CRISIL stated that the ratings continue to reflect the established market position in the active pharmaceutical ingredients (APIs) business marked by diverse product profile and established customer base, experienced management, healthy profitability driven by integrated unit and strong financial risk profile.

These strengths are partially offset by susceptibility to fluctuations in raw material prices, intense competition and regulatory risks and large working capital requirement.

The rating agency further said that an improvement in scale of operation and sustenance of operating margin, leading to cash accrual of more than Rs 300 crore and an improvement in working capital cycle and sustenance of financial risk profile could lead to a rating upgrade.

However, there could be a downgrade in the rating due to factors like a decline in revenue or operating margin below 17%, leading to lower net cash accrual, and larger than expected debt-funded capex or higher working capital requirement weakens capital structure.

Aarti Pharmalabs (APL) is a wholly owned subsidiary of Aarti Industries. The company is engaged in the manufacturing of APIs, intermediates and xanthine derivatives. APL facilities are located at Tarapur and Dombivali (Maharashtra) and Vapi (Gujarat). It is setting up a unit in Attali, Gujarat.

The company had reported operating income of Rs 1,853 crore and a net profit of Rs 217 crore in FY24 as against an operating income and PAT of Rs 1,945.23 crore and Rs 201.66 crore recorded in FY23.

The scrip fell 1.73% to currently trade at Rs 614.45 on the BSE.