Why Aarti Drugs Share Price is Rising

India is a significant player in the global medicine industry. In addition, the country has a lot of scientists and engineers that can propel the sector forward to even greater heights.

India ranks at the top when it comes to manufacturing generic medicines. We account for around 50% of the global demand for a variety of vaccines, 40% of generic demand in the US, and 25% of all medication in the United Kingdom.

Compared to other nations, the cost of manufacturing pharma goods in India is much lower and more effective.

These factors have helped the pharma companies grow over the years. Aarti Drugs is a consistent performer from the pharma space. It has a track record of distributing around 15-20% of the net profit back to the shareholder in the form of dividends or buybacks.

In recent weeks, its share price has shot up owing to various reasons. Let's take a look at each of them in detail.

#1 Q1 results

Aarti Drugs recently reported its performance for the first quarter ended June 2023.

The company's revenue grew by 7% compared to the year ago period. While its net profit shot up by 50% on a YoY basis.

The strong growth in net profit can be attributed to easing inflation pressures, economies of scale and synergies from backward integration.

Raw material prices have started to come down with global supply chain getting back on track.

The purchase costs are significantly lower inthis quarter and the economies of scale allowed the company to increase operating margins.

So strong quarterly result is one reason why its shares have remained on an uptrend.

#2 Buyback of shares

Along with quarterly results, Aarti Drugs also announced a buyback of shares. The company will buyback 665,000 shares at Rs 900 per share.

This represents 0.72% of the company's paid-up capital. The buyback price is set at a hefty premium considering the current market price.

The buyback price was at a 76% premium from the date when it announced the buyback, i.e., 21 July 2023. The closing price that day was Rs 511.

The company has a consistent track record for paying dividends and announcing buybacks. The previous buybacks happened in 2016, 2018, 2019, and 2021. The company distributes around 20% of the net profit back to the shareholders.

#3 Favourable factors

The rising domestic population and increasing government spending on healthcare and hospitals suggests high growth for Indian pharma and healthcare companies.

The Rs 150 billion (bn) production linked incentive (PLI) scheme enhances India's manufacturing capabilities. The government through Atmanirbhar Bharat scheme supports domestic companies to grow and compete globally.

Even artificial intelligence (AI) will help pharmaceutical companies to design new and automated algorithms which will help to achieve faster, precise, accurate, and repeatable results.

What next?

Aarti Drugs is the largest exporter of formulations by volume, having 14% of the market share and 12th in terms of export value.

The company showcases leadership in active pharmaceutical ingredients (API) manufacturing. It is one of the largest producers of Ketoconazole, Metronidazole Benzoate, Tinidazole, Fluoroquinolones group, Metformin, and Metronidazole.

Exports contributes around 38% of the total revenue. It has a diversified geographic presence across 6 continents and 100+ countries. It ensures diversification and risk minimisation.

Aarti Drugs has also planned a capex of Rs 6 bn for next 4-5 years. The estimated revenue potential from the capex is around Rs 42-45 bn.

It has planned phase wise capex that will lead to distributed investments. It will majorly fund its capex through internal accruals and keep the debt to minimum.

The brownfield expansion is expected to de-bottleneck the API facilities and expansion at Baddi plant will lead to growth for formulation business. The backward integration for the API and formulation segments is expected to drive cost synergies.

Overall, the company is looking for robust expansion in margins and return ratios over the next 5 years.

How Aarti Drugs shares have performed recently

Aarti Drugs share price has gained 15% in the past five trading sessions. The shares have gained over 55% in the last six months.

Aarti Drugs hit a 52-week high of Rs 645.75 on 25 July 2023 and 52-week low of Rs 313.90 on 20 March 2023.

About Aarti Drugs

Aarti Drugs was established in the year 1984 and forms part of US $900 million Aarti Group of Industries.

It has a 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, and specialty chemicals. It produces formulations with its wholly-owned subsidiary Pinnacle Life Science Private Limited.

Over the years, the company has been able to carve a niche for itself and is looking forward to expanding volumes.

For more details, take a look at Aarti Drugs financial factsheet.

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