Aarti Pharmalabs Limited

Healthcare — Drug Manufacturers - Specialty & Generic · NSE

₹876.95+₹13.15 (+1.52%)

DalalBaazaar Score

45 / 100

🟡 Moderate

Verdict

NEUTRAL

Risk

Moderate

Driven by negative free cash flow, small-cap size, which brings sharper price swings.

In simple words: Reasonable but unspectacular business quality, with both sales and profits growing well. Cash generation is currently the main factor to watch.

Decision support, not a buy or sell call.

As of 18 Oct 2026, 6:59 pm

Understanding the Business

Company site ↗

The 60-second version of Aarti Pharmalabs Limited — what it does, how it earns, and who it competes with, before any of the numbers below.

What does this company do?

Aarti Pharmalabs Limited, together with its subsidiaries, manufactures and sells active pharmaceutical ingredients, pharmaceutical intermediates, and xanthine derivatives in India and internationally.

IndustryDrug Manufacturers - Specialty & Generic

SectorHealthcare

Employees2,421

Annual revenue₹1,788 Cr

How does it make money?

Turns over ₹1,788 Cr a year. Of every ₹100 of sales, about ₹10 reaches shareholders as profit, with ₹22 left at the operating level before interest, tax and depreciation. Each of its 2,421 employees supports ₹73.8 lakh of revenue a year, the signature of a people-led business.

Revenue / employee₹73.8 lakh

Who are its competitors?

The closest listed comparisons in its industry are SUN PHARMACEUTICAL IND L, DR. REDDY S LABORATORIES, CIPLA LTD, DIVI S LABORATORIES LTD. These are the companies its valuation and returns are measured against elsewhere in this report.

Compared side by side in Peers ↓

What is its competitive advantage?Little sign of one

Returns on capital of 11.0% are at or below what the capital likely costs. That is the financial pattern of a business competing largely on price, where advantage has to come from execution rather than position.

Peer median ROE14.5%

What is the outlook?

1 analysts covering the stock expect revenue to grow about 14.8% and earnings to grow about 43.3% in the year to 2028. These are estimates by people who follow the company, not a forecast for the wider industry.

Est. revenue growth+14.8%

Est. earnings growth+43.3%

Analysts1

What has been driving growth?

Growth has come mainly from selling more, rather than from keeping more of each sale. Over 3 years revenue moved -8% while net margin moved -2% relative to itself. What this cannot tell you is which products, customers or geographies did the work — that lives in the segment disclosures of the annual report.

Revenue effect-8%

Margin effect-2%

DalalBaazaar Score

45/ 100

Moderate

Weighted across six categories. Every point is explained below.

✗ Revenue has contracted at 2.6% a year
✗ Profit has declined at 3.3% a year

Quality vs. Valuation

Company Quality

44/ 100

Weak

How good the business is, ignoring the share price entirely.

Valuation

39/ 100

Expensive

What you are being asked to pay, ignoring how good the business is.

Weak on business quality and not cheap enough to compensate.

Historical Valuation

Current P/E

37.3x

3Y Median

26.5x

40 monthly readings · mean 28.0x · range 18.0x–49.5x

Sector Median

33.3x

median of 4 sector peers

⚠️Current valuation is approximately 41% above its 3y median of 26.5x. Paying more than usual needs a reason — faster growth, a better balance sheet, or a re-rating you believe in.

🟡Against its sector it is priced broadly in line with the peer median of 33.3x.

vs. its own history

Expensive

26.5x median over 40 months · +41%

vs. sector peers

Fair

33.3x median of 4 peers · +12%

vs. generic bands

Expensive

Above 35x

EV/EBITDA

22.5x

PEG

—

What's Good / What's Bad

🟢 What's Going Well2

Margins are improving
EBITDA margin is up from 17.8% to 21.6% over 3 years.
Consistently profitable
Profitable in every one of the last 4 reported years.

🔴 What Needs Attention2

Return on equity is falling
ROE has dropped from 12.4% to 8.2% — each rupee of shareholder capital earns less than it did.
Return on capital is falling
ROCE has declined from 17.1% to 11.0% — often a sign of competition or overexpansion.

