Aarti Drugs faces revenue decline amid API Market challenges in Q3 FY25
Aarti Drugs Limited, a Mumbai-based pharmaceutical company engaged in Active Pharmaceutical Ingredients (API), formulations, specialty chemicals, and intermediates, has reported a decline in revenue for the third quarter (Q3) and nine months (9M) of the fiscal year 2025. The company, listed on both the National Stock Exchange of India (NSE: AARTIDRUGS) and the Bombay Stock Exchange (BSE: 524348), attributed the downturn to weaker API segment performance, fluctuating raw material costs, and subdued demand in key markets.
For Q3 FY25, Aarti Drugs’ revenue fell by 6% year-on-year (YoY) to ₹568.5 crore, compared to ₹607.6 crore in the same quarter of the previous fiscal year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) saw a 13% decline YoY, falling from ₹71.8 crore to ₹62.3 crore, with EBITDA margins contracting from 11.8% to 11.2%.
Despite these challenges, the company’s profit after tax (PAT) registered a modest 1% increase YoY, rising to ₹37.1 crore from ₹36.7 crore. The PAT margin improved to 6.5% from 6.0%, reflecting operational efficiency efforts despite lower overall revenue.
For the nine-month period ending 31 December 2024, Aarti Drugs’ revenue dropped 10% YoY to ₹1,724.8 crore, with EBITDA slipping 16% to ₹196.9 crore. Net profit for the period declined 15% YoY, reaching ₹105.3 crore.
How Did the API Segment Impact Aarti Drugs’ Performance?
The API segment performance, which remains Aarti Drugs’ primary revenue driver, saw a 5.2% YoY decline in Q3 FY25, with revenue falling to ₹460 crore from ₹485.1 crore. The downward trend extended across the nine-month period, with API revenue falling 8.7% YoY to ₹1,385.3 crore.
Market experts attribute this decline to pricing pressure, heightened competition, and evolving regulatory requirements in global markets. Aarti Drugs’ API portfolio includes antibiotics, anti-diabetic, anti-protozoal, anti-inflammatory, and antifungal drugs, all of which faced fluctuations in demand due to shifting market dynamics.
In contrast, the specialty chemicals division exhibited resilience, posting a 7.6% YoY revenue growth in Q3, increasing from ₹31.4 crore to ₹33.8 crore. However, over the nine-month period, specialty chemicals revenue witnessed a slight dip of 2.6% YoY, reflecting volatile market conditions.
Meanwhile, the formulation segment encountered substantial headwinds, with revenue plummeting 39.4% YoY in Q3 FY25 to ₹48 crore from ₹79.3 crore. The nine-month figures painted a similar picture, with formulations revenue declining 28.4% YoY to ₹184.1 crore, largely due to reduced demand in both domestic and export markets.
What Strategic Initiatives Is Aarti Drugs Implementing for Long-Term Growth?
Aarti Drugs is taking a multi-pronged approach to counter market challenges and drive long-term growth. One key initiative involves renewable energy investments, with the company acquiring a 26.25% stake in Pro-Zeal Green Power Six Private Limited. This move aligns with Aarti Drugs’ commitment to sustainable energy, as the solar power generated will support its manufacturing units in Gujarat, optimizing energy costs and reducing dependency on conventional power sources.
Furthermore, the company is expanding its manufacturing capacity to meet future demand. The greenfield facility in Sayakha, Gujarat, is set to begin trial production this quarter, with an expected ramp-up in operations over the next few months. The Tarapur greenfield project, which faced initial setbacks, is now overcoming operational challenges, with production expected to reach 500+ tonnes per month by March 2025 and a long-term capacity target of 1,600 tonnes per month by FY26.
Aarti Drugs is also investing significantly in capital expenditure (Capex), having already allocated ₹136 crore in 9M FY25 for capacity expansion, backward integration, and new product development. The company anticipates total Capex spending of ₹200 crore for FY25, primarily funded through internal accruals and select term loans.
What Are the Latest Regulatory Developments for Aarti Drugs?
In a positive regulatory update, Aarti Drugs received an Establishment Inspection Report (EIR) from the US Food and Drug Administration (USFDA) for its API manufacturing facility in Tarapur, Maharashtra. The facility received a “Voluntary Action Indicated” (VAI) classification, which signals that no significant regulatory issues were found and that the plant is in compliance with current Good Manufacturing Practices (cGMP).
This clearance enables Aarti Drugs to continue exporting Ciprofloxacin HCl API, Zolpidem Tartrate API, Raloxifene HCl API, Celecoxib API, and Niacin API to the US market, reinforcing its global pharmaceutical footprint.
What Is the Company’s Growth Outlook for FY26?
Despite the current revenue downturn, Aarti Drugs maintains a positive long-term outlook, aiming for double-digit revenue growth in FY26, supported by strategic expansions and operational efficiencies. The company anticipates EBITDA margins to recover to 13-14%, driven by higher capacity utilization, cost optimization, and a gradual recovery in API pricing.
Commenting on the financial results, Adhish Patil, CFO & COO of Aarti Drugs, acknowledged the challenges posed by API pricing pressures but expressed confidence in the company’s resilience and strategic direction. He emphasized that while global competition and raw material cost volatility remain concerns, Aarti Drugs is committed to enhancing its market position and driving sustainable profitability.
As Aarti Drugs navigates fluctuations in API demand, regulatory compliance, and energy costs, the company is leveraging capacity expansion, green energy initiatives, and strategic investments to stabilize operations and drive future growth. While near-term pricing challenges persist, the company’s long-term vision remains focused on revenue expansion, market leadership, and operational efficiency in the highly competitive pharmaceutical industry.
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