Aarti Pharma Labs

Hi @vineetgala, could you please share links to any report for this?

SPC DRHP says caffeine market size is only ~30k tonnes (~300-500Mn). I think 30k is lower than actual. Total capacities in China are ~30k, there are some capacities in Germany as well. Plus, Aarti has 4k tonnes. Everything combined, it seems closer to 50-70k tonnes, 120k looks too high.

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Sorry just saw your query!

Got that number from Market Research reports. Just checked, 120k mt is for anhydrous caffeine which includes both synthetic and natural. So only Synthetic caffeine should be lower!

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While they don’t seem to have done a concall yet, it seems like they have generally enjoyed a strong pricing environment for some of their products. It could be because of China’s Covid situation etc. In which case we should probably not extrapolate the FY23 margins - and also the topline will face headwinds if the prices come down.

Not sure how reliable an indicator this is, but here is the export data which is there in Screener.

This is just Xanthine derivatives, there are other movings parts to the business of course, and capacity expansion etc.


92dd9da5-2e7d-4944-8a25-7bdb948e40cb.pdf (3.0 MB)

Investor Presentation Finally :sweat_smile:


The guidance given in the presentation of 10-15% EBITDA growth in FY24 and 12% odd in FY25 is not bad considering that FY23 seems like a high base. This should take them to approx 230cr of PAT by FY25 for a market cap around 3400cr currently - roughly 15x

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I think, Given the Way the Group has been Questioned on, they would as of now want to under guide and Over deliver. I am here trying to understand the Potential pricing erosion, and How much of last year was a One off given the Industry was not soo strongly poised. (If anyone has any inputs would be glad to hear about the same).
However downside here looks protected with a decent chance of upside on any small surprises.


Aarti Pharmalabs Q1 concall highlights -

Sales - 458 vs 457 cr
EBITDA - 85 vs 86 cr ( margins flat at 19 pc )
PAT - 47 vs 52 cr (due higher depreciation and tax rate)

Manufacturing footprint -
Dombivali - Unit-1, APIs and Intermediates

Vapi - Unit-2, Api, intermediates, custom synthesis

Tarapur -
Unit 3- Xanthine derivatives
Unit 4- APIs
Unit-5 - Xanthine unit

Atali - New unit under construction

Vapi- R&D center

Sales breakup-
Xanthine -56 pc
API + Intermediates - 37 pc
CMO/CDMO - 7 pc

Total commercialised APIs - 50
Total APIs under development - 10
US DMF approvals - 40
CEP approvals - 20 - for sale to EU

Company is backward integrated with intermediates for most APIs

53 pc of exports to regulated mkts of US,Europe and Japan

Domestic:Export sales - 46:54

By end of FY 24, company to make one of the main RM used to make Xanthine in-house, currently imported from China

Expanded Xanthine capacity to 5kTons/ yr from 4kTons/yr in Q1

Greenfield project at Atali expected to go live in H2 FY 25

Likely to grow EBITDA by > 15 pc in FY 24

Company has done a capex of > 300 cr in last 2 yrs. Ramp up of these new facilities to take about 2 yrs from now. Asset turns to be between 1.5-2.0

API+Intermediate, CMO business has higher margins than Xanthine. Xanthine prices have been under pressure this yr

03 of company’s plants are US FDA approved

Previous 2-3 yrs were exceptionally good as Xanthine prices were high. Now they ve corrected. Hence the company has moderated its EBITDA growth guidance to 15-17 pc

Medium term EBITDA margin guidance of 20+/- 2 pc

Capex required for Atali Unit aprox 350 cr

Plus the company is likely to do another 150 cr brownfield capex in next 12-18 months

In CDMO space, 12 products are in pipeline ( phase- ii and iii ). Have commercialised 16 products till date. Margins here are better

In APIs, top 10 products contribute 60 pc of sales

Xanthine derivatives have applications in APIs, food and cosmetics. Biggest competition is from China. Company is by far the largest producer in India and caters to 80 pc of Indian demand

