/** Title: Aarti Pharmalabs Q4 FY26: CDMO spikes, Xanthine ramps, and FY27 turns into a capacity sweating year */

Aarti Pharmalabs Q4 FY26: CDMO spikes, Xanthine ramps, and FY27 becomes a ramp-up year

Aarti Pharmalabs closed Q4 FY26 with a sharp sequential jump in revenue but a year-on-year decline in profitability, as the company absorbed operating costs from newly commissioned assets while navigating input and logistics inflation.

On a standalone basis, Q4 FY26 operational revenue rose to INR 579.7 crore, up 36.3% quarter-on-quarter and 9.5% year-on-year. EBITDA stood at INR 134.1 crore with a margin of 23.13%, lower than the 31.21% margin in Q4 FY25. PAT came in at INR 62.0 crore versus INR 88.8 crore in Q4 FY25.

For the full year FY26 (standalone), revenue was broadly flat at INR 1,797.6 crore versus INR 1,771.4 crore in FY25. EBITDA slipped to INR 406.1 crore and margin moderated to 22.59% from 24.08%. PAT declined materially to INR 176.2 crore from INR 257.3 crore.

Management repeatedly framed FY26 as a period of heavy investment and transition. The company spent around INR 400 crore of capex in FY26 and indicated a similar level for FY27. The key question for investors is no longer whether capacity exists, but how quickly that capacity converts into steady, higher-margin volumes across CDMO and Xanthine.

Segment mix: Xanthine grows, CDMO scales, API and intermediates face pressure

Aarti Pharmalabs runs three operating segments: Xanthine derivatives and allied products, API and intermediates, and CDMO and CMO.

The mix is shifting. In FY26 (standalone), Xanthine formed 47.5% of revenue, API and intermediates 36.0%, and CDMO and CMO 16.5%. A year earlier, CDMO’s share was 12.9% and Xanthine was 43.5%, showing a gradual move toward the higher-growth segments.

In Q4 FY26, the CDMO and CMO segment contributed 29.1% of revenue, supported by large deliveries. Management said the segment recorded its highest-ever quarterly revenue of INR 155 crore. This is important because CDMO volumes can be lumpy, driven by customer timelines, regulatory approvals, and delivery schedules.

The investor presentation highlighted that Aarti ended FY26 with 21 CDMO customers and 54 active projects. Of these, 35 projects were in the commercial stage and 19 were under development. Management also said nearly all CDMO revenue in FY26 came from Phase 3 and commercial molecules, reinforcing a late-stage focus.

In Xanthine, management said capacity was running at 6,000 tonnes per annum and was fully utilized. The company expects incremental capacity from its expansion to become available by the end of the current quarter, with a gradual ramp-up toward 9,000 tonnes per annum over the next few quarters.

API and intermediates remained the most challenged part of the portfolio in FY26. Management attributed the pressure to competitive dynamics and inflation in input and logistics costs, especially due to geopolitical tensions in West Asia. It said pass-through is difficult in API and intermediates because competitive pricing limits flexibility.

Financial summary (Standalone)

Note: Figures are from the standalone income statement tables in the investor presentation.

Capex and commissioning: Atali and Xanthine are the two big levers

Two projects dominated the discussion.

First is the Atali greenfield project in Gujarat. The investor presentation outlined an estimated investment of INR 400 crore for Phase 1 with around 450 KL reactor capacity on an 80-acre land parcel. The stated product focus is intermediates and CDMO and CMO.

Management said Atali had startup issues during the ramp-up of Phase 1, but these challenges are largely past. It added that corrective actions are in place, customer audits have been cleared, and Phase 1 is expected to become completely operational by the end of the current quarter (context: around June 2026).

Second is the Tarapur Xanthine expansion. The investor presentation guided to a brownfield investment of INR 210 crore to expand capacity to 9,000 MTPA, with commissioning expected by June 2026. Management reiterated the near-term plan: incremental capacity becomes available by end of the current quarter, followed by a phased ramp-up to 9,000 MTPA over the next few quarters.

What links these projects is operating leverage. The company is carrying the cost base of expanded assets while production ramps up. Both management and the CFO indicated that the newly operationalized facilities will take time to reach efficient utilization.

Management also discussed the possibility of a dedicated CDMO block at Atali for a specific project. It said dedicated assets offer operational efficiency and require lower capex, and mentioned a potential 12-month completion timeline from construction commencement.

Management guidance: a multi-year target, with CDMO leading FY27 growth

Management provided a clear multi-year ambition: 15% to 18% revenue and EBITDA CAGR over the next 3 to 4 years on a standalone basis.

For FY27, it expects CDMO and CMO to lead growth, with projected sales growth of 40% to 50% per annum. However, management avoided giving a pointed year-by-year EBITDA guidance, citing the lumpy nature of CDMO approvals and shipment schedules.

On the cost side, management said inflationary pressures from geopolitical disruptions have impacted profitability and supply chain operations, particularly in intermediates. It added that while CDMO and Xanthine have been reasonably able to pass on cost increases, API and intermediates face resistance on existing orders.

The company also indicated it is initiating R&D investment in TIDES (peptides and oligonucleotides) in FY27. Management explicitly said these investments will not yield immediate results but have long-term potential.

Takeaways

Aarti Pharmalabs enters FY27 with two near-term operational priorities.

One, convert expanded assets into consistent volumes. Atali’s Phase 1 needs to transition from post-startup stabilization to predictable commercial execution. Xanthine needs to ramp from a fully utilized 6,000 MTPA base toward 9,000 MTPA without losing pricing discipline.

Two, manage margin volatility while the cost base normalizes. The FY26 result shows how quickly profitability can compress when volumes lag fixed costs and pass-through is limited. Management’s long-term 15% to 18% revenue and EBITDA CAGR target depends on both ramp-up timing and the ability to protect margins amid input inflation.

The positive is that the company has disclosed a measurable operating framework: clear segment mix, defined capex projects, commissioning timelines, and a visible CDMO project pipeline. FY27 is positioned as the year where the capex cycle starts showing up more clearly in the revenue line, with CDMO leading the growth engine and Xanthine adding volume-driven scale.