Adhish Patil, CFO, Aarti Drugs Ltd, talks about Q3FY21 numbers, PLI Scheme, CapEx and budget expectations during a candid chat with Swati Khandelwal, Zee Business in the run-up to the Union Budget 2021-22. Excerpts:

Q: Congratulations! you have posted strong numbers for the third quarter FY21. Going forward, do you think that these numbers are sustainable?

A: As far as revenue is concerned, the December quarter is always the lean quarter because the therapies in which we operate antibiotics and antidiarrheals, they are seasonal and are less in December. Accordingly, a growth of 12% has been achieved. When it comes to margin, then the gross margin is quite stable. Last time, I informed that prices declined slightly in the mid of the September quarter and since then the prices have been very stable. That is why the gross margin is almost the same and we are hopeful that the same level of EBITDA margin will continue, around 19-20%. 

Q: You have applied for the PLI scheme. What is an update on it and what kind of CapEx has been lined up for the scheme? Also, tell us about the products that will come under the under PLI scheme?

A: Certain products have been identified for CapEx, but irrespective of PLI whether it is granted or not, we will go ahead in those products. They are mainly intermediaries for the products that we are making the Active Pharmaceutical Ingredients (APIs), and we have applied for their intermediaries. The results will be out by end of February and we are quite hopeful, and I expect that we will get it. Let’s see. When it comes to the CapEx, we have a regular CapEx of around Rs 40-50 crores for maintenance, de-bottlenecking and Brownfield expansion per annul will continue. Apart from that, we have a CapEx plan of Rs 600 crore for Greenfield projects and it will start soon, and majority part of the CapEx will be used in Gujarat at GIDC and a part in MIDC. 

Q: What kind of top-line and bottom-line growth you are expecting in FY22? Also, update us about your current debt situation and what are the plans to reduce it?

A: The Brownfield expansions that we have done will be quite helpful in the growth for the growth in FY22. We are targeting a growth of around 14-15% growth and when this Greenfield CapEx will come in force that it will provide extra capacities, which gives a sense that the growth will be very high. In the next five years, we want to achieve a top line of around four and a half thousand crores, which is a long-term target. As far as debt is concerned, internal accruals are quite strong, and a lot of debt has been repaid. At December end, our debt came down to around Rs 334 crore of which around Rs 186 crore is a term loan and rest is working capital. So, the debt-to-equity ratio stands at 0.39, which is historically lowest for Aarti Drugs. As far as Aarti Drugs is concerned, I think 0.7 debt to equity ratio is quite good for ROE. From repayment of debt and interest is not any problem at 0.7 level. 

Q: Budget is round the corner. What are your expectations from the budget and what the government should do to boost your sector? 

A: Several things have been announced, like PLI scheme, so good things are happening. I wish the existing machinery of the government, like pollution board among others, turn pro-active and take actions fast, which will be quite helpful for us. Going forward, effluent management can be one of the key success factors for the pharma industry.