Hope that CMO/CDMO business scales up to 10 pc of business this yr

Business focus towards CMO/CDMO has increased in last 3-4 yrs. Atali expansion should further help scale up here

The 16 products commercialised by the company are in the scale up phase - can be a growth driver

More focussed on lifestyle disease APIs that are low volume higher margins. Focus continues to be the regulated mkts of EU, US

Atali capex will largely be used for intermediates & CMO/CDMO of intermediates

Most of big cola companies are customers of Aarti for finished Xanthine

Xanthine and derivates - 60 pc are exported, rest sold in India

Disc : not holding. Planing to take up a tracking position


Aarti Pharmalab is the company demerged from Aarti Industries and was focusing on mainly 4 areas

1. Caffeine and Xanthine based derivatives: APL is the global leader in caffeine and xanthine derivatives (derived from caffeine) and India’s largest player in xanthine derivatives. Caffeine, one of the more known Xanthine derivative, is used both in pharmaceutical and food and beverages. On Pharmaceutical side xanthine derivatives are used mainly as bronchodilators. APL has 4000 tons per annum capacity. The other larger players are CSPC (China) and Shangdong Xinuha which have larger capacity than APL.

2) API : APL makes high value APIs across therapies related to lifestyle diseases cardiovascular, anti-asthematic, anti-cancer, CNS and other therapies. They focus on regulated markets and US, EU and Japan constitutes 50% plus revenue for API business. According to earlier call transcripts (Aarti Industries) they focus on doing APIs which has value higher than USD 100/Kg. In fact some of the APIs like Salemterol Xinafoate and Mometasone Furoate have value as high as USD 20,000/Kg and USD 11,000/Kg. They have 40 US DMF approved and they have commercialized more than 50 APIs across therapies. Here is the list of APIs that APL is currently producing and in the pipeline. More importantly in many of it’s key APIs it is backward integrated and key intermediates are made inhouse which gives them cost competitiveness versus other global/chinese players.

aarti-pharmalabs-api-product-list.pdf (2.8 MB)

3) Intermdiates: APL manufactures range of intermediates for both generic products as well as for innovator’s patented products. Here is the list of intermediates that APL manufactures - with end API use. As we can see from the list APL manufactures more than 100 intermediates panning across more than 40 API. Not many companies in India have such diverse product basket in terms of intermediate. This shows the R&D strength of the company and it’s manufacturing capabilities. In addition to the below list APL also supplies intermediates to innovators which may be proprietary and part of the CDMO programs.

aarti-pharmalabs-api-intermediates-product-list.pdf (713.1 KB)

4. CDMO: This is the smallest part of the business as of now but very interesting part. APL started doing CRO and CDMO both but over time it realized that their core competence lies in manufacturing products at decent scale and not at very pilot scale. Hence they pivoted their business to do work for Phase 3 and later molecules for innovators. As per earlier ARs, investor presentations and conference calls, APL is working with global innovators and their CDMO partners (like Lonza) to make intermediates for patented products.

Thus if we look at the business in totality, each part of business has some entry barriers

Xanthine & Derivates - scale and cost leadership,
APIs- a large product portfolio of complex and high value- low volume API with domestic and global partners who have APL as source in their filings + very high level of backward integration
CDMO- Ability to manufacture patented product intermediates and supply to global innovators and large CDMO players like Lonza

Evolution of company: APL was part of Aarti Industries till 2023 and hence one has to go back to Aarti Industries AR, presentations and concalls to understand the journey. If we look back, the journey of APL has been nothing but extraordinary. In FY 12- APL (Aarti’s pharma segment) had revenue of 130 Crore and negative EBIT of 6 Crore, while in next 11 years, their revenue in FY 22 was 1300 cr with EBIT of 220 Crore. This clearly shows the management’s execution capability and competence to scale up business.

