Aarti Drugs expanding capacity in specialty chemicals; plan capex of Rs 125 cr in H2FY22

Aarti Drugs reported Q2 earnings and it posted flat revenues on a yearly and sequential basis while margins remained under pressure. To discuss the earnings and its capex plans, CNBC-TV18 spoke to company's CFO Adhish Patil.

Talking about the revenue drivers and capex plans for the company, Patil said, "We already have a strong pipeline of products. We are introducing more anti-diabetic products and we are expanding our current range of anti-diabetic products too. We are expanding our capacities in specialty chemicals. All of this is lined up, so the capex is going on."

"Though the first half was a little bit slow because of this incessant rains in Gujarat and Maharashtra and also because of the second lockdown at the beginning of the year. Even then we have done Rs 77 crore of cash outflow, and probably another Rs 100-125 crore in the second half of the year. Maybe by next calendar year-end, we might be coming up with these new capacities."

On price pressure, Patil said, "The prices haven't eased as of now. Year-on-year, the margins have declined a lot, but then the previous year was a COVID year. Till August of the last FY20, we had a lot of benefits of elevated selling prices, because of which margins were high. But on a sequential basis, we were hoping for a lot better margins, at least by 3-4 percent. But then, we were not able to achieve that mainly because of the decline in the gross margins and, there has been a lot of macroeconomic changes because of which the raw material prices have been going up."

"If we track raw material prices for every month from April to September, what we have seen for top 23 products, almost 17 to 18 percent of the raw material are at their peak in September, not during the quarter in the month of September. So this will continue for a bit and margins might look like this for maybe the upcoming quarter, but once the price hike stops, then the margin should start going back to the original levels.”

With regards to price hikes, he said, “We have taken price hikes based on whatever raw material hikes were there in June quarter. But because of this Chinese power outages led to another supply disruption, then an increase in the freight costs that was mainly because of the congestion in the ports that have also added into our imported prices. Because of all this, there were further price hikes. So even after we took a price hike in the selling price, but then there was further price like at the input side.”