Aarti Drugs Navigates Market Headwinds with Strategic Backward Integration and Export Growth

Aarti Drugs Limited, a prominent player in the Indian pharmaceutical sector, has delivered a resilient performance in the second quarter and first half of fiscal year 2026, demonstrating strategic clarity amidst a challenging market environment. The company reported a consolidated revenue of Rs. 652.9 crores for Q2 FY26, marking a 9% year-on-year growth. This growth was primarily fueled by robust export volumes, which successfully offset the softness observed in domestic demand, particularly within the antibiotics category. Profitability saw a significant uplift, with EBITDA climbing 23% to Rs. 84.4 crores, and the EBITDA margin expanding by 150 basis points to 12.9%. The Profit After Tax (PAT) witnessed an impressive 29% surge, reaching Rs. 45.2 crores, with the PAT margin improving by 110 basis points to 6.9%.

For the first half of FY26, Aarti Drugs posted a consolidated revenue of Rs. 1,243.7 crores, an 8% increase year-on-year. H1 EBITDA stood at Rs. 158.8 crores, up 18%, with a margin of 12.8%. The PAT for H1 FY26 was Rs. 99.1 crores, a substantial 45% increase, translating to an 8.0% PAT margin. These figures underscore the company's disciplined execution and the initial benefits derived from its strategic initiatives, including backward integration and capacity expansion. The API segment continues to be the primary revenue driver, contributing 79% to the total revenue in Q2 FY26, followed by formulations at 12.6%. Within the API segment, anti-biotic and anti-protozoal therapeutic categories were the largest contributors.

Strategic Initiatives Driving Future Growth

Aarti Drugs is actively pursuing several strategic initiatives designed to enhance its competitive position and drive sustainable growth. A significant milestone in this journey is the commissioning of the Sayakha amines facility in Gujarat on September 4, 2025. This plant manufactures Dimethylamine, Monomethylamine, Trimethylamine, and their derivatives, which are critical intermediates for anti-diabetic products like Metformin. The company expects this facility to achieve 100% captive consumption for its anti-diabetic series by the end of FY26, thereby bolstering raw material security and improving cost efficiency. This backward integration is anticipated to contribute meaningfully to margin expansion in the medium term.

Another key focus area is the stabilization and ramp-up of salicylic acid operations at the Tarapur facility. The company is targeting a production of 500 tons per month by Q4 FY26 and expects the plant to become EBITDA positive once production crosses 800 tons per month. This project aims to reduce India's import dependence for salicylic acid and will also supply an upcoming 400 tons per month salicylic line, enabling further downstream integration and margin stability. Management noted that the quality parameters for salicylic acid have been met, and the product is now widely accepted in the market.

Expanding Global Footprint and Financial Discipline

Aarti Drugs is also strategically expanding its presence in regulated markets. The company is in the process of obtaining EU certifications for several key products and is targeting the US market for Metformin post-FY26. These initiatives are expected to enable the export of higher-value APIs and formulations, contributing an additional Rs. 60-70 crores to the top line from new product commercializations in the US, Europe, and other regulated markets within the next 6-9 months. The company's commitment to sustainability is evident through its upcoming solar project, a joint venture with Prozeal Green Power, aimed at reducing power costs and carbon footprint.

Financially, Aarti Drugs has demonstrated strong discipline. The company reduced its total debt by Rs. 41 crores in H1 FY26, bringing the total debt to Rs. 571 crores and achieving a record low debt-to-equity ratio of 0.39. This prudent financial management, combined with strong operating cash flows, provides the company with significant flexibility for future growth. Management reiterated its commitment to rewarding shareholders, aiming to distribute 25-30% of PAT annually through dividends and buybacks, while maintaining a healthy debt-to-equity ratio between 0.4 and 0.7.

Outlook and Investor Confidence

Looking ahead, Aarti Drugs anticipates high single-digit value growth for H2 FY26 and aims for 15-20% growth in FY27, driven by new capacities and product launches. The company expects consolidated EBITDA margins to reach 15% by the end of H2 FY27, supported by operational efficiencies and a favorable export mix. Despite an isolated HCL gas leakage incident at its Tarapur T-150 unit, which led to a voluntary closure direction, management confirmed no material financial or operational impact due to adequate inventory and alternate sourcing. The company's steady progress in environmental management, governance standards, and social responsibility was recognized with a CRISIL ESG52 rating, further reinforcing investor confidence.

Conclusion

Aarti Drugs Limited's Q2 and H1 FY26 performance reflects a company effectively navigating market challenges through strategic foresight and operational excellence. With significant investments in backward integration, expansion into regulated markets, and a strong focus on sustainability, Aarti Drugs is well-positioned for sustained growth and enhanced profitability in the coming years. The management's clear communication and disciplined approach to capital allocation further strengthen its long-term investment appeal.