What makes APL Interesting story: Before we talk about the interesting part of the story, let me put down the turn off!! :grinning:Management in latest presentations and conference call has guided for 10-15% EBIDTA growth for FY 24 and 12-17% EBIDTA growth for next 2-3 years. So essentially, they are not talking growth numbers anywhere near to past track record or something that is very exciting then what makes it interesting

  • APL has commercialized Tarapur API new block in Q2 FY 23 where validation is going on and total revenue potential is around USD 25-30 million (Aarti Industries FY 22 concall). As per management API facility takes around 2 years to reach optimal utilization - so by H2 FY 25 it can add similar revenue on run-rate basis (around 250 Cr)
  • APL’s Atali expansion which is ongoing will come on stream in H2 FY 25 with total capex of 350 Cr. Considering management guidance on asset turns of 1.5-2 , we can assume 550-600 Cr topline in next 3 years
  • APL has increased Xanthine capacity from 4000 tons to 5000 tons and full impact of the same will start from H2 FY 24. So there is room to add around 100 Cr from this
  • On top of this as per latest AR APL has done capex on hydrogenation and intermediate debottlenecking - of around 100 Cr - which can add 150-200 Cr
  • Hence with ongoing capex - Standalone topline can do 2500 Cr plus revenue in 3-4 years.
  • Management was very confident of increasing CDMO business proportion from 6% higher level. In FY 24 only they want to take it to double digits. Once Atali projects come on stream, there will be significant capacity for CDMO available - which can give headroom for CDMO to grow at higher pace. Currently they have 14 products which are launched or near launch- for global innovators. If some of those products (of innovator) scale up to blockbuster, APL can benefit significantly. In any case, management clearly indicated that CDMO is higher margin business- thus overall margin profile of the company may inch up as it’s contribution grows.
  • Intermediate business for APL has done phenomenally well in last 4-5 years. It was 50-60 Cr business in FY 20 and it went to 360-370 Cr in FY 22 (there after separate number is not available). However considering that most pharma companies are trying to de-risk supply chain from China and APL has wide product basket with backward integration in some of these products can help scale up this business further.

All in all APL is a scale company which has established it’s cost competitiveness across segments, has demonstrated track record of execution and growth and is available at reasonable valuation with potential optionality of margin improvement and CDMO scale up.

Key risks:

  • Xanthine prices are trending downwards and in current environment we do not know how much further it can fall (considering last 2 years had high base) and hence it may have impact on short term performance considering Xanthine is 50% plus business
  • Aarti group may have many private/public listed entities in the same business (Ganesh polychem which is JV is consolidated , Aarti USA which is trading in their as well as Aarti Industries products, Aarti drugs which also makes APIs and is getting into intermediates). However my understanding is that high value-low volume API/intermediates and Xanthine is only done by APL
  • Regulatory risk remains as major part of APL’s business is dependent on regulated markets

Discl: Invested with reasonable allocation.


Hi Ranvir, Is this more of a commodity or a speciality? Any thoughts or too early to comment?

IMHO … It’s kind of in between.

Reasons -

Economies of scale in Xanthine business. That’s a kind of competitive advantage

The APIs they sell are sold to regulated markets. So … they have to have good compliance and quality control measures in place. That’s a sort of entry barrier

Their CDMO business is in nascent stages. If they can scale it up ( which should be a medium term kind of target ), this can be a real speciality business because u get to make On-Patent molecules

Basically … one has to monitor the progress and act accordingly

Disc: I hold a tracking position


Understood. Thank you

Just would like to add, I was holding Aarti Industries at the time of demerger and received Aarti Pharmalabs as a result in my demat account. The price at which it got added to my demat account was 864 back in Jan 2023. Looking at it and all other fundamental parameters, it looks undervalued in my opinion.

