Aarti Pharmalabs Pins Hopes on CDMO as Stock Falters
Every second, thousands of people around the world open a can of Red Bull, Monster, Pepsi, or Coca-Cola. Few realise there is a meaningful chance the caffeine inside originated from a factory in Tarapur, Maharashtra.
That company supplies 15-20% of the world's caffeine, nearly 80% of India's domestic demand, and is the world's only integrated non-Chinese manufacturer of caffeine. It is Aarti Pharmalabs Limited.
Yet, despite a strong stock market debut after its demerger from Aarti Industries, the stock has fallen roughly 22% over the last year. Investors are watching whether its bet on contract development and manufacturing (CDMO) can revive growth.
Aarti Pharmalabs runs three businesses. The first is Xanthine Derivatives (caffeine), which contributed Rs 792 crore in FY26, about 44% of total revenue. The second is APIs and Intermediates (oncology, cardiovascular, and other drugs), which contributed 36% but declined 16% from FY25. The third is CDMO, the newest and fastest-growing segment, up 32% in FY26 to Rs 276 crore. Management is betting the company's next decade on CDMO.
The caffeine business has a strong moat: customer qualification takes two to three years, making switching costly. Aarti benefits from China's withdrawal of an export rebate on xanthine derivatives and from US tariffs pushing buyers to diversify away from Chinese supply chains.
The company has invested Rs 1,300-1,400 crore over three years to expand capacity. It plans to increase xanthine capacity from 6,000 MTPA to 9,000 MTPA with a Rs 150 crore investment. In Q4 FY26, its caffeine business generated Rs 227 crore from the existing capacity.
The stock decline reflects concerns about execution risk in expanding multiple segments simultaneously. The company has budgeted Rs 400 crore for capital expenditure in each of FY26 and FY27.
