Natco Pharma

Natco Pharma reported a consolidated total revenue of INR 4,375.9 crores for FY26, marking an 8.53% decline from INR 4,784 crores in the previous year. Net profit for FY26 also decreased by 24.79% to INR 1,418.5 crores from INR 1,883.4 crores. For Q4 FY26, net revenue stood at INR 816.9 crores, a significant 36.55% drop YoY from INR 1,287.3 crores, with profit at INR 269 crores compared to INR 406 crores in the prior year. The net profit figures include a one-time^📎 benefit of INR 115 crores from electing a new tax regime for FY26-27.

The decline in sales was primarily attributed to the impact of Revlimid's exclusivity loss, as well as challenges from the West Asia war which led to increased freight expenses due to rerouting. Other expenses in Q4 FY26 were notably higher, including INR 20-30 crores for increased R&D spending and a one-time^📎 write-down related to engineering expenses and inventory. Management acknowledged the cyclical nature of the business, expecting FY27 to be a 'subdued year' with PAT projected to drop by half to INR 700-750 crores.

With a strong net cash position of approximately INR 2,400 crores at the group level, Natco Pharma is actively pursuing 1-2 large acquisitions, particularly outside India where valuations are considered more reasonable. This strategy aims to diversify the revenue portfolio beyond concentrated bets and build a stronger global footprint. Management explicitly stated a preference for using cash for acquisitions to generate long-term returns rather than share buybacks, hoping to achieve something in this financial year.

The company expects its Brazil turnover to grow significantly from INR 280 crores in FY26 to $55-60 million in FY27-28, while Canada is projected to grow 10-15%. The South African associate firm is expected to contribute $580-600 million in revenue and $47-48 million in PAT for FY27. From FY28 onwards, Natco anticipates a more stable compounding earnings growth of 15-25% annually, driven by new exclusivities and launches in these diversified markets, moving away from high-volatility 'jackpot' type earnings.

Natco's semaglutide launch was highly competitive, with the vial formulation performing better than the pen due to logistical challenges delaying the pen launch by a month. The company is the only generic in the vial market, which sells for less than INR 1,000 compared to the pen's INR 3,000-4,000. Management targets an annualized semaglutide sales run rate of INR 75-100 crores, aiming to capture the market segment unwilling to pay higher prices for the pen version.

The company's most exciting innovative investment is an $8 million stake in eGenesis, a company that performed the first genetically modified pig kidney transplant in humans. Two patients have shown positive outcomes for about six months, and the current focus is on determining the optimal immunosuppression dose. Management views this as breakthrough work, expecting more transplants and experience in the next 12-18 months, with potential future applications for liver transplants as well.

The Crop Health Sciences division reported sales close to INR 140 crores in FY26, a significant increase from INR 60 crores last year, driven by product launches and channel penetration. However, the segment faces challenges from a 25-30% increase in input raw material costs, which are likely to lead to price increases. Due to its higher exposure to domestic sales, the agrichem business is expected to be more impacted by cost inflation compared to the export-oriented pharma business.

Natco Pharma has four US FDA facilities, with three (Kothur, Chennai, Mekaguda) inspected in 2025 and cleared with EIRs. The Vizag facility is currently pending inspection, which is expected sometime in FY27. The company plans to maintain R&D expenditure at approximately 7-9% of revenue for FY27, reflecting its continued investment in pipeline development and future growth, despite the short-term impact on profitability.