Disc: Invested and Biased

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I had attended the AGM of Aarti Pharmalabs held today. Some of the points noted during the AGM are given below (mostly what is given in Q1 call, AR and presentation):

• Xanthene is used in pharma, food & beverages.
• Only non Chinese integrated facility out of China – China plus 1 strategy should work here.
• CMO/CDMO: Dedicated R&D, pilot facility, focusing on CDMO – 16 products commercialized and 12 products are under developed by innovators. 14 innovators and big pharma companies working.
• Vapi expansion – commencement from Q1FY25 – 24 reactors – max capacity of 28 KL. Vapi site – smaller batch sizes of anti cancer and life threatening diseases.
• Successful completion of capacity expansion in Xanthene from 4000 MT to 5000 MT through debottlenecking last year.
• Hydrogenation plants – to be commissioned in Q2FY24 – handling high pressure hydrogenation facility.
• Sustainability at the core embedded in our strategy
• Commitment to energy savings.
• Solar energy project launched by us.
• New greenfield capacity at Atali – Dahej and Bharuch – 80 acres of land – first phase 56 reactor – 400 KL volume – total budget of capex is 350 crore. Construction is under progress and expect commencement in FY25.
• 40 products in R&D on API/intermediate side.
• Strong pipeline of products – focused efforts on enhancing capability. Target to introduce 40 new value added products every year.
• Guidance as stated in presentation: EBITDA growth 10 – 15% FY24. 12 – 17% post that for next few years
• Atali expansion will lead to operational efficiencies and contribute to company’s long term growth.
• Strategy – xanthene – largest business segment for last year – in xanthene margin expansion over the last 2 years due to good demand and availability constraints due to China – also saw increase in demand from pharma and beverages. Softness in the prices, RM prices also some correction, new manufacturing capacities also added there. Some correction in margins. Mitigate by increasing capacities. Customers asking for increase for more and more demand. Removing Chinese imports of RM through backward integration by manufacturing own intermediates. That facility will start by later part of the year. We will have China plus 1 advantage to us. We will get the premium due to that. Customers asking to be fully independent in RM sourcing and not to be dependent on China for any RM. Debottlenecking done. Further expand by debottlenecking. Approval metrices for the product – lot of approvals required, we have many approvals, all these approvals take time. Approvals of large consumer also takes time 2 – 3 years. Smaller players – each has some advantage where they are either backward or forward integrated. We are focused largely on 4 – 5 products. Exploring how we can expand by 30 – 40% by acquiring adjacent land near our facility of through further debottlenecking. Next 1 – 1.5 years can expand capacity.
• CMO/CDMO – Expansion of Atali – 350 crore – not just for CMO/CDMO but also for intermediates. API expanded last year. This year we are expanding for commercial intermediates also. Phase 1 capacity expansion – some capital in infrastructure development and block 1, later build on more blocks there. Investing in infrastructure – warehouses, ETP, pre-spending more funds. Revenue and capex remain lower but in future with new blocks coming in revenue capex metrices will improve. CMO markets – number of customers are 14 and add more. 16 products – phase 3, launch phase and commercially available. Label expansion also happens. End usage also grows. We have such several possibilities. Have good potential. Every year add new projects with partners. Competitors – Lonza, Wuxi – we are focusing on small molecules and phase III upwards of molecules. With experience that we have of commercializing and commercially viable projects – that’s our forte and customers giving us more projects. Do – boron, lithium boron, cryogenic, hydrogenation – very difficult chemistries. With newer expansions, customers wont have to change sites – cater to the need of customers for next 10 years. Have large manufacturing site for CMO/CDMO.
• Contribution margins – CDMO/CMO – better than traditional margins in other segments. Growth – depends on launch year and how products are progressing with customers. Certain year can be blip and some year mild. But overall high growth area for the company.
• APIs – focussing on R&D. Early stage development for FTF and file ANDAs. We are in oncology and steroids facility. Command reasonable margins. Had stable margins. Largely operating in regulated and semi regulated markets. Price erosion not much there. Continue in future as well.
• CMO/CDMO – working with innovators directly or indirectly.
• R&D – 40 crore on R&D spent last year. We are now having new R&D centers. We will end up spending 10 crore more compared to last year in FY24. 3 R&D center – one is for API, one is for intermediates and one new one is for CMO/CDMO – meet their needs – innovators.
• Market share and shift from xanthene to other businesses – depends on caffeine debottlenecking – it will remain around 30 – 50% and other 50 – 70% segment over the medium to long term.
• EBITDA growth of 12 – 17% long term and this year 10 – 15%.
• We focus on bottom line and margins. Focused on multistep processes where revenue is less.
• Xanthene sales break up - Beverage – 70 – 80% and 20 – 30% pharma. Seen growth in both the segments. Global growth moderate and India growth more.
• Ganesh Polychem? This product end usage is for dialysis resin. Another product – anti leprosy drug – kept this business within Aarti Pharmalabs. Sourced some RM from Aarti Industries, some manufactured internally also, some sold from Aarti Pharmalabs. Debottleneck current facility – save our RM cost. Anticipating to complete in next 18 months.
• 100% ZLD facility at all our plants.
• With renewable assets we will be putting up – 30 – 40% energy needs will be met through these assets.

