At Aarti Drugs, we have always been known for our quality and
commitment to excellence. With the advent of Aarti 2.0, we are building on this legacy by
embracing innovative practices and setting a robust foundation for future progress.
Dear Shareholders,
It is with great enthusiasm that I share the strides Aarti Drugs has
made during FY 2023-24. Sustainability has been a fundamental aspect of our ethos, and
remains a crucial pillar of our strategy. This year, we are redefining sustainability and
aligning our operations with India's broader environmental goals.
As the world undergoes significant transformation due to globalisation,
stringent regulatory changes, and heightened health awareness, we are integrating these
macro trends into our operations while also rigorously focussing on sustainability.
Despite the challenges and disruptions faced by the industry, the pharmaceutical sector
continues to grow, and we remain committed to positively contributing to this expansion.
Navigating the Macros
The global economy faced significant challenges in CY 2023 such as the
ongoing Russia-Ukraine conflict, inflationary pressures, tightened monetary policies,
tensions in the Middle East, and the Red Sea crisis. Despite this, it managed to record a
growth rate of 3.30% and is projected to moderate slightly to 3.20% in CY 2024.
In contrast, India demonstrated remarkable economic resilience with a
robust growth rate of 8.20% for FY 2023-24. This impressive performance was driven by
increased industrial production, expansion in the eight core manufacturing sectors, and
proactive government initiatives and schemes.
Global Pharma Industry Outlook
In CY 2024, the global pharmaceutical industry is projected to reach
USD 1,267 billion and is expected to grow to USD 2,092 billion by CY 2028, at a CAGR of
13.40%.!
Major advanced and emerging economies around the world are embracing
significant changes in healthcare.
They are taking measures to expand access to healthcare services,
ensuring that a greater segment of the population benefits from essential medical care.
There is an increasing recognition of the vital importance of immunisation and
vaccinations, strengthening efforts to prevent diseases and safeguard public health on a
larger scale. With the rise in chronic illnesses and the growing elderly population, the
pharmaceutical industry is experiencing significant growth. Additionally, factors such as
advancements in drug technology, increased healthcare spending, and expanded access to
healthcare services are also driving this growth.
The expansion of the pharmaceutical industry presents significant
opportunities for us at Aarti Drugs. With a diverse product range across various
therapeutic segments and a commitment to expanding our portfolio in response to the latest
trends, we are strategically positioned to leverage on these opportunities. A robust
R&D pipeline dedicated to developing innovative pharmaceuticals and speciality
chemicals also strengthens our market presence, addressing the growing healthcare needs
worldwide.
Strategic Investments and Expansions
To meet the rising demands of the pharmaceutical industry and enhance
our competitive edge, we are dedicated to making substantial capital investments. These
strategic investments are designed to not only boost our production capacities but also
enhance our sustainability efforts. By integrating backward processes and introducing
innovative products within our API and Formulation segments, we are addressing the surge
in demand for speciality chemicals used across various end-user industries. This presents
opportunities for high-margin returns. Our expansion initiatives are aligned with our
commitment to sustainable development, ensuring that our growth is both economically and
environmentally responsible. We have incurred a capital expenditure of ' 543 Crores from
FY 2021-22 to FY 202324. The expenditure incurred during FY 2023-24 amounted to ' 226
Crores. This is primarily for infrastructure upgrades and R&D initiatives to support
our growth in the pharmaceutical and speciality chemicals sectors.
The capacity expansion at the Tarapur Facility for dermatology products
is a bold move to capitalise on the growing opportunities in the dermatology sector.
There is a rising demand for specialised skincare and dermatological
treatments due to increasing awareness and the expanding global market. Thus, it is
imperative for us to invest in ramping up production capacity to meet this demand
effectively. By increasing our production capacity to 2,000 tonnes per month by late FY
2024-25, we position ourselves to not only secure a competitive edge but also fulfil the
needs of a diverse and evolving customer base. This proactive expansion enables us to
leverage market growth, enhance our product offerings, and strengthen our market presence
in a sector ripe with potential.
In addition, we are also making significant strides in other key
existing areas of our business. The greenfield project at Sayakha, Gujarat for speciality
chemicals and intermediates is on track, with plans to commence in FY 2024-25 and
gradually ramp it up as we move ahead. With capital expenditure focussed on speciality
chemicals, we anticipate a significant increase in our revenue mix.
Further, our brownfield expansion and de-bottlenecking of API
facilities at the Baddi plant, specifically for anti-diabetic products, have successfully
increased our production capacity to 1,450 tonnes per month. This enhancement not only
supports growth in our formulation business but also strengthens our capacity to produce
key products such as anti-diabetic (Gliptin) and oncology formulations.
Commitment to Sustainability
Our commitment to sustainability goes beyond the work that we do. We
are also mindful of our social responsibilities and have always strived to make a positive
change in society by contributing to its betterment. We have converted multiple facilities
to Zero Liquid Discharge (ZLD), installed Dual Fired Boilers in greenfield facilities to
reduce our carbon footprint, and engaged in periodic forestation efforts. We have
implemented waste heat recovery systems, are packaging bulk APIs in paper bags, and using
fibre drums instead of HDPE drums.
We pack bulk intermediates in jumbo bags (1 MT packing) to reduce the
excess use of plastic bags. For efficient utilisation of utilities, we are using equipment
with high- end technologies like Agitated Thin Film Dryer (ATFD), Agitated Thin Film
Evaporator (ATFE), FBC boilers, and membrane-type filter presses. We are also using MEE
and MVR for evaporation, which consume much less energy than conventional evaporators.
