Natural Capsules Limited — Q2 FY26 earnings call

Call held 17 Nov 2025

Management summary

Natural Capsules Limited reported a challenging Q2 FY26 with revenue growth of 1.33% QoQ to ₹45.80 crores, but operating performance was impacted by external factors, leading to a negative EBITDA margin of 1.93% and a net loss of ₹6.99 crores. The company revised its full-year FY26 topline guidance downwards to ₹225 crores due to US tariffs affecting capsule demand and technical hurdles delaying API commercial production. Management is actively working to resolve these issues and remains confident in its long-term strategy.

Highlights

  • Revenue grew 1.33% quarter-on-quarter to ₹45.80 crores, with year-on-year growth at 11.11%.

  • New HPMC production line is on schedule for commissioning by the end of Q3 FY26.

  • Actively addressing API technical challenges with R&D and production teams, hopeful for Q4 resolution.

  • Exploring contract manufacturing for API to utilize spare capacity.

  • Exports to Brazil for HPMC have gone up, providing a backup plan against US tariff uncertainties.

Concerns

  • EBITDA margins declined to negative 1.93% in Q2 FY26.

  • Company reported a net loss of ₹6.99 crores and earning per share of negative ₹6.76.

  • Revised full-year FY26 topline guidance down to ₹225 crores from ₹270-280 crores.

  • API segment facing technical difficulties in scale-up, delaying commercial production ramp-up from Q3.

  • US tariffs impacted growth initiatives and demand for capsules, particularly HPMC.

  • API division expected to end FY26 with a loss of ₹35-37 crores.

Key financials

  1. Revenue ₹45.8 Cr +11.1%YoY
  2. EBITDA Margin -1.9%
  3. Net Loss ₹6.99 Cr
  4. EPS ₹-6.76

What they filed

Q1 FY27: revenue up 7.8%, net profit down 3.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue41 44 45 45 46 +11%38 −14%58 +30%49 +8%
EBITDA5 4 4 0 -1 −120%-2 −154%1 −70%1 +250%
Net profit-1 0 1 -6 -7 −1046%-7 −6573%-5 −1058%-6 −3%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • API Division
    ₹1.22 Cr Revenue₹11.47 Cr Loss from Operations
  • Capsule Division
    11.5% EBITDA Margin4.66 billion capsules Gelatin Volume (Q1 FY26)4.74 billion capsules Gelatin Volume (Q2 FY26)969 million capsules HPMC Volume (Q1 FY26)67 million capsules HPMC Volume (Q2 FY26)

Capital allocation

medium confidence
  • Capex Capex disclosed
    • Commissioning of new HPMC production line
    • Adding one more HPMC line
    The new HPMC production line is on schedule for commissioning by the end of this quarter.

Guidance & targets

Revenue

  • Full Year FY26 Topline Revenue · FY26 · Medium confidence ₹225 crores

    Previously ₹270-280 crores → ₹225 crores

    So, we would say that probably we will be touching a topline of about Rs. 225 crores.

    — Sunil Mundra

  • Capsule Business Revenue Revenue · FY26 · Medium confidence ₹185 crores

    Previously ₹196 crores → ₹185 crores

    our capsule volume, which we had originally anticipated about Rs. 196 crores probably we will be touching about Rs. 185 crores.

    — Sunil Mundra

  • API Business Revenue Revenue · FY26 · Medium confidence ₹40 crores
    And whereas on from the API side, we are still targeting around Rs. 40 crores of business.

    — Sunil Mundra

  • API Division Total Revenue Potential (Domestic Prices) Revenue · Medium confidence ₹250-300 crores
    See, revenue potential from the plant, considering the domestic prices, yes, 250 crores to 300 crores.

    — Sunil Mundra

  • Capsule Business Topline (with 3 HPMC lines) Revenue · Medium confidence ₹235-240 crores
    With these lines, we should achieve about 235-240 crores of topline revenue and our EBITDA margin going up to 16% to 18%.

    — Sunil Mundra

Profitability

  • Capsule EBITDA Margin Profitability · Current Year · Medium confidence 12%
    I think in the current year, probably we would not like to, keeping in mind the uncertainties, we would still like to keep the guidance on the capsule EBITDA at around 12%.

    — Sunil Mundra

  • HPMC Capsule EBITDA Margin Profitability · Future (3-4 quarters) · Medium confidence 16% upwards
    We should still be looking at about 16 upwards EBITDA margin.

    — Sunil Mundra

  • API Division Break-even Revenue Profitability · Medium confidence ₹100 crores
    I would say cash break even can be achieved if you are able to touch, say, revenue of about Rs. 100 crores with a margin of about 7% to 8% EBITDA.