(Disclosure: Invested. Not a buy or sell recommendation)


Sharing my AGM notes below:

  1. Xanthine derivatives:
  • Only non-Chinese integrated player in caffeine. Product quality and reliability [supply chain] has made us the leading caffeine provider in the world
  • End-usage: 70-80% FMCG, 20-30% pharma
  • Margin expansion in last two years due to good demand environment (both pharma and FMCG) and availability issues in China due to plant closures
  • Seeing softness in prices now, RM prices have decreased. New capacities have come up in China. We see some correction in margins
  • Our customers are inquiring on how we can work more with them and asking us to become China independent. Hence, moving Cyanoacetic acid in-house for which we were dependent on China earlier
  • Backward integration effects will start in later part of the year, which will fetch us premium over Chinese players and allow us to make reasonable margins
  • We are looking at further debottlenecking by 30-40% (in addition to recent expansion of 1000 MT) in the same facility or by acquiring some land parcel. Will be able to conclude the decision this year and then in next 1-1.5 years can implement it
  • There are smaller players in the Xanthine space, companies have different niches. We are focused on couple of products caffeine, theophylline etc. It’s not so easy for new players to enter, takes 2-3 years to get the necessary approvals/ certifications
  • Overall, Xanthine should contribute 30%-60% of the business [in medium-long term]
  1. CDMO/CMO and intermediates:
  • Commercialized 16 products, 12 under development for CDMO. Working with 14 innovators/big pharma companies. These projects are 100% with innovators
  • Facilities for CDMO/CMO and intermediates are shared currently
  • CDMO/CMO is a higher margin business (didn’t reveal exactly how much)
  • New R&D centre will exclusively focus on CMO/CDMO opportunities and better meet the needs of innovators
  • Hydrogenation plant to be commissioned in Q2FY24. It’s a state of the art facility, includes 9 reactors and will handle high pressure hydrogenation reactions
  • Expansion at Vapi: Adding a new block which will have reactors with capacities of 3kL to 28 kL. To start in Q1 of FY25. Will help in establishing manufacturing processes/pilot which we can scale up further (likely in Atali facility)
  • Atali: 350 Cr investment in Atali is not for CDMO/CMO alone. It’s for both intermediates and CDMO/CMO
  • Atali: Current phase 1 investment in infra development (warehouses etc.). Pre-spending more funds. So revenue to capex will remain little bit low. In future, with new blocks coming in, it will improve. New blocks will be in the same facility. Phase-1 will include 56 reactors with ability to handle 30kg to 1000kg, total capacity of 400 m3. Construction in progress in full pace. Phase-1 to finish by FY25.
  • Atali: Another advantage is that we won’t have to change sites for regulatory reasons, will be able to cater to customers for 10 years without changing sites. That’s why we have opted for a large manufacturing site
  • Answer to “why would innovators want to work with you vs large firms like Lonza, Wuxi:” Aarti’s expertise is in developing commercially viable process/commercialization
  • Pretty confident that this is a very growth area

3. APIs:

  • Focus on R&D and early stage development
  • Backward integrated for most APIs
  • Didn’t face much price erosion, dedicated blocks for oncology and steroids
  • Target of developing 40 new products every year
  • Plan to aggressively build capacities

R&D/Chemistry skills

  • R&D spend was ~40 Cr last year. This year will spend ~50 Cr
  • Chemistry work: We are able to offer very difficult reaction capabilities to customers: Boron, lithium, carbohydrate, hydrogenation, cryogenic reactions


