/** blogpostTitle: Aarti Drugs Q1 FY27: Pricing recovery lifts EBITDA, while new capacities ramp up */

Aarti Drugs Q1 FY27: Pricing recovery lifts EBITDA, while new capacities ramp up

Aarti Drugs Limited began FY27 with a sharp improvement in operating performance, helped by a better pricing environment in parts of the API basket and steady execution across plants. In Q1 FY27, consolidated total revenue rose to Rs 703.6 crore from Rs 590.8 crore in Q1 FY26, a 19% year-on-year increase. EBITDA grew faster than revenue, up 30% year-on-year to Rs 96.9 crore, and the EBITDA margin expanded by 120 basis points to 13.8%.

Profit before tax also strengthened. PBT increased 35% year-on-year to Rs 69.2 crore and PBT margin expanded to 9.9%. Reported PAT, however, declined 7% year-on-year to Rs 50.1 crore. Management clarified that Q1 FY26 PAT included a principal tax refund of Rs 15 crore, which distorts the year-on-year comparison.

The quarter’s narrative was shaped by two overlapping themes. First, a recovery in realizations across multiple APIs amid a volatile global environment. Second, the company’s effort to translate recently completed capex into higher utilization and better operating leverage, particularly at Sayakha and in the formulations business.

Q1 FY27 performance snapshot and segment mix

Aarti Drugs reported improved gross margin, supported by better realizations and product mix. Gross margin in Q1 FY27 stood at 39.3% versus 36.8% in Q1 FY26, a 250 basis point improvement. The company also noted that Q1 FY27 EBITDA and PBT included an additional expense of about Rs 2 crore related to CWIP write-off.

The consolidated segmental revenue mix for Q1 FY27 was led by APIs at 72.5%, followed by formulations at 12.3%, specialty chemicals at 11.7%, and intermediates and others at 3.5%.

In the investor presentation, the company also disclosed a therapeutic split within the API segment for Q1 FY27. Anti-protozoal products contributed 18.5% of API revenue, anti-inflammatory 18.2%, anti-biotic 11.9%, anti-diabetic 10.2%, anti-fungal 6.1%, and others 35.0%. The company noted this split includes sales to Pinnacle Life Science.

Pricing recovery meets operational resilience

In the earnings call, management described a quarter influenced by geopolitical developments, including disruptions that affected international trade and logistics. Elevated freight costs and longer procurement cycles persisted, but the company also saw a favorable pricing environment across several APIs as availability tightened and customers prioritized supply reliability.

Management said API prices witnessed an upward movement across the industry and this translated into materially better realizations for Aarti Drugs during the quarter. They emphasized that despite the uncertain environment, production across facilities remained stable with no disruptions, material shortages, or supply-related interruptions.

One example discussed in detail was metformin. Management indicated that metformin pricing was up about 15% to 20% compared to before the war, although prices were somewhat lower than the peak levels seen in March and April.

At the same time, management maintained a cautious tone on sustainability. They said the current scenario remains volatile and that pricing could soften as conditions normalize. They also noted that sharp increases in prices can temporarily suppress domestic demand as customers reduce inventory builds. In Q1 FY27, the company said aggregate volume growth at the overall company level was about 3.5%, while aggregate pricing growth was about 16% to 17% on a year-on-year basis.

Turning capex into growth: Sayakha, formulations, and the Tarapur challenge

Over the last two years, Aarti Drugs has commissioned and ramped new capacities. The company highlighted that two greenfield facilities have been operationalized: Sayakha for methylamines and Tarapur for salicylic acid.

Sayakha ramp-up and backward integration

Sayakha is positioned as a strategic backward integration asset. The facility manufactures di-, mono-, and tri-methylamines and derivatives, which are key inputs for APIs such as metformin. Management said Sayakha operated at nearly 65% utilization during Q1 FY27. They also explained that a meaningful portion of Sayakha’s benefit will show up through captive consumption rather than external revenue.

In response to an investor question, management said captive consumption via Sayakha should progressively increase, with a target of reaching 80% to 90% internal sourcing over time, while maintaining around 10% external sourcing for diversification. They also indicated that at peak utilization levels, backward integration could add roughly 1% to gross contribution.

Formulations expansion: doubling oral solid dosage capacity

The second pillar is the formulations business, operated via the wholly owned subsidiary Pinnacle Life Science. Management highlighted ongoing brownfield expansion at the Baddi facility in an adjacent plot. Once completed, it is expected to nearly double oral solid dosage manufacturing capacity.

In the call, management also provided segment-level context for formulations in Q1 FY27: formulations revenue was Rs 81.6 crore versus Rs 75.8 crore in Q1 FY26, up 8% year-on-year, with exports contributing around 74% of formulations revenue.

Tarapur salicylic acid and a pivot to derivatives

Tarapur’s salicylic acid plant is the more challenging part of the capex story so far. Management said the facility’s improvement is still awaited, and production of salicylic acid was intentionally kept low in Q1 FY27. They reported only 67 tons of salicylic acid produced in the entire quarter while waiting for new equipment. The equipment has now been installed, aimed at reducing raw material cost and improving effluent quality.

To improve economics, management said the company commissioned a multipurpose plant for salicylic acid derivatives, including methyl salicylate, with capacity of roughly 350 to 400 tons per month. Trial batches have started and the company plans to ramp this up.

Management attributed the stress in salicylic acid pricing to aggressive price cuts by Chinese players. They said anti-dumping duty timelines have been delayed and they may need to wait about one more year.

What management is watching from here

Management maintained that EBITDA margin levels around 14% are achievable and said the company was close to that even after accounting for Q1’s CWIP write-off. They also linked further margin improvement to two operational levers: higher utilization at the new greenfield facilities and stabilization of the Tarapur salicylic acid economics.

On growth, management said the company is positioned for 10% to 15% volume growth over the next two years, supported by available capacities at Sayakha and Tarapur. They also noted that the main execution dependency for unlocking this growth is how quickly the salicylic acid plant and derivatives ramp-up can be streamlined.

In regulated markets, management stressed the importance of USFDA and UK approvals as growth drivers. They also discussed plans to expand metformin capacity and to set up an additional 500+ tons per month USFDA block at the existing Sarigam location. Management said this capacity addition would take roughly 10 to 12 months to be built, after which they plan to file for USFDA inspection with customer support.

Takeaways

Q1 FY27 signaled that the worst of price erosion may be easing, at least temporarily, as realizations improved and Aarti Drugs delivered a step-up in EBITDA. The company’s execution focus is now on converting its recent capex into sustained volume-led growth and more stable margins.

Sayakha’s ramp-up is already visible and is expected to strengthen backward integration. The formulations expansion in Baddi is intended to add headroom in oral solid dosages. Tarapur’s salicylic acid project remains the key swing factor, with management working to improve plant economics through cost actions and a shift to derivatives, while the industry awaits anti-dumping duty outcomes.

blogpostCoverImageDescription: Ultra-realistic corporate finance cover image showing a clean desk with a laptop displaying three simple, unlabeled charts: a quarterly revenue bar chart rising from roughly 591 to 704, an EBITDA bar chart rising from roughly 74 to 97, and a margin line edging up from about 12.6% to 13.8%. In the background, a subtle industrial chemical plant silhouette suggests API and specialty chemicals manufacturing. Neutral office lighting, professional financial aesthetic, no logos or text.