Concall Summary: Aarti Drugs Ltd Q4FY20

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Business Updates

  •  API segment contributed 89% of revenues and Formulation contributed 11% of the revenue
  • For FY20, revenue contribution:
    • Antibiotic: 44%
    • Antiprotozoal: 15%
    • Antifungal: 7%
    • Antidiabetic: 10%
    • Anti therapeutic: 10%
    • Others: 14%
  • Improvement in working capital led to reduced debt to equity ratio
  • Further CAPEX is planned, to introduce newer products in anti-diabetic categories


  • DSP Mutual Fund
  • Nippon Asset Management
  • Unifi Capital
  • Turtle Capital
  • Sameeksha Capital
  • AMSEC Research
  • Bamboo Capital
  • Phillip Capital


  • Have been working on operational efficiency and most importantly in the current quarter, price realization for APIs was much better which led to improved gross margins
  • A lot of crude based raw materials are there and fall in crude prices help on the raw material front
  • Other expenses are higher due to a new facility being commissioned and also additional payment on account of labor arrears
  • The CAPEX plan for the current year will be between Rs 70 crores – 100 crores
  • Have faced challenges on growth because government regulations on CAPEX and following pollution norms have become stricter
  • The competition from the Chinese market has been reducing since the last two years
  • Operating cash flows have improved over the last few years because payment terms have become better and facing better cash realization from customers
  • Out of the total of 53 API’s the company is present in 4-5 products
  • Production in Q1FY21 would be around 70% of normal due to disruption in production but growth in demand is still there even after COVID situation
  • The chloro sulfonation plant is already under designing process but because of COVID the plan is a little delayed and post this issue gets resolved it will be back under stream
  • On a consolidated basis, the net debt stands at Rs 380 crores
  • About 20% of the revenues of the company would be under the list of products that the government has outlined for being self-reliant and domestic production
  • Have around forex losses of Rs 9 crore in March quarter which are under the line item of raw materials
  • Going forward in the next couple of years, the CAPEX will be for addition to revenue and in newer products
  • There are few lacunae in which the government is trying to bring out new schemes and the company is giving feedback for a better understanding of policies
  • The growth in formulation sales have come from the export market as the company had been working hard on setting up networks in various countries which is now resulting in higher sales
  • In the formulation business, the export market the branded business constitutes 60% of revenue while rest is from unbranded
  • No foreign currency debt is unhedged
  • The guidance for FY21 is revenue growth of 10-15%
  • The major challenge in running the factory has been with labor since the availability of labor is lower
  • Have started taking some planned deviations in processes that have been authorized by the regulatory authorities to be able to produce at 70% capacity
  • This is a temporary measure for the next 2-3 months for which the lockdown might be in force
  • The brownfield CAPEX is going on and some CAPEX are on standby but that will also start once the lockdown is lifted
  • The specialty chemical CAPEX might be delayed by 6 months
  • The CAPEX plan should continue at a similar pace of Rs 100 crores every year but it is dynamic in nature and can change based on conditions
  • The CAPEX plan of Rs 200 crores over the next two years does not include the amount to be used for specialty chemical CAPEX
  • Not expecting any major CAPEX on formulation business for the next two years
  • The floor IRR while expansion into a new product is 18%
  • The new molecule that the company is discussing with a client has a revenue potential of Rs 100 crores
  • The CAPEX for specialty chemical plant should be to the tune of Rs 30-40 crores
  • China has stopped publishing numbers of new coronavirus cases but in some areas, there is still a lockdown and there is a second outbreak of coronavirus cases
  • Gliptin will be launched in FY21 itself and a new brownfield project is being set up through which this molecule will be supplied
Also Read on FinMedium:  Concall Summary: Granules India Ltd Q1FY21

Image Source: Company website

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Karan Sharma

Karan Sharma

The Concall Summary Guy | CFA | Investor
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