Natco Pharma shares tank 19%, near 52-week low on weak Q3 results

During the quarter, contribution from the export formulation business was lower; however, the company expects healthy business growth in the ensuing quarters

Natco Pharma share price tanked 19 per cent to Rs 986 on the BSE in Thursday’s intra-day trade amid heavy volumes after the company reported a weak set of numbers in its December 2024 quarter (Q3FY25) results. Consolidated profit after tax (PAT) declined 37.8 per cent year-on-year (YoY), at Rs 132.40 crore. On a sequential basis, PAT fell 80 per cent from Rs 676.5 crore in Q2FY25.

 

Total revenue of the pharmaceutical company declined 18 per cent YoY and 54.6 per cent quarter-on-quarter (QoQ), at Rs 651.crore. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin decreased to 33.0 per cent in Q3FY25 from 38.3 per cent in Q3FY24 and 60.5 per cent in Q2FY25.

 

 

During the quarter, contribution from the export formulation business was lower. However, the company expects healthy growth of business in the ensuing quarters. The formulation export segment recorded 52.8 per cent YoY and 76.4 per cent QoQ decline in revenue at Rs 285.80 crore.

 

At 09:42 AM, Natco Pharma share was trading 17 per cent lower at Rs 1,014.10, as compared to the 0.28 per cent gain in the BSE Sensex. It has corrected 41 per cent from its 52-week high level of Rs 1,685.35 touched on September 12, 2024. The stock had hit a 52-week low of Rs 849.20 on February 14, 2024.

 

Natco has two business segments, Pharmaceuticals and Agrochemicals. The pharma segment constitutes a major portion of its revenues, where export formulations contribute a major portion of the company's revenues, followed by Active Pharmaceutical Ingredients (API). The company's export formulations business focuses on high entry barriers and complex products and comprises customers in the US, Canada, Brazil, Asia-Pacific region and other countries.

 

India formulations mainly comprise oncology products. For the US, it follows a partnership model for risky product launches; it also acquired Dash Pharma for a front-end presence. It owns six finished dosage formulations (FDF), two API manufacturing facilities and two crop health sciences units. The company derives majority of its US formulation revenues from gRevlimid, gCopaxone, gFosrenol, gTykerb, gTamiflu, gDoxil, gAfinitor and gZortress.

 

A significant portion of the company's revenue comes from the US market, making Natco vulnerable to regulatory and market changes there. As an export-oriented company, the company faces risks from exchange rate volatility as well.

 

The generic pharmaceutical industry is highly competitive, putting pressure on prices and margins. Stringent and evolving regulations in key markets could impact Natco's operations. Government policies aimed at reducing drug prices could affect profitability, the company said in its FY24 annual report.

 

Going forward, the product concentration risk is expected to remain high with the substantial revenue contribution expected from gRevlimid in the US in the near-term. However, once the patent for gRevlimid expires in FY2026, the revenues and margins of the company are expected to significantly decline, ICRA had said in its rating rationale in April 2024.