1. At a Glance
In a sector where one FDA alert can decimate sentiment, Aarti Drugs has walked a tightrope of regulatory drama, solar diversification, and flat sales. Now, with FY26 underway and import alerts lifted, can this pharma veteran deliver growth beyond its existing API catalog?
2. Introduction with Hook
Imagine being the student who aced every exam for 10 years… and then suddenly stopped topping the class. That’s Aarti Drugs. Once a momentum darling of API bulls, it’s now trading at a 3.5x book value with no firecracker revenue growth to back it.
- Q1 FY26 Net Profit: ₹54 Cr (+63% YoY, but off a low base)
- FY25 Revenue: ₹2,387 Cr (down from ₹2,529 Cr in FY24)
- Stock Performance: Just 2% CAGR over 1 year despite business recovery signs
3. Business Model (WTF Do They Even Do?)
Aarti Drugs is no rookie. Founded in 1984 and part of the $1B Aarti Group, it’s one of India’s oldest API manufacturers. Here’s the playbook:
- Core Segments:
- Active Pharmaceutical Ingredients (APIs)
- Pharma Intermediates
- Formulations
- Specialty Chemicals
- Global Footprint:
- Exports to 100+ countries
- Leading global producer of:
- Fluoroquinolones
- Tinidazole, Metronidazole Benzoate
- Nimesulide, Ketoconazole
- Among top Metformin producers worldwide
- Emerging bets:
- Renewable Energy: 24.4 MW solar power project
- Stake in Pinnacle Life Science (₹25 Cr investment)
4. Financials Overview
Let’s tear into the 3-year P&L and see if there’s any juice left in this capsule:
| Metric | FY23 | FY24 | FY25 | TTM |
|---|---|---|---|---|
| Revenue (₹ Cr) | 2,716 | 2,529 | 2,387 | 2,422 |
| EBITDA (₹ Cr) | 309 | 321 | 287 | 296 |
| Net Profit (₹ Cr) | 166 | 172 | 168 | 189 |
| EPS (₹) | 17.96 | 18.65 | 18.29 | 20.54 |
| OPM % | 11% | 13% | 12% | 12% |
Red flag: Revenue is declining.
Green pill: Margins have stabilized despite volatility.
5. Valuation
Is the current price of ₹523 a placebo or the real dose?
- P/E: 25.5x
- Book Value: ₹149 → P/B: 3.51x
- EV/EBITDA (Approx): ~15x
- Fair Value Range (EduInvesting Blend Method):
- DCF Estimate: ₹460–₹510
- Peer Median Multiple: ₹490–₹550
- Realistic FV Range: ₹475–₹540
Verdict? It’s not cheap, but not absurd either.
6. What’s Cooking – News, Triggers, Drama
Let’s spill the pills:
- FDA Relief: Import alert lifted on key manufacturing site
- Tax Drama: ₹230.7 Cr IGST demand being challenged in court
- Buyback: Sept 2024 – bought back 6.65 lakh shares
- Solar Play: Invested in 24.4 MW renewable energy project
- Promoter Holding Slide: Down from 59.8% to 55.2% in 3 years
- Dividend Drought: 5.45% payout ratio over 3 years
7. Balance Sheet
| Particulars (₹ Cr) | FY23 | FY24 | FY25 |
|---|---|---|---|
| Equity | 93 | 92 | 91 |
| Reserves | 1,100 | 1,190 | 1,278 |
| Borrowings | 609 | 564 | 615 |
| Other Liabilities | 620 | 587 | 591 |
| Total Liabilities | 2,421 | 2,432 | 2,575 |
| Net Worth | 1,193 | 1,282 | 1,369 |
- Leverage is manageable
- Net Debt/Equity ~0.45
- CWIP rising to ₹330 Cr: capacity expansion or cash sink?
8. Cash Flow – Sab Number Game Hai
| Cash Flow (₹ Cr) | FY23 | FY24 | FY25 |
|---|---|---|---|
| CFO | 133 | 359 | 245 |
| CFI (Capex-heavy) | -164 | -224 | -165 |
| CFF | 17 | -136 | -82 |
| Net Flow | -14 | -1 | -2 |
- Strong CFO recovery
- Still negative FCF due to continuous capex
- Not hoarding cash = no fat on the balance sheet
9. Ratios – Sexy or Stressy?
| Ratio | FY23 | FY24 | FY25 |
|---|---|---|---|
| ROCE % | 15% | 15% | 13% |
| ROE % | 13% | 13% | 13% |
| OPM % | 11% | 13% | 12% |
| Inventory Days | 101 | 107 | 112 |
| Debtor Days | 116 | 102 | 115 |
| Cash Conversion Cycle | 123 | 115 | 128 |
Margins flat, returns declining, working capital ballooning = bittersweet.
10. P&L Breakdown – Show Me the Money
| P&L Snapshot (₹ Cr) | Q1 FY25 | Q2 FY25 | Q3 FY25 | Q4 FY25 | Q1 FY26 |
|---|---|---|---|---|---|
| Revenue | 555 | 598 | 557 | 677 | 591 |
| EBITDA | 65 | 67 | 62 | 93 | 74 |
| Net Profit | 33 | 35 | 37 | 63 | 54 |
| EPS (₹) | 3.62 | 3.81 | 4.03 | 6.84 | 5.86 |
Q1 FY26 started off better, but seasonality and capacity ramp-up will decide the next 3 quarters.
11. Peer Comparison
| Company | CMP ₹ | P/E | ROCE % | OPM % | Rev (₹ Cr) | PAT (₹ Cr) |
|---|---|---|---|---|---|---|
| Sun Pharma | 1,694 | 35.5 | 20.2 | 28.8 | 52,578 | 11,454 |
| Cipla | 1,482 | 23.3 | 22.7 | 25.9 | 27,548 | 5,142 |
| Zydus Life | 975 | 21.0 | 24.4 | 30.4 | 23,241 | 4,666 |
| Aarti Drugs | 523 | 25.5 | 12.9 | 12.2 | 2,422 | 189 |
Conclusion: Niche player in APIs, but margin profile and return ratios trail leaders by a wide margin.
12. Miscellaneous – Shareholding, Promoters
| Shareholding | Sep 22 | Sep 23 | Jun 25 |
|---|---|---|---|
| Promoters | 59.77% | 58.57% | 55.22% |
| FIIs | 1.94% | 2.33% | 2.26% |
| DIIs | 3.16% | 5.32% | 9.94% |
| Public | 35.11% | 33.78% | 32.58% |
Promoter selling is not massive, but not negligible either.
Mutual funds (DIIs) seem to be averaging in.
13. EduInvesting Verdict™
Aarti Drugs is no longer the breakout stock it once was. With muted revenue growth, only modest profitability improvements, and a high valuation relative to its peer group, it’s a solid—but not screaming—API story. It may suit long-term pharma believers, but don’t expect a parabolic move unless exports spike or a blockbuster molecule enters the chat.
Stay cautious, stay curious. And as always… check for FDA alerts before you pop the pill.
Metadata
– Written by EduInvesting Research | 20 July 2025
– Tags: Pharma, Aarti Drugs, API, Q1FY26, Healthcare Manufacturing, India Pharma, FDA
