In my January deep dive on Aarti Pharmalabs, I described a business with three engines: xanthines, APIs and intermediates, and contract development and manufacturing. The attraction was the combination of an established manufacturing base and a smaller CDMO operation with room to become much more important.
That remains the core thesis. What has changed is our ability to put a more concrete FY28–FY29 framework around it.
Our base case is ₹2,970 crore of standalone revenue in FY28 and ₹3,410 crore in FY29, with CDMO reaching ₹780 crore by FY29. These are Tankrich estimates. They depend on capacity utilisation, customer programmes and product mix; they are not company guidance.
My forward view is constructive: xanthines can provide scale and operating cash, APIs can recover and compound, and CDMO can contribute a disproportionate share of incremental profit. The investment case becomes more interesting if these engines work together. It becomes fragile if we need every possible blockbuster connection to be correct.
Confidentiality is part of researching this industry. Waiting for every customer and molecule to be named would leave us unable to form a forward view. We can make informed estimates today, provided the evidence, assumptions and consequences of being wrong remain visible.
Where the business stands after Q2 FY27
The October investor presentation reports standalone
• Q2 revenue of ₹612.6 crore,
• EBITDA of ₹135.8 crore and
• PAT of ₹65.8 crore.
H1 revenue was ₹1,147.2 crore and EBITDA ₹268.5 crore. Q2 EBITDA margin was 22.17%, versus 24.82% in Q1. The Q2 revenue mix was 50% xanthines/allied, 30% APIs/intermediates, 13% CDMO/CMO and 7% others.
Two accounting details matter. The presentation restates prior quarterly figures for fair-value movements on a long-dated dollar forward contract.
Ganesh Polychem moved to equity accounting from April 2025, affecting consolidated comparability. Our operating forecasts therefore use standalone revenue and EBITDA consistently.
The quarter supports the case for a stronger business, but it also shows why revenue, EBITDA and net profit should be analysed separately. A larger sales base can coexist with a lower percentage margin.
The economics of the next two years will depend on what is sold, how efficiently it is produced and how much capital is needed to support it.
Engine one: xanthines become a larger foundation
The expansion gives this engine a visible physical runway. The presentation identifies 9,600-plus tonnes of annual capacity. On the Q2 call, management discussed 7,500–8,000 tonnes next year and roughly 90% utilisation over two years.
My interpretation is that FY28 should capture more of the expanded system’s benefit, while FY29 becomes a test of sustained utilisation and the economics of the customer mix. This is a different growth mechanism from a clinical-stage CDMO programme: the main questions concern volume absorption, pricing and execution.
However, tonnes and rupees are not interchangeable. A fall in selling prices can offset higher output. Conversely, raw-material inflation passed through to customers can inflate revenue without producing the same increase in profit. The segment also includes allied products, so dividing total segment revenue by caffeine tonnes would create a misleading realisation estimate.
Our working estimate is ₹1,400 crore in FY28 and ₹1,500 crore in FY29, from an assumed FY27 base of ₹1,250 crore. We allow volume growth but temper the revenue benefit for price normalisation and mix. That gives growth of approximately 12% and 7% in the two forecast years.
The upside case comes from stronger realisations, good customer retention and a richer allied-product mix. The downside is that capacity fills at weaker economics. I would track contribution per unit and cash generated alongside tonnage. A mature engine becomes valuable when it funds the next phase of growth without requiring another equally large investment cycle.
Engine two: APIs can recover while the pipeline matures
Aarti’s API offering includes small molecules, potent corticosteroids and oncology products, supported by backward integration and regulated-market manufacturing capabilities. The economic opportunity is broader than a single patent expiry.
There are three routes to growth:
• regain output where capacity had constrained supply,
• increase participation in existing customer products,
• and launch newer APIs with formulation partners. These routes have different economics.
An established product may give quicker utilisation; a new launch can offer better growth but brings uncertainty around approvals, competition and the customer’s eventual market share.
On the call, management described a ₹180–200 crore quarterly API/intermediate base for H2 and a 10–15% annual growth aspiration. Our FY27 bridge is ₹750 crore, followed by ₹850 crore in FY28 and ₹960 crore in FY29.
This is roughly 13% annual growth. It assumes a useful contribution from launches and regulated-market opportunities, without requiring Aarti to win a dominant share of every molecule discussed in the original deep dive.
The key modelling distinction is between the size of an innovator brand and the revenue pool available to an API supplier. Patent expiry can expand patient access and generic volumes while compressing prices. A formulation partner may also win less share than initially hoped. We should therefore look for a diversified stream of launches rather than multiply the sales of several blockbuster brands by an arbitrary percentage.
I see this engine as an earnings contributor in its own right. Its value is not limited to supporting the CDMO story. Better customer mix, manufacturing yields and repeat orders can improve the economics even if the segment’s share of total company revenue does not rise.
Engine three: a few CDMO programmes can change the business
Company disclosures identify 23 customers, 59 projects, 39 commercial programmes and 20 in development. CDMO sales progressed from ₹208 crore in FY25 to ₹276 crore in FY26. Management retained 40–50% FY27 growth guidance.
The most useful forward clue is the concentration of potential. Management indicated that 10–12 projects could contribute ₹700–800 crore within its eventual ₹1,000 crore ambition. Timing depends on customer approvals. It also described additions as an extra source in China-plus-one programmes. Those statements support a portfolio led by a few sizeable programmes, with room to gain share over time.
That changes how I interpret the project count. Fifty-nine projects do not represent fifty-nine equal revenue streams. A handful may become large, some may remain modest, some may ship in periodic campaigns, and development programmes may fail or be replaced.
Our base case takes CDMO from approximately ₹400 crore in FY27 to ₹560 crore in FY28 and ₹780 crore in FY29. The FY27 figure is consistent with applying the growth guidance to the FY26 base. The subsequent years are our assumptions, implying approximately 40% annual growth across FY27–FY29.
This is demanding, but the mechanism is understandable: more business from already commercial programmes, rising supplier share, successful launches and enough capacity to manufacture the additional volumes. We put ₹1,000 crore of FY29 CDMO revenue in the faster-ramp scenario rather than make it necessary for the base case.
One illustrative way to build ₹780 crore is four larger programmes averaging ₹100 crore, six averaging ₹40 crore, and ₹140 crore from the rest of the portfolio. This is a model of how the revenue could be distributed, not an estimate of disclosed contracts. It shows why a few programme delays can move the outcome substantially. If two assumed ₹100 crore programmes slip, the same framework falls to ₹580 crore before considering offsets.
Are these repeat businesses?
The attractive CDMO outcome is a qualified manufacturing relationship that grows with the customer’s drug. Route development, process validation, quality documentation and manufacturing reliability can make an incumbent difficult to replace. Aarti describes its CDMO services as spanning early development through launch and commercial supply.
My view is that repeat demand can improve earnings visibility, but a recurring relationship does not imply identical quarterly invoices. Campaign production can create a gap between manufacturing, shipment and the next replenishment order. Inventory adjustments can temporarily mask healthy end demand.
Supplier status also has more than two categories. Aarti could be a small backup source, a meaningful second source or a leading supplier for one step in a longer chain. Those positions can change. Our base case assumes a mixture, with some programmes gaining share; it does not assume 60–80% participation across all the inferred molecules.
