Aarti Drugs Ltd. was established in the year 1984 and forms part of $1000 Million Aarti Group of Industries with robust R&D Division at Tarapur, Maharashtra Industrial Development Corporation (MIDC) in close vicinity to manufacturing locations. The Company is engaged in the manufacturing of Active Pharmaceutical Ingredients (APIs), Pharma Intermediates, Specialty Chemicals and also produces Formulations with its wholly-owned subsidiary – Pinnacle Life Science Private Limited. Products under APIs includes Ciprofloxacin Hydrochloride, Metronidazole, Metformin HCL, Ketoconazole, Ofloxacin etc. whereas Specialty Chemicals includes Benzene Sulphonyl Chloride, Methyl Nicotinate etc. Over the years, the Company has been able to carve a niche for itself and is looking forward to expand the volumes. The Company aims at becoming the first choice of this expanding market through better products, ensuring quality and timely delivery.
Established position in the active pharmaceutical ingredients (APIs) business:
The company is among the leading manufacturers of APIs in India with 12 manufacturing facilities of which nine manufacturing facilities are located at Tarapur, Maharashtra, two manufacturing facilities at Sarigam, Gujarat and one formulation plant at himachal pradesh. The company has a strong product portfolio of about 130 products of which top 10 products contribute 76.4% of sales in FY20. The company is having presence across 11 therapeutic segments with strong presence in antibiotic, antidiarrheal and anti inflammatory segments.
Diversified business revenue along with long term relationship with customers:
The company has long term relationship with clients and has a set of diversified client base, including most of the major pharmaceuticals players in India, European and Gulf countries. The company exports its products to more than 90 countries worldwide and thus there is a comfortable geographic diversification of revenues. The same is evident from top 10 export customers contributing to only 19.6% of company’s export sales as on FY20.
Newer capacities established since last two years will help grow top-line:
The company is leveraging new capacities to capitalise new markets and has good amount of land parcels in industrial zones in Maharashtra and Gujarat which can take care of green field projects in next 3 to 4 years. The Company has already scaled up its anti-diabetic and anti-inflammatory capacity which will provide impetus to revenue growth going forward. Further CAPEX is planned for introducing new products in anti-diabetic category and speciality category
Due to Covid-19 pandemic, there will be no significant impact on the business as the company is not facing any in/out-bound supply issues.
The pharmaceutical industry is highly regulated in many other countries and requires various approvals, licenses, registrations and permissions for business activities.
India is the third largest pharmaceutical market in Asia and is the major provider of generic drugs globally. By manufacturing high-quality, low-priced medicines, India provides a huge business opportunity for the industry. On a global platform, Indian pharmaceuticals has an important position as it exports over 50% of global demand for various vaccines, 40% of generic drugs demand in the US and 25% of all medicine in UK. Besides building on traditional generic products, Indian pharma companies are actively investing in research and development (R&D), and that it has shown a steady increase in the last few years.
Along with enhanced medical infrastructure, rise in the prevalence and treatment of chronic diseases; more excellent health insurance coverage; the launch of patented products; and new market creation in existing white spaces would act as the primary growth drivers for the industry. To encourage foreign direct investment (FDI), the Indian Government has broadened the scope for medical devices including a wide range of items, including software tools, instruments, apparatus, appliances, implants and material used alone or in combination. As the nation already allows 100% foreign direct investment via automatic route, with such a strategic move the medical device market is expected to grow $50 billion by 2025 thereby becoming less dependent on importing them.
|Raw Materials Consumed||744.43||737.72||1013.53||1178.96||1342.81||1520.16|
|Profit Before Tax||116.01||124.50||131.02||185.29||225.40||261.95|
|Provision for Tax||34.21||42.20||41.27||43.89||56.35||65.49|
We expect the company to be major beneficiary from the government’s push for indigenous API manufacturing as its key products feature in the list of drugs allowed for indigenous API manufacturing. Further we expect the company's earnings to grow going forward supported by recent additions in capacity for diabetes and specialty chemicals and also commencement of contract manufacturing of few products which are in shortage. The stock is currently trading at 15x FY22E EPS and we expect 80% to 100% returns in next 2 to 3 years.