Summary
Aarti Pharmalabs - Q3 FY26 Earnings Call Summary Tuesday, February 10, 2026 4:00 PM
Event Participants
Executives 3 Hetal Gogri Gala (Vice Chairperson and MD), Piyush Lakhani (CFO), Rashesh Gogri (Chairman)
Analysts 8 Ahmed Madha, Ankit Gupta, Deep Gandhi, Madhav Marda, Mohammed Patel, Rahul Jain, Shubham Aggarwal, Shikha Mehta
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | ₹425 crores | -9.8% YoY; Impacted by ₹49 crores of goods in transit and API softness. |
| EBITDA | ₹103 crores | -10.4% YoY; Margins impacted by Atali plant opex and API pricing pressure. |
| Profit After Tax (PAT) | ₹44 crores | -40.5% YoY; Decline due to higher depreciation from Atali and lower other income. |
| CDMO Revenue | ₹51 crores | 12% of Q3 turnover; 59 active projects (40 commercial), growth target maintained. |
| Xanthine Revenue | ₹208.25 crores | 49% of Q3 turnover; 51% exports, volume split 63:37 between beverage/other. |
| API & Intermediates | ₹165.75 crores | 39% of Q3 turnover; ~₹15-20 crore YoY decline due to pricing pressure and partner demand. |
| Gross Debt | ₹650 crores | Managed within targeted net debt-to-equity range of 0.3x - 0.35x. |
Geographic & Segment Commentary
- Xanthine Derivatives: Currently operating at 500 MT/month (6,000 MTPA) following debottlenecking. Management expects a pricing tailwind of 8-10% due to China’s withdrawal of export rebates and duty-free status in the U.S. market.
- API and Intermediates: Segment faced a ~₹20 crore YoY revenue decline due to generic pricing erosion and slower intake from launch partners. Focus is shifting to oncology and diabetic (gliflozin) pipelines with patent expiries targeted for 2027-2028.
- CDMO/CMO: Revenue was suppressed by a ₹49 crore shipment in transit (DAP terms) that will be realized in Q4. The project pipeline is dynamic with 40 commercial projects; 80% of sales are anchored by 7-8 key projects.
Company-Specific & Strategic Commentary
- Atali Plant Operations: Phase 1 capitalization of ₹300 crores is complete, but ramp-up faced “starting hiccups” and validation delays. Corrective actions are underway to resolve operational issues by the end of Q4 FY26.
- Capacity Expansion: Xanthine expansion to 800 MT/month (9,600 MTPA total) is on track for mechanical completion in March 2026. Management targets 50-60% utilization of the incremental capacity in its first year.
- Market Positioning: Company aims to become a top-3 global player in Xanthines. Strategic focus includes debottlenecking steroid and oncology lines to drive ₹200 crore quarterly API revenue milestones.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| FY26 EBITDA | Flat to Marginal Growth | Revised downward due to Atali delays and API softness; requires a very strong Q4 performance. |
| CDMO Revenue | ~30-40% Growth | High confidence based on Q4 project deliveries and realization of ₹49 crore transit stock. |
| Xanthine Utilization | 85-90% by FY28 | Staggered ramp-up following the launch of the new 300 MT/month capacity in Q1 FY27. |
| API Revenue | ₹200 Cr+ Quarterly | Expected to return to this run rate across the next few quarters as new launches stabilize. |
Risks & Constraints
| Risk | Context |
|---|---|
| Operational Execution | Delays at the new Atali site have already impacted FY26 EBITDA guidance; further hiccups could delay CDMO validation. |
| Pricing Pressure | Generic API prices continue to trend downward; volume growth and debottlenecking are required to offset realization dips. |
| Concentration Risk | 80% of CDMO revenue is dependent on 7-8 projects; success is contingent on innovators’ market penetration. |
Q&A Highlights
Deferred Revenue
- Question: What is the impact of the ₹49 crore transit stock on the financials? (Rahul Jain)
- Answer: If booked in Q3, PBT would have been ₹19 crores higher. This will be realized in Q4 FY26 at a cost of ₹30 crores (Piyush Lakhani).
Xanthine Market Dynamics
- Question: How does the Chinese rebate withdrawal affect pricing? (Madhav Marda)
- Answer: China’s 13% rebate withdrawal is expected to push global prices up by 8-10%. India’s duty-free status in the U.S. provides a further competitive edge over Chinese products (Rashesh Gogri).
Atali Delay
- Question: What were the specific challenges at Atali? (Ahmed Madha)
- Answer: Issues related to larger batch sizes, new equipment, and staff training delayed validation. These are expected to be resolved by the end of the current quarter (Hetal Gogri Gala).
CDMO Pipeline
- Question: Are we adding new large-scale projects? (Deep Gandhi)
- Answer: We have single POs in the “millions of dollars” range. Wallet share on certain key projects is as high as 60-70% for intermediates (Rashesh Gogri).
Key Takeaway
Aarti Pharmalabs reported a soft Q3 FY26, with revenue declining 9.8% YoY to ₹425 crores, primarily due to ₹49 crores of CDMO shipments being stuck in transit and continued pricing pressure in the generic API segment. Despite these headwinds, the company maintained its CDMO growth trajectory, with commercial projects increasing to 40 and a strong Q4 expected as transit stock is realized. The Xanthine segment is poised for a significant capacity jump to 9,600 MTPA by Q1 FY27, coinciding with favorable global pricing shifts as China removes export rebates. While FY26 EBITDA guidance was tempered to “flat to marginal growth” due to Atali plant stabilization delays, management remains focused on high-margin CDMO projects and oncology/diabetic API launches. The transition toward a ₹1,000 crore CDMO business remains the primary long-term value driver, contingent on successful Phase 2 expansion at Atali.
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