  • We don’t discharge even a single litre of water
  • Plan to continue using green chemistry to improve ecological products; intend to develop eco processes without compromising on quality
  • Have changed to enzymatic routes from synthetic for some of the reactions
  • 30-40% energy requirements will come from new solar project they have set up
  • Long-term EBITDA growth target 12-17%. Focus is on bottom line not revenues
  • Ganesh Polychem: produces complex polymers, end usage for dialysis… Another product… Have kept this business due to pharma end-usage. Have a captive manufacturing plant, also give some RMs to them. Have undertaken a project to debottleneck and optimize costs, will take 18 months


  • Some of it is from memory and not verbatim. Please correct/add if I missed something
  • I am invested and biased

Do we have any other variant perception playing out other than the special situation of Demerger. Considering 50%+ of its business is Caffeine and Xanthine derivatives, does it deserve a higher PE as it is more of a consumer proxy than a Pharma company?


Hi @Vinay_Garg - While the Xanthine derivative business does constitute a considerable portion, it is their API business that is the main revenue driver (more than 50% in FY23) for Aarti Pharmalabs. Furthermore, they have also recently focused on the CDMO business which I assume you are aware of. Thus it would be incorrect to label it as a consumer proxy.

Now coming to the question of whether it deserves a higher PE? I found it difficult to determine at this time. It is a stable business, no doubt. But one would think that the real area of interest from an investor’s POV is their nascent CDMO business. I will keep a close watch on how it matures and perhaps Mr. Market will too.

Disc - Not Invested (But on watchlist)


Aarti Pharma continues to look for backward integration opportunities to become China independent. The project to manufacture the main RM for Xanthine products, which is currently being imported, is scheduled to be commissioned in Q4 of FY 24.


Q3 FY 24 Con-call

  • Consolidated revenue saw a modest 2% increase, reaching Rs. 448 crores.
  • EBIT also experienced a healthy 10% growth, reaching Rs. 78 crores compared to the previous quarter’s EBITDA of Rs. 71 crores.
  • Consolidated PAT stood at Rs. 53 crores, slightly higher than the previous quarter.
  • The consolidated EPS for the quarter was an impressive Rs. 5.82 per share.
  • An interim dividend of Rs. 2 per share has been approved by the board.

Current Operational Performance:

  • The company operates in three key areas within the pharmaceutical industry: API and intermediates, CDMO, CMO, and Xanthine and intermediates.
  • The regulated market accounted for 53% of sales in the API and intermediates segment.
  • Strong scale-up and commercial manufacturing expertise in the CDMO, CMO business have contributed to a revenue share of 14.2% in Q3.
  • The company added one new customer, three new commercial products, and six new R&D products in the CDMO, CMO segment.
  • The Xanthine segment experienced a commendable 20% growth over the last year.

Future Outlook:

  • The company anticipates approximately 8-10% EBITDA growth in FY24 and remains on track to achieve its long-term goal of 17% annual growth in the next 2-3 years.
  • Plans are in place to strengthen the company’s leading position in the Xanthine segment and to enhance the API CDMO segment by introducing more value-added products and acquiring new customers.


  • Pricing pressure in the Xanthine segment is anticipated to continue until the middle of the next year.
  • The company has seen a decrease in absolute growth due to the postponement of certain projects, resulting in sales being moved to the next financial year.

Other Points:

  • CapEx for the next 2 years will be funded through a mix of internal accruals and borrowings.
  • The company aims to maintain a debt-equity ratio between 0.3 and 0.35.

In conclusion, the company’s strong financial performance in Q3 FY24, with record EBITDA and net profit, is a positive indicator of its future growth potential. The focus on expanding the CDMO, CMO business, and strengthening its position in the Xanthine segment bodes well for future prospects. However, the company should be mindful of pricing pressure in the Xanthine segment and the impact of project postponements on future sales. The strategic approach to funding CapEx through a mix of internal accruals and borrowings reflects prudent financial management.



Excellent numbers. Big margin expansion.