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.