    — Sunil Mundra

  • API Division Break-even EBITDA Margin Profitability · Medium confidence 7-8%

    — Sunil Mundra

  • API Division Full Year Loss Profitability · FY26 · Medium confidence ₹35-37 crores
    So, roughly, so we would say end up with a loss of about Rs. 35 crores to Rs. 37 crores.

    — Sunil Mundra

  • Capsule Business EBITDA Margin (with 3 HPMC lines) Profitability · Medium confidence 16-18%
    With these lines, we should achieve about 235-240 crores of topline revenue and our EBITDA margin going up to 16% to 18%.

    — Sunil Mundra

Operations

  • API Commercial Production Ramp-up Operations · Q3 FY26 · Medium confidence Ramp up from Q3
    After securing all necessary approvals from the Pollution Control Board, we aim to ramp up commercial production from Q3.

    — Sunil Mundra

  • API Technical Issues Resolution Operations · Q4 FY26 · Medium confidence Resolved by Q4
    Probably in the Q4, we expect to get a good result out of that and hope to achieve the higher levels of conversion.

    — Sunil Mundra

Capacity Utilization

  • API Division Break-even Capacity Utilization Capacity Utilization · Medium confidence 25-30%
    Percentage utilization of capacity, roughly around 30%, 25%-30% capacity.

    — Sunil Mundra

Cost Reduction

  • HPMC Capsule Cost of Production Cost Reduction · Medium confidence ₹150

    From ₹180 today

    At the moment, our cost of production is about Rs. 180 for HPMC capsules, and probably it can come down by at least about Rs. 30 or 20% it can come down, Rs. 150.

    — Sunil Mundra

Capacity

  • HPMC Annual Capacity (with 2nd line) Capacity · High confidence 1.4 billion capsules
    Each of these HPMC line gives us about 700 million annual capacity. So, once we add the second line, it will become 1.4 billion capsules.

    — Sunil Mundra

What to watch in Q3 FY26

API Commercial Production Ramp-up

Q3 FY26
Current Delayed due to technical difficulties
Target Ramp-up from Q3 FY26

Why it matters

Successful ramp-up is crucial for the API segment to contribute to revenue and reduce losses, impacting overall company profitability.

After securing all necessary approvals from the Pollution Control Board, we aim to ramp up commercial production from Q3.

Risks & concerns

  • US Tariffs on Indian Capsules

    high

    Tariffs imposed on Indian exports to the U.S. impacted growth initiatives and demand for capsules, creating uncertainty. Management is hopeful for resolution by end of 2025.

    Management acknowledged

  • API Technical Hurdles in Scale-up

    high

    Technical difficulties encountered during scale-up from lab to commercial level (10KL to 60KL) for API production, delaying commercial ramp-up and causing losses. Management is actively addressing these issues with R&D and consultants, aiming for Q4 resolution.

    Management acknowledged

  • Chinese Competition in API

    medium

    Chinese companies produce KSM for API at lower costs due to bigger batch sizes and improved conversion ratios, leading to market price drops. Management plans to compete in the domestic market initially, then target regulatory markets (EU, US) where Chinese competition is negligible.

    Management acknowledged

  • Regulatory Delays (API PLI)

    medium

    Delays in government approvals and licenses (Pollution Control Board, drug licenses) have impacted the timeline for PLI incentives. Management is hopeful for an extension of the incentive period and notes that incentives will be based on actual production.

    Management acknowledged

  • Market Slowdown in Nutraceuticals (US)

    medium

    Inflationary situation and slowdown in the US nutraceutical market are impacting HPMC demand. Management is diversifying exports to other countries like Brazil and has backup plans to convert HPMC lines to gelatin.

    Management acknowledged

Q&A highlights

7 direct
Guidance Credibility and FY26 Sales Revision Direct
So, we would say that probably we will be touching a topline of about Rs. 225 crores.

Analyst challenged management's aggressive guidance, leading to a significant downward revision of the full-year FY26 sales target from ₹270-280 crores to ₹225 crores, highlighting ongoing business challenges.

Asked by Sanjay Ladha

Capsule Business Margin Profile Direct
I think in the current year, probably we would not like to, keeping in mind the uncertainties, we would still like to keep the guidance on the capsule EBITDA at around 12%.

Analyst questioned why capsule EBITDA margins haven't returned to 20% levels. Management explained market dynamics post-COVID and set a current year target of 12%, aiming for 16%+ with HPMC expansion.

Asked by Sanjay Ladha

HPMC US Tariff Impact and Backup Plans Direct
we have backup plans like now our exports to Brazil have gone up. There also we are pushing to increase our HPMC sales. That's number one. Another backup plan is that we can convert this HPMC line into gelatin line and utilize that capacity.

Analyst probed the impact of US tariffs on HPMC growth and asked for backup strategies. Management detailed the tariff differential and outlined plans to diversify exports and convert production lines if needed.