Red Flags

4 items require attention · 1 high · 3 watch

🔴Debt has risen sharplyFinancial
Total debt is up 257% over 3 years, from ₹215 Cr to ₹769 Cr.
🟡Interest coverage is deterioratingFinancial
Cover has fallen from 14.4x to 6.0x.
🟡Free cash flow is negativeFinancial
Free cash flow was -₹186 Cr in the latest year.
🟡Receivables growing faster than salesFinancial
Receivables up 30% against revenue up -8% — sales are being booked faster than they are collected.

Investment Thesis

🟢 Bull CaseWhat could make this work?

Margin expansion has further to run
EBITDA margin has risen from 17.8% to 21.6%. If that holds, profit compounds faster than sales and today's multiple looks cheaper in hindsight than it does now.
Earnings have proved durable
Profitable in every one of the last 4 reported years. Consistency lowers the risk that any single bad year is structural rather than cyclical.

🔴 Bear CaseWhat could go wrong?

Sales are being booked faster than collected
Receivables are up 30% against revenue up -8%. If customers keep taking longer to pay, reported profit will not turn into cash — and write-offs follow if some never do.
The price already assumes success
The stock trades 41% above its own median multiple. At this level the business has to deliver just to stand still, and a stumble is repriced twice — lower earnings on a lower multiple.
Returns on shareholder capital are falling
ROE has dropped from 12.4% to 8.2%. Each rupee of equity earns less than it did, so profit growth increasingly depends on raising more capital rather than on the existing base working harder.
Size brings its own risk
Small Cap businesses are thinly traded, so exits are harder in a falling market and single events move the price more than they would for a larger company.

🟡 Key Things to WatchMeasurable tripwires, set against where this company stands today

1EBITDA margin holds above 20%✓ 21.6%
Two points below today's level — enough room for noise, tight enough to catch real compression.
2Free cash flow remains positive✗ -₹186 Cr
Profit that never becomes cash eventually stops being profit.
3Debt / EBITDA stays below 2x✓ 2.0x
The ratio lenders write covenants against; it survives a small or negative equity base, unlike Debt/Equity.
4ROCE stays above 8%✓ 11.0%
Falling returns on capital are usually competition arriving, and show up here before they reach the margin.
5Interest cover stays above 4x✓ 6.0x
How much operating profit can fall before interest stops being comfortably covered.

Investment Checklist

8 / 11 checks passed

✗ Strong return on equity (ROE ≥ 15%)
✗ Strong return on capital employed (ROCE ≥ 15%)
✓ Healthy net margin (≥ 10%)
✗ Generates positive free cash flow
✓ Manageable leverage (Debt/Equity < 1.0)
✓ Adequate short-term liquidity (Current Ratio ≥ 1.0)
✓ Revenue growing year-over-year
✓ Profit growing year-over-year
✓ Not trading at an extreme valuation (P/E < 40x)
✓ Not buying right at the 52-week high
✓ Short-term technical trend isn't bearish

Price history

Quick Metrics

4 good · 6 neutral · 1 weak

Market Cap

₹7,952 Cr

Small Cap

Smaller company — thin liquidity and deep drawdowns are normal here

P/E (Trailing)

37.3x

Fair

Fairly valued against the generic band

P/B Ratio

3.74x

Fair

Moderate premium to the company's book value

EPS (TTM)

₹23.5

Profitable

Profitable on a per-share basis

ROE

8.2%

Moderate

Moderate capital efficiency

ROCE

11.0%

Moderate

Moderate return on the capital in the business

Debt/Equity

0.37x

Low

Conservative leverage

Revenue Growth (YoY)

38.7%

Healthy

Healthy top-line growth

Profit Growth (YoY)

53.7%

Healthy

Profits growing at a healthy clip

Dividend Yield

0.46%

Modest

Small cash return — most of the return has to come from the price

Free Cash Flow

-₹186 Cr

Cash burning

Spending more cash than the operations bring in

More Metrics

P/E (Forward)

34.4x

Improving

Below the trailing multiple — the street expects earnings to grow into the price

Operating Margin

19.2%

Good

Healthy core-business profitability

Net Margin

10.4%

Good

Strong bottom-line conversion

Current Ratio

1.49

Comfortable

Healthy short-term liquidity

Beta (vs Nifty)

0.26

Defensive

Steadier than the market

52W Range Position

70%

Mid-range

Technical Snapshot

SMA 20 / SMA 50

907.5 / 863.6

Bullish alignment (short > long)

