NATCO Pharma Limited: Navigating Growth and Diversification in Q2 FY26

NATCO Pharma Limited, a prominent player in the Indian pharmaceutical sector, has reported a robust performance for the second quarter of the financial year 2026. The company, known for its focus on generics, specialty pharmaceuticals, and active pharmaceutical ingredients, continues to demonstrate resilience and strategic foresight in a dynamic global market. For Q2 FY26, NATCO Pharma recorded a consolidated total revenue of INR 1,463 crore, reflecting a healthy growth trajectory compared to the previous year. This strong top-line performance was complemented by an impressive profit after tax (PAT) of INR 517.9 crore, with EBITDA margins standing at a robust 46.4%.

The company's revenue streams were well-diversified across its key segments. Active Pharmaceutical Ingredients (API) contributed INR 53.9 crore, accounting for 3.7% of the total revenue. Domestic Formulations brought in INR 105.4 crore, representing 7.2%. The largest share came from Formulations export, including profit share and subsidiaries, which generated INR 1,147.0 crore, or 78.4% of the total. The Crop Health Sciences (CHS) division, a segment undergoing strategic transformation, contributed INR 52.4 crore (3.6%), while other operating and non-operating income added INR 104.3 crore (7.1%). This segmental breakdown highlights the company's continued strength in export markets while also showing promising developments in its domestic and agro-chemical businesses.

Strategic Initiatives and Future Outlook

NATCO Pharma is not just resting on its current performance; it is actively pursuing several strategic initiatives to ensure long-term growth and value creation. A significant development is the planned demerger of its Crop Health Sciences Division. The Board has approved the incorporation of a wholly-owned Subsidiary Company to facilitate this separation, with the incorporation targeted by December 31, 2025, and a separate listing planned for 2026. This move is expected to unlock value for the core pharmaceuticals business, enhance long-term growth, and provide operational flexibility with focused management for both entities. The Crop Health Sciences business has already shown positive traction, growing to INR 52 crore this quarter and becoming EBITDA positive, a notable turnaround from its previous loss-making status.

Another key area of strategic focus is the company's robust product pipeline and market expansion. NATCO has 30 Para IVs in its US pipeline, with over 20 First-to-File (FTF) opportunities, and 13 products already approved. Management anticipates significant product launches in the US market during FY27-28. In India, the much-anticipated launch of Semaglutide is expected around March or April next year. While the Indian Semaglutide market is projected to be highly competitive, NATCO aims to be in the first wave of launches, leveraging its price advantage to expand market size. The company is also targeting three to four new Para-IV filings in the coming months, continuously replenishing its pipeline.

Diversification and Innovation through Investments

NATCO Pharma is also making strategic investments in cutting-edge areas like cell and gene therapy, demonstrating its commitment to innovation and future-ready solutions. The company has invested in several promising ventures:

• eGenesis: An US$8 million investment in a biotechnology company focused on xenotransplantation, developing human-compatible organs for transplant. This disruptive technology aims to address the global organ shortage, with a human transplant of a genetically engineered pig kidney already performed in March 2024.
• Cellogen Therapeutics: An US$2 million investment in advanced cellular engineering and gene-therapy-based approaches. This includes developing CAR-T cell therapies for leukemia and lymphoma, and genetic therapies for beta-thalassemia and sickle cell disease, with first human dosing for Leukemia expected shortly in India.
• Eyestem: An US$1 million investment in a cell therapy company developing a patented experimental treatment for dry Age-Related Macular Degeneration (AMD). Phase I dosing is currently ongoing in India, with preparations for USFDA grade GMP manufacturing.
• Stero Therapeutics: An US$1 million investment focused on novel therapies for metabolic diseases, including Cushing's syndrome and NASH, currently in pre-clinical animal studies.

These investments underscore NATCO's vision to build capabilities in high-growth, innovative segments, complementing its traditional generics business. Furthermore, the company's acquisition of Adcock Ingram Holdings Limited in South Africa is a strategic move to diversify its business and bring stability. Acquired at a favorable valuation of 10-12x EBITDA, Adcock is expected to contribute 25-30% to NATCO's base earnings, offering better returns than typically expensive Indian acquisitions and reducing the volatility associated with high US market dependence.

Management's Vision and Outlook

Management has provided a clear outlook, guiding for a full-year PAT of INR 1,275-1,300 crore, consistent with its initial guidance. While acknowledging increased competition for products like Lenalidomide in Q3 and Q4, leading to a conservative revenue outlook for these quarters, the company remains confident in its overall growth trajectory. The base business, including its Rest of World (ROW) operations, is expected to grow by 10-15% annually, with substantial profit jumps anticipated during periods of exclusivity for new launches. NATCO Pharma's disciplined capital allocation, transparent disclosures, and proactive risk management, coupled with its strategic investments and robust pipeline, position it for sustained growth and value creation in the long term. The company's focus on high-quality generics, complex generics, and innovative therapies, both in India and global markets, reflects a well-defined business model aimed at long-term success.