Additionally, we are dedicated to promoting women empowerment and
gender diversity. About 40% of our staff at the head office comprises of women. This
approach not only fosters a diverse and innovative work environment but also aligns with
our values of social responsibility and equality. Through Aarti Foundation and other
Trusts/ NGOs - our CSR arm undertakes community interventions to enhance the lives of the
communities. Besides our direct involvement, we partner with numerous implementing
agencies to carry out need assessments and make impactful interventions. Our focus areas
during the year have been cluster & rural development, education and skill
development, healthcare facilities, livestock development, tribal welfare, women
empowerment and livelihood opportunities, water conservation and environment
sustainability.
Pioneering Innovation
Our manufacturing facilities at Tarapur and Sarigam are dedicated to
advancing API process development. Our pilot facility is specifically designed for
kilo-scale manufacturing, adhering to good manufacturing practice (GMP) standards. It
plays a critical role in producing toxicology and clinical trial batches (Phase I/II/MI)
of new drug molecules. This capability supports the drug development programmes of leading
global pharmaceutical and biotechnology companies, for whom Aarti Drugs serves as a
trusted Contract Development and Manufacturing Organisation (CDMO). This capability
enables us to consistently improve the efficiency and competitiveness of our manufacturing
operations. The pilot plants are also used to conduct trials for improving the performance
of existing molecules and processes.
In addition to pharmaceuticals, we are actively engaged in the contract
manufacturing of speciality chemicals and intermediates for the global and domestic
markets.
This not only enhances our operational flexibility but also strengthens
our position as a reliable partner in the chemical industry.
Moreover, our R&D Centre at Turbhe, Mumbai, serves as a foundation
for innovation and development. This facility focusses on creating complex generics
tailored for our in-house formulation business. The robust infrastructure empowers us to
propel forward in the pharmaceutical industry, ensuring we not only meet evolving market
demands but also uphold high standards and continuous innovation.
We maintain a robust R&D pipeline aimed at driving future growth
and innovation. Our current portfolio includes promising developments such as Mesalamine,
Loxoprofen Sodium, Dronedarone, Olmesartan, Dabigatran, Duloxetine, and several other
advanced pharmaceuticals. This shows our commitment to addressing unmet medical needs and
expanding therapeutic options for global markets.
Financial Performance and Growth
For FY 2023-24, we recorded revenues of approximately ' 2,533 Crores,
reflecting a decrease from ' 2,718 Crores in FY 2022-23. This is primarily due to negative
rate variance and sluggish export demand in the API and Speciality Chemicals segment.
Despite these challenges, the domestic market saw robust volume growth within the same
segments. Our EBITDA for FY 2023-24 stood at around ' 321 Crores, up from ' 308 Crores in
FY 2022-23, with an EBITDA margin of 12.70%. Profit After Tax (PAT) for the year amounted
to ' 172 Crores, compared to ' 166 Crores in the previous fiscal year, registering a
growth of 3.61%.
APIs continue to be the main revenue driver for FY 2023-24,
contributing to 80% of our total revenue. On the other hand, Formulations accounted for
13%, while Speciality Chemicals and Intermediaries accounted for 5% and 2% respectively.
The enhanced production capabilities and expanded facilities will
enable us to capture a larger share of this high- margin segment. As a result, we expect
speciality chemicals to make a more substantial impact on our overall revenue, leading to
a more value-added revenue mix and improving our financial performance in the coming
periods.
Additionally, our commitment to sustainability and technological
advancement will further enhance our ability to navigate regulatory challenges and deliver
value to our stakeholders.
Future Strategy and Growth
At Aarti Drugs, we have always been known for our quality and
commitment to excellence. 'Aarti 2.0' marks our new phase of growth and transformation,
focussed on increasing our product offerings for existing customers and acquiring new
customers in both domestic and export markets. Additionally, we are expanding our
manufacturing capabilities and enhancing our operational efficiency.
Looking ahead, our strategic roadmap includes significant investments
in both greenfield and brownfield projects with backward integration of our API and
formulation segments substantially boosting margins and return ratios over the next five
years. By achieving low-cost production through comprehensive backward integration, we
intend to enhance our competitiveness and operational efficiency.
Our strategy also prioritises robust growth in export markets and the
revitalisation of domestic demand. We are actively expanding our export share in the
Formulations segment, especially, through exhibitions and market strategy development.
With new plants set to gain approvals from European authorities and US FDA, we are
well-positioned to enhance our global footprint in markets like the EU, LATAM, Canada,
Australia, New Zealand,
MENA, UK, and South-East Asia. Additionally, our recent US FDA
inspection and approval at our Formulation plant signifies a commitment to the highest
standards of quality, opening doors to the lucrative US market. Leveraging our expertise
in cost-effective pharmaceutical formulations, this trajectory highlights our ambition to
become a leader in bulk manufacturing within the pharmaceutical industry. Engaging
proactively with government tenders and ensuring prudent capital allocation are integral
parts of our approach to sustaining growth and profitability.
Our journey may have its complexities, but it is defined by our
collective ability to adapt, innovate, and progress together. United and determined, we
will continue to strengthen our success story and maintain a positive outlook for both our
API and non-API as well as formulation businesses.
Our ongoing projects, coupled with optimised capabilities, will serve
as the foundation for steady growth in the coming years.
Concluding Note
I extend my heartfelt thanks to our valued shareholders for their solid
trust and support throughout our journey at Aarti Drugs. Your confidence in us fuels our
commitment to excellence.
I also express deep gratitude to our esteemed Board of Directors, whose
dedication, expertise, and firm commitment drive our progress and inspire us to reach new
heights. Additionally, I want to sincerely thank the dedicated employees of Aarti Drugs
whose hard work, dedication, and resilience have been the backbone of our success.
Together, we continue to strive for innovation, growth, and positive impact.
Yours Sincerely,
Shri Prakash M. Patil
Chairman, Managing Director & CEO