Price vs SMA 200

Above

Long-term uptrend

RSI (14)

40.5

Neutral momentum

Financial Trend (4-Year)

Metric	FY23	FY24	FY25	FY26	3Y CAGR
Revenue	₹1,936 Cr	₹1,816 Cr	₹2,086 Cr	₹1,788 Cr	-2.6%
EBITDA	₹344 Cr	₹390 Cr	₹474 Cr	₹387 Cr	+4.0%
EBITDA Margin	17.8%	21.5%	22.7%	21.6%	—
PAT (Net Profit)	₹193 Cr	₹217 Cr	₹272 Cr	₹175 Cr	-3.3%
EPS	₹21.35	₹23.93	₹30.04	₹19.25	-3.4%
ROE	12.4%	12.3%	13.7%	8.2%	—
ROCE	17.1%	16.8%	17.2%	11.0%	—
Total Debt	₹215 Cr	₹285 Cr	₹421 Cr	₹769 Cr	+52.9%
Free Cash Flow	₹130 Cr	₹18 Cr	-₹114 Cr	-₹186 Cr	—

🔴 Revenue has shrunk at 2.6% a year over 3 years.

🟢 EBITDA has grown at 4.0% a year over 3 years.

🟢 EBITDA Margin has risen from 17.8% to 21.6% over 3 years (+3.9 pts).

🔴 PAT (Net Profit) has shrunk at 3.3% a year over 3 years.

🔴 EPS has shrunk at 3.4% a year over 3 years.

🔴 ROE has fallen from 12.4% to 8.2% over 3 years (-4.2 pts).

🔴 ROCE has fallen from 17.1% to 11.0% over 3 years (-6.2 pts).

🔴 Total Debt has grown at 52.9% a year over 3 years.

🔴 Free Cash Flow has turned negative, from ₹130 Cr to -₹186 Cr.

Balance Sheet & Cash Flow — FY2026

Total Assets

₹3,482 Cr

Total Liabilities

₹1,357 Cr

Cash & Equivalents

₹9 Cr

Operating Cash Flow

₹262 Cr

Capex

-₹448 Cr

Shareholding (proxy)

Institutional Holding

12.4%

Insider Holding

44.0%

Corporate Actions

Dividend Rate

₹4

Ex-Dividend Date

15 Sept 2026

Analyst Consensus

Target Price (Mean)

₹740

-15.6% vs CMP

Target Range

₹740 – ₹740

Peer Comparison

Company	P/E	ROE
SUN PHARMACEUTICAL IND L	34.9x	14.5%
DR. REDDY S LABORATORIES	31.0x	8.8%
CIPLA LTD	31.8x	9.8%
DIVI S LABORATORIES LTD	83.0x	17.5%

Recent News

1 positive5 general

Aarti Pharmalabs Limited (AARTIPHARM.NS) Stock Price, News, Quote & History

Yahoo! Finance Canada, 01 Oct

Aarti Pharmalabs shares hit 20% upper circuit as Q1 net profit surges 65% YoY to Rs 76 crore

The Economic Times, 10 AugResults

🟢Potentially positiveReported improvement. Check whether it came from volume, price or a one-off item before treating it as a trend.

Aarti Pharmalabs Hits ₹868 Bull Target; Gains 15.6%

HDFC Sky, 11 Aug

Aarti Pharmalabs promoter group cuts stake by 3.20% to 39.66%

scanx.trade, 22 Sept

Unpleasant Surprises Could Be In Store For Aarti Pharmalabs Limited's (NSE:AARTIPHARM) Shares

Simply Wall Street, 13 Feb

Aarti Pharmalabs: Can its CDMO bet revive growth after a weak year?

The Indian Express, 02 Jul

Watch Items

Cross-check against the company's latest quarterly filing / investor presentation before acting.

DalalBaazaar Thesis

MiddlingBusiness Quality · Financial Health · Profitability · Risk

WeakGrowth · Valuation

Points for each in the Score ↑

Weak on the fundamentals

Poor scores on business quality without a price low enough to compensate. There is no obvious argument for owning this over a stronger company at a similar valuation. 1 high-severity red flag sits above this conclusion and should be read first.

1 of 5 tripwires tripped — Free cash flow remains positive · see Key things to watch ↑