Notes from AR - Aarti Drugs, FY 21-22-

1. Established in 1984. A significant part of Aarti group specialising in APIs, Speciality chemicals, Intermediates and Formulations with Pinnacle Life Sciences as its fully owned subsidiary. Has state of the art manufacturing plants in HP, Maharashtra and Gujarat. Has a total of 12 manufacturing plants with an installed capacity of 49000 MT. Also has 02 R&D facilities - both in Maharashtra.

2. Aarti drugs is the largest manufacturer of following drugs in the world -

Fluoroquinolones group like - Ciprofloxacin, Levofloxacin, Ofloxacin etc ( all anti biotics )
Tinidazole ( anti protozoals )
Celecoxib ( NSAID )
Nimesulide ( NSAID )
Metronidazole Benzoate ( anti biotic )
One of the Leading producer of Metformin
Ketoconazole ( anti fungal )

3. Produces a total of 50+ APIs. 37% of revenues is from exports. Out of a total of 12 facilities, 10 are dedicated API facilities. Brownfield expansion of Tarapur Speciality Chemicals facility is complete and scale up batches have started from May 22. Production is likely to be scaled up by end FY 23

4. Last 5 Yrs financials -

Sales - 1245, 1563, 1808, 2159, 2500 cr
EBITDA - 200, 210, 263, 442, 341 cr
EBITDA margins - 16 pc, 13.5 pc, 14.5 pc, 20 pc, 14 pc
PAT - 82, 90, 141, 280, 205 cr
Debt to equity - 1.19,0.89, 0.58, 0.38, 0.52
ROE - 16.3, 16.7, 20.6, 35.8, 21.1

Management agrees that China + 1 factor is playing out to their advantage in the API sector.

5. Current Sales break down -
   APIs - 80 pc
   Formulations - 11 pc
   Intermediates - 5 pc
   Spl Chems - 4 pc

6. Capex spending for FY 21-22 stood at 152 cr. For this year, Capex plans are to the tune of 250-350 cr. For FY 21-22 API volumes increased 10 pc owing to strong growth in chronic therapies due fresh commissioning of anti-diabetic capacity and ongoing expansions. Speciality chemicals and Intermediates also grew by 28 pc each. Over next 5 yrs, company intends to spend 600 cr on Capex. This expansion will encompass backward integration for APIs and formulations to reduce costs. Product wise capex plan for next 5 yrs -

Anti - diabetics - Aim to be the largest Metformin player in the World. Aim to launch Gliptins to further strengthen this therapeutic category.

Fluoroquinolones - further 40 pc brownfield expansion for these anti-biotics.

Ant-Protozoals - Further consolidate leadership in Indian Mkt with existing tech and Chinese JV. Plans to further backward integrate and apply for PLI

Vitamins/ Anti-Inflammatory - Multi purpose facility under construction.

Cardiovascular - Aim to double the existing capacity.

Anti-fungal - Further consolidate world wide leadership.

Speciality Chemicals - Incremental expansion of multi purpose chloro-sulphonation line in existing block

Disc : invested, biased.

Who do you think the real competitors are in the enterprise space?

The addition of new customers is still good. But for whatever promise the platform business shows it’s just 10-15% off the total revenues. It’s not going to scale up overnight. Hoping that Truecaller can be the start of better times ahead.

But when they fall, and before they go back up… the risk is high… Why…

RBI allows 91% disbursal, but they give only 75%.

The company as a 25% policy buffer. As this buffer gets exhausted, risk increases. Take the recent case, the fall is round 18%, risk is alarming.

What if it fell another 18%?

Muthoot would have a very hard time recovering!

It seems that now MAX estate is on track, they acquired 2 lands in Noida and one more NCLT resolution is near.