Aarti Drugs Ltd. is targeting a sharp improvement in profitability over the next financial year as the ramp-up of its Sayakha facility, higher Metformin capacity and expansion into regulated markets begin contributing to earnings.
Adhish P. Patil, Chief Financial Officer of Aarti Drugs, told NDTV Profit that the company was targeting EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of at least 15%, with the potential to move towards 16% if its growth plans progress as expected.
"We should be at least targeting 15% EBITDA margins, if not higher," Patil said. "And if everything goes well, then, with oncology business also coming in, we should keep going further higher till 16%."
The company's Sayakha project is expected to be a key contributor to the margin expansion. The facility, commissioned last September, has steadily increased utilisation, reaching around 60-62% in the June quarter from roughly 30% in its initial quarter of operations.
Patil said Aarti Drugs expects utilisation at the facility to rise to 80-85% within the next two quarters, which should significantly improve gross contribution.
The Sayakha project, which includes backward integration for Metformin and production of other chemicals such as monomethylamine and trimethylamine, has the potential to generate Rs 50 crore to Rs 60 crore in EBITDA at full potential, according to Patil.
"The overall Sayakha project, we have maximum potential of around 50 to 60 crores of EBITDA from that," he said, adding that the full benefit would start becoming more visible from the next financial year.
Metformin is another major pillar of the company's growth and margin strategy. Aarti Drugs plans to increase its capacity from around 1,400 tonnes per month currently to 1,700 tonnes per month over the next five to six months, before reaching 2,200 tonnes per month within 12 to 14 months.
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The company is also looking to expand sales into regulated markets, including Western Europe and the US. "Once the regulatory markets open up, not only it will help us in pricing, but also in volumes," Patil said.
The capacity expansion will be funded through internal accruals and project term loans, with the company not expecting to raise equity.
With Sayakha scaling up, Metformin volumes increasing and higher-margin regulated markets opening up, Aarti Drugs is betting that its profitability can move beyond the 14% EBITDA margin range towards its 15-16% target.
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