Asked by Sanjay Ladha

API Fermentation Scale-up Challenges and Resolution Timeline Direct
Probably in the Q4, we expect to get a good result out of that and hope to achieve the higher levels of conversion.

Analyst pressed on the persistent delays and technical hurdles in API fermentation scale-up. Management acknowledged the issues, explained the complexity, and set a Q4 FY26 timeline for resolution with external consultants.

Asked by Hardik Pasari

API Demerger or Strategic Partner Consideration Partial
We will take up that question. I am unable to answer this at this point of time. Probably, it needs a little bit of thinking at the board level and then we will be able to take a decision.

Analyst asked about the threshold for considering strategic options for the API division given accumulated losses. Management deferred a direct answer, indicating it's a board-level decision for the future.

Asked by Hardik Pasari

API Alternate Plans if Fermentation Issues Persist Direct
Alternate plans are like we are also exploring to do some contract manufacturing business. Utilize the spare capacity till we start using them fully for our own products.

Analyst inquired about contingency plans for the API segment if technical issues continue. Management revealed exploring contract manufacturing to mitigate capacity underutilization.

Asked by Hardik Pasari

PLI Incentive Delays and Scheme Changes Direct
We are hopeful that the government considering the challenges that fermentation industry faces, they will consider this demand. They have not refused, not they have consented, and we are hopeful that they may consider.

Analyst questioned the impact of PLI delays on timelines and incentives. Management explained the reasons for delays and expressed hope for an extension, noting a positive change where incentives will be based on actual production.

Asked by Hardik Pasari

HPMC vs Gelatin Pricing Differential and Growth Drivers Direct
HPMC capsule generally goes in Nutra, Ayurveda, and herbal, where these are lifestyle... Whereas gelatin capsules are going in for pharma, where out of compulsion, they have to take the capsule. So that's the difference. Growth is coming in Nutra segment, in alternative medicine segment, in HPMC.

Analyst asked about the significant price difference between HPMC and gelatin capsules and the growth drivers. Management clarified the market segments and growth areas for each type, with HPMC catering to wellness and alternative medicine.

Asked by Lakshmi Narayan

2 min read 6 chapters

Detailed narrative

Q2 FY26 Financial Performance Overview

Natural Capsules Limited reported a challenging Q2 FY26, with revenue growing 1.33% quarter-on-quarter to ₹45.80 crores and 11.11% year-on-year. However, operating performance was significantly impacted by external factors, leading to a negative EBITDA margin of 1.93%. The company recorded a net loss of ₹6.99 crores, translating to an earning per share of negative ₹6.76 for the quarter.

Revised FY26 Topline Guidance and Segment Contributions

The company revised its full-year FY26 topline guidance downwards to approximately ₹225 crores, a reduction from the earlier guidance of ₹270-280 crores. This revision is primarily attributed to tariff challenges in the capsule segment, now projected to contribute ₹185 crores (down from an anticipated ₹196 crores). The API business is still targeting a contribution of ₹40 crores to the overall topline for FY26.

API Segment: Technical Hurdles and Future Outlook

The API segment generated a modest revenue of ₹1.22 crores in Q2 FY26 but incurred a significant loss from operations of ₹11.47 crores, including depreciation and interest. The ramp-up of commercial production, initially planned for Q3, has faced technical difficulties in scaling from 10KL to 60KL, primarily due to bacterial adaptation issues. The company has engaged Chinese consultants to resolve these challenges, with a resolution anticipated by Q4 FY26. The long-term revenue potential for the plant is estimated at ₹250-300 crores at domestic prices, with a break-even point at ₹100 crores revenue and 7-8% EBITDA margin.

Capsule Business: Tariff Impacts and Strategic Responses

The capsule business maintained an EBITDA margin of 11.5-12% in Q2 FY26. However, US tariffs on Indian HPMC capsule exports (14% duty compared to China's 88%) have impacted demand and growth initiatives. To mitigate this, the company is actively increasing exports to other markets like Brazil and has a contingency plan to convert HPMC lines to gelatin lines if tariff uncertainties persist. The company aims for 16%+ EBITDA margins with the addition of new HPMC lines.

Capacity Expansion and Cost Optimization for HPMC

Natural Capsules is confidently progressing with its capital expenditure program, with a new HPMC production line scheduled for commissioning by the end of Q3 FY26. This expansion, along with another planned line, is expected to increase the total HPMC annual capacity to 1.4 billion capsules. The company is also focused on cost reduction for HPMC capsules, targeting a decrease in production cost from the current ₹180 to ₹150 per capsule.

PLI Scheme and Regulatory Environment

Delays in claiming PLI incentives for the API division are attributed to an increase in project size and delays in obtaining necessary regulatory approvals and licenses. While the government has not yet formally responded to requests for an extension of the incentive period, management is hopeful for a positive outcome. A key positive development is that incentives will now be granted based on actual quantity produced and sold, rather than solely on committed quantities.

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