Shares of Aarti Drugs Ltd. rose to their highest in more than a month after a wholly owned unit of the bulk drugmaker received an approval accorded under India’s scheme to offer incentives to boost local pharma ingredients capacity.
Aarti Specialty Chemicals Ltd. has received approval for 2-methyl-5-nitro-imidazole, with a committed production capacity of 4,000 million tonnes per annum, under the production-linked incentive scheme, according to an exchange filing on Monday. The rate incentive will be 10% of the total sales value per annum for a period of six years. The approval will be valid until FY28.
The Indian government allocated Rs 6,940 crore for domestic manufacturing of critical key starting materials or drug intermediates and active pharmaceutical ingredients—raw materials that go into making medicines—and reduce reliance on imports by setting up greenfield projects in the country with a minimum domestic value addition in four different target segments.
The approval accorded to Aarti Drugs, the filing said, is under target segment III.
“This is a very positive development for us as it will help the company diversify its product portfolio, increase the top line and enhance the profitability and margin profile of the company,” Chief Financial Officer Adhish Patil was quoted as saying in the filing.
The capex for this project, Patil said, will be done through a mix of debt and internal accruals. “We expect the capex for this project to spread over a period of 18 months and this will further reduce our dependence on imports.”
Brokerage Anand Rathi in its January note had said strong base-business momentum and fresh investments in the margin-accretive business are likely to boost sales, Ebitda and profit after tax by 19%, 36.4% and 47%, respectively, over FY20-23.
Shares of Aarti Drugs gained as much as 7.8% in early trade on Monday to Rs 717.8 apiece — the highest since Jan. 25. Of the four analysts tracking the company, three recommend a ‘buy’ and one suggests a ‘hold’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 33.2%.