabetic (16.6%), Anti-inflammatory (12.9%), and Antifungal (12.2%).
- Export Markets: Management highlighted exports as a key margin stabilizer, with plans to increase regulated market filings (US/Europe) for high-volume products like Metformin.
Company-Specific & Strategic Commentary
- Backward Integration: The Sayakha facility reached 30% utilization; management aims to fulfill 90-100% of captive requirements for antidiabetic intermediates within two quarters, potentially boosting gross margins by 200 bps.
- Salicylic Acid Strategy: Currently scaling at 300 tons/month with a target of 1,000 tons/month within 12 months. The company is evaluating downstream “Salicylate” products for cosmetics and fragrances to counter Chinese dumping.
- Oncology Expansion: Investing approximately ₹200 crores over three years (capex + R&D) in the oncology segment. The facility has an asset-turn potential of 1.5x to 1.75x at peak capacity.
- Operational Efficiency: Undertook a voluntary shutdown for refurbishment ahead of a European audit and is installing a new 25-ton cogen boiler to improve power/steam efficiency.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Volume Growth | 12% - 15% for FY27 | Driven by ramp-up of greenfield projects (Sayakha and Salicylic Acid). |
| EBITDA Margin | 12% - 15% (Target) | Immediate target of 12-13% with a steady-state goal of 14-15% as utilization peaks. |
| Utilization (Sayakha) | 50% by Q4 FY26; 75%+ by Q1 FY27 | Fast ramp-up expected due to high captive consumption requirements. |
| Capex | ₹150 - ₹200 crores annually | Allocated for oncology R&D, Metformin expansion, and solar power initiatives through FY28. |
Risks & Constraints
| Risk | Context |
|---|---|
| Chinese Dumping | Aggressive pricing in Salicylic Acid by Chinese players is suppressing local realizations; company plans to file for Anti-Dumping Duty (ADD) by Q1 FY27. |
| Supply Chain Volatility | Delays in shipments from China disrupted production schedules and increased cost pressures during Q3. |
| Regulatory Risks | Constant pressure to maintain global standards; one plant refurbishment was necessary to prepare for European audits. |
| Pricing Pressure | Antibiotics continue to face negative rate variances, although management believes overall API prices have finally bottomed out. |
Q&A Highlights
Salicylic Acid Economics
- Question: Why choose Salicylic acid given the Chinese dumping? (Vishal - Systematix)
- Answer: Initial studies showed 20% IRRs; Chinese players crashed prices only after ADL entered. ADL expects to become competitive via backward integration and downstream salicylate products for the cosmetic industry (Adhish Patil).
Formulation Strategy
- Question: Is the focus only on in-house APIs for formulations? (Vishal - Systematix)
- Answer: No, the company is targeting niche categories in oncology and cardio-diabetic ranges regardless of API source, holding IP and out-licensing to B2B partners (Vishwa Savla).
Financial Drag from New Projects
- Question: Can you quantify the impact of the new facility losses? (Resham Jain - VVD Asset Managers)
- Answer: Combined EBITDA drag from Sayakha and Salicylic plants was ~₹8.5 crores this quarter, with a PBT impact of ~₹15 crores. This is expected to reverse as utilization crosses 50% (Adhish Patil).
Metformin Integration
- Question: What are the plans for Metformin? (Resham Jain - VVD Asset Managers)
- Answer: Scaling existing capacity to 1,900 tons/month and preparing a US DMF filing to trigger an FDA audit for regulated market entry (Adhish Patil).
Key Takeaway
Aarti Drugs reported a resilient Q3 FY26 with 8% revenue growth, although EBITDA margins were compressed to 9.3% due to transient headwinds including low capacity utilization (30% at new sites), Chinese supply disruptions, and a voluntary plant shutdown. Despite a 5% negative rate variance in the API segment, the company realized a 7% volume growth and a robust 58% growth in formulations, particularly in exports. Strategically, the company is transitioning from a high-capex cycle to a ramp-up phase, with the Sayakha backward integration project expected to reach 75% utilization by Q1 FY27, potentially adding ₹50 crores to EBITDA at full scale. Management remains optimistic about a margin recovery to the 14-15% range in FY27, supported by a bottoming of API prices and the commercialization of the oncology pipeline. The primary watch point remains the efficacy of anti-dumping filings against Chinese Salicylic acid imports and the timely scale-up of the intermediate facility.
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