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Aarti Drugs falls after weak Q1 outcome; margins decline
28-Jul-21   11:36 Hrs IST

The company's consolidated net sales rose 6.5% to Rs 579.95 crore in Q1 FY22 compared to Rs 544.67 in Q1 FY21. Profit before tax declined 0.9% quarter on quarter and 44.4% year on year to Rs 64.7 crore in Q1 FY22.

Meanwhile, consolidated EBITDA slumped nearly 40% to Rs 81.3 crore in Q1 FY22 from Rs 135.2 crore in Q1 FY21. EBITDA margin deteriorated to 14% in Q1 FY22 from, 16.3% in Q4 FY21 and 24.8% in Q1 FY21.

Commenting on the results, Adhish Patil, CFO of Aarti Drugs said, “Despite the headwinds induced by second wave of covid-19, the API segment registered a growth of 4% on YoY basis, driven by volume growth in lifestyle and chronic therapies while the demand for acute therapies remained subdued during the quarter due to lockdowns. The margins were impacted due to sudden hike in raw material prices in more than 20 raw materials. Main reasons for the hike in raw materials were demand supply mismatch due to shutdown of few manufacturers, increase in crude prices, etc. Raw material price hikes were coupled with reduced demand of acute therapy products because of second wave of covid-19 induced lockdowns. Hence passing on the increased costs to customers was a big challenge in this situation. However, the average realisation for most of our products have increased with respect to Mar 2021 quarter, but it was only partial as compared to increased input costs. Hence there was reduction in gross contribution margin for Jun 2021 quarter. Demand for anti-biotics and anti-protozoals are expected to come back to normal once the travelling is restored to normalcy. The growth trajectory in the API segment is expected to accelerate in the upcoming quarters underpinned by strong demand, product launch pipeline driven by a healthy line-up of products under development. Formulation segment revenue stood at Rs 86.5 for the quarter. Formulation segment contributed 15% to the consolidated revenue for the quarter. On a consolidated level, higher raw material prices and one-off expenses related to share buyback and implementation of ZLD facilities impacted the EBITDA margins. However, as a strategy, the company continued to focus on maintaining the leadership position for its top products. The company took nominal hikes to maintain the market share. We believe that the worst is behind us in terms of raw material prices and supply chain disruptions.

He further added, “EBITDA margins are expected to come back to normal levels within the next couple of quarters. The company incurred a capex of Rs 48 crore during the quarter and planning a capex of Rs 150 to Rs 200 crore during the remaining part of FY22, which might get affected in case of third COVID 19 wave. The balance sheet continues to remain strong with a comfortable net debt to equity of 0.54x as of 30 June 2021. The net debt to equity ratio is expected to improve going forward driven by strong internal accruals. The company is well on track of growing the contribution from lifestyle & chronic therapeutic areas and reducing share from acute therapies from the API business segment. Recently expanded chronic therapy capacities have already started contributing to the growth. The company has a robust pipeline of products under development and under pipeline for API and Finished Dosages, with more focus on anti-fungal, anti-diabetic, skin treatment and anti-coagulant therapies.”

Aarti Industries is a manufacturer of specialty chemicals and pharmaceuticals.

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