Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aarti Drugs Ltd (BOM:524348, Financial) reported an 8% quarter-on-quarter volume growth in the API segment, indicating a positive trend despite year-on-year challenges.
- The company anticipates an improvement in margins by the end of FY25, driven by better pricing and expected demand growth in export sales.
- A greenfield project in Sayakha, Gujarat, is expected to enhance capacity utilization and operational efficiency in the second half of the year.
- The production of salicylic acid has commenced, with plans to ramp up production significantly, which could contribute positively to future revenues.
- Aarti Drugs Ltd completed a buyback of 665,000 equity shares, reflecting a commitment to shareholder value.
Negative Points
- The company experienced a year-on-year drop in revenues and profitability due to lower realizations and weak market demand in the API business.
- There was a 7-8% year-on-year decline in API segment prices, impacting overall financial performance.
- The company faced teething issues in ramping up salicylic acid production, affecting immediate output and profitability.
- The current utilization of the API segment is around 78%, indicating underutilization of existing capacity.
- Aarti Drugs Ltd revised its potential revenue guidance downwards due to current pricing levels, reflecting market challenges.
Q & A Highlights
Q: What was the negative rate variance in Q2 on a year-on-year basis, and how much was it in H1 FY25 in the API segment?
A: Adhish Patil, CFO and COO, explained that there was around a 7-8% negative rate variance for Q2 compared to the same quarter last year. Quarter-on-quarter, the rate variance was minimal, around 0.5%. The expectation is for the negative rate variance to decrease in the second half of FY25.
Q: How should we look at the API segment growth for FY25?
A: Adhish Patil stated that the current utilization of the API segment is around 78%. There is potential for growth with plans to increase capacity for certain products. However, the overall growth for FY25 might be flat due to earlier demand challenges.
Q: What is the outlook for the company's revenue and EBITDA in the coming years?
A: Adhish Patil mentioned that the company aims for a revenue potential of INR 3,500 crore to INR 4,000 crore by FY27, revising down from previous guidance due to current pricing levels. The target for EBITDA margins is around 14.5% to 15.5% in the long term.
Q: Can you provide an update on the US FDA status?
A: Adhish Patil reported that the company had an audit in September, resulting in seven observations. The company has submitted a response and is awaiting feedback. The audit is expected to help improve the company's standing in the export market, particularly in Europe.
Q: What is the status of the specialty chemicals project and its expected benefits?
A: Adhish Patil stated that trials for the specialty chemicals plant will begin in November. The project is expected to add around INR 40 crore to EBITDA in the long term, with some production going for captive consumption and some for external sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
