💰 Financial Performance

Revenue Growth by Segment

The capsule business remains the primary revenue driver, growing 11.11% YoY to Rs. 45.80 Cr in Q2 FY26. The API segment is in a nascent stage, contributing only Rs. 1.22 Cr in revenue for the same quarter. Overall H1 FY26 revenue reached Rs. 91.01 Cr, a 13.18% increase from Rs. 80.41 Cr in H1 FY25.

Geographic Revenue Split

Not disclosed in available documents; however, the company is focusing on increasing exports to regulated markets and international marquee pharma clients to enhance margins and stabilize the topline.

Profitability Margins

Profitability has been severely impacted by the API segment's slow ramp-up. The company reported a net loss of Rs. 6.99 Cr in Q2 FY26 compared to a loss of Rs. 0.61 Cr in Q2 FY25. H1 FY26 net loss widened to Rs. 12.57 Cr from a marginal loss of Rs. 0.01 Cr in H1 FY25.

EBITDA Margin

Consolidated EBITDA margin for Q2 FY26 was negative 1.93%, a sharp decline of 1286 bps from 10.93% in Q2 FY25. This was driven by an operating loss of Rs. 11.47 Cr in the API division, while the capsule division maintained margins between 11.5% and 12%.

Capital Expenditure

The company is incurring incremental capex of Rs. 10-12 Cr in its subsidiary, Natural Biogenex Private Limited (NBPL), for a Phase-2 fermenter in FY26. This follows significant historical investment in the steroidal API facility and HPMC capsule lines.

Credit Rating & Borrowing

ICRA downgraded NCL's ratings due to a weakened financial profile and slow API ramp-up. Total debt to operating profit deteriorated to 6.4 times as of March 31, 2025, compared to 2.8 times on March 31, 2023. The company has a consolidated debt repayment obligation of Rs. 10.5 Cr in FY26.

⚙️ Operational Drivers

Raw Materials

Primary raw materials include Gelatin and HPMC (Hydroxypropyl Methylcellulose). Specific percentage of total cost for each is not disclosed, but pricing pressure in gelatin has significantly compressed margins.

Capacity Expansion

NCL has a current capsule capacity of 20 billion units. It is expanding its HPMC capacity with three new lines; one became operational in Q4 FY24, and the remaining two are expected by Q4 FY25. The API facility is also scaling up commercial production.

Raw Material Costs

Raw material costs are rising as a percentage of revenue due to pricing pressure in the gelatin capsules business, where realizations declined in FY24 and H1 FY25, leading to OPM falling from 19.9% in FY23 to 12.2% in FY24.

Manufacturing Efficiency

The API division requires a capacity utilization of 25-30% (approximately Rs. 100 Cr revenue) to achieve a cash break-even. Current utilization is significantly lower, contributing to quarterly losses of ~Rs. 10 Cr.

📈 Strategic Growth

Expected Growth Rate

23-25%

Growth Strategy

Growth will be achieved by transitioning from low-end domestic customers to high-value international pharma clients, leveraging PLI scheme incentives for steroidal APIs, and operationalizing new HPMC capsule lines which command higher margins (16-18%).

Products & Services

Hard Gelatin Capsules, HPMC (Vegetarian) Capsules, and Steroidal Active Pharmaceutical Ingredients (APIs).

Brand Portfolio

Natural Capsules Limited (NCL), Natural Biogenex Private Limited (NBPL).

New Products/Services

New steroidal APIs and expanded HPMC capsule variants are expected to be the primary contributors to the targeted Rs. 225 Cr topline for FY26.

Market Expansion

Focusing on regulated markets and marquee pharma clients globally to reduce margin volatility and increase the share of high-value exports.

Market Share & Ranking

NCL holds a 20 billion unit capacity, which is approximately 10% of the 200 billion unit Indian capsule market.

Strategic Alliances

The company has a shareholding agreement with Somerset Indus Healthcare Fund II & Somerset Indus Healthcare India Fund.

🌍 External Factors

Industry Trends

The industry is shifting toward vegetarian HPMC capsules and domestic API manufacturing. NCL is positioning itself as a dominant player in the domestic steroidal API market to capitalize on the PLI scheme and a 1.3 trillion unit global capsule market.

Competitive Landscape

NCL competes in a fragmented global market of 1.3 trillion capsules, facing pressure from both large-scale global manufacturers and domestic pricing competition in the gelatin segment.

Competitive Moat

The moat is built on technical capabilities in HPMC manufacturing and complex steroidal API processes. These are sustainable due to high regulatory hurdles and the R&D intensity required to scale from lab to commercial production.

Macro Economic Sensitivity

Highly sensitive to global trade policies and tariffs, which directly impacted the company's ability to meet its original FY26 revenue guidance of Rs. 270-280 Cr.

Consumer Behavior

There is an increasing global consumer preference for vegetarian (HPMC) capsules over traditional gelatin-based products, driving NCL's capacity shift.

Geopolitical Risks

Tariffs and shifting regulatory environments in international geographies continue to shape trade flows and business momentum for the capsule export business.

⚖️ Regulatory & Governance

Industry Regulations

Operations are governed by the PLI scheme for APIs, Pollution Control Board norms, and manufacturing standards required for regulated pharma markets.

Environmental Compliance

The API facility obtained Consent for Operation (CFO) from the Karnataka State Pollution Control Board on January 13, 2025. Specific ESG costs are not disclosed.

Legal Contingencies

The company reports no pending litigations that would impact its financial position other than items disclosed under Note No. 45; the specific value of these items is not disclosed.

⚠️ Risk Analysis

Key Uncertainties

The primary risk is the slow ramp-up of the API facility (NBPL), which currently generates a quarterly loss of ~Rs. 11.47 Cr. Technical hurdles in scaling production could impact FY26 revenue by up to 17% relative to original guidance.

Geographic Concentration Risk

Not disclosed, though there is a stated intent to shift more volume toward international exports.

Technology Obsolescence Risk

Risks associated with the scale-up of advanced chemical processes from lab to commercial levels; failure to resolve these could lead to sustained cash losses.