Posted on February 13, 2025, by Niftynews
Shares of Natco Pharma were hit hard on February 13, 2025, with the stock falling by as much as 18.5%. The significant drop in the Natco Pharma share price came after the company reported disappointing results for the third quarter (Q3) of the fiscal year. Investors reacted swiftly to the news, sending the stock spiraling downward. This sharp decline has extended a worrying trend for the company, with Natco Pharma share price losing about 25% over the past five trading sessions.
Disappointing Q3 Earnings: A Major Blow to Natco Pharma
Natco Pharma net profit for Q3 FY25 saw a sharp decline of 38%, dropping to ₹132.4 crore, compared to ₹212.7 crore in the same quarter of the previous year. This drastic decrease in profits was further compounded by a substantial drop in revenue, which fell by 37% to ₹474.8 crore, down from ₹758.6 crore in Q3 FY24. The numbers were significantly lower than market expectations, triggering a sell-off in the stock.
One of the most concerning aspects of Natco Pharma’s Q3 results was the erosion of EBITDA margins, which saw a staggering 2,717 basis points decline. The EBITDA margin for the quarter dropped to 8.2%, down from 35.3% in the same period last year. This sharp decline in profitability highlights the challenges the company is currently facing and adds to the pressure on its share price.
Export Formulations Hit Hard: Key Revenue Segment in Decline
The primary reason behind the weak performance was a significant decline in export formulations, which account for a substantial portion of the company’s revenue. In Q3, export formulations contributed 44% of total revenue, down from 76% in FY24. This drastic drop was largely due to a 50% decline in the export formulations segment, which fell from ₹605.6 crore in Q3 FY24 to ₹285.8 crore in Q3 FY25. Export formulations are typically Natco Pharma’s largest revenue driver, and this decline has had a substantial impact on the overall financial performance.
The weak performance in export formulations, along with a slight downturn in domestic formulations (which saw a decline from ₹99.4 crore in Q3 FY24 to ₹96.1 crore in Q3 FY25), led to the share price drop. With export formulations underperforming, Natco Pharma share price is likely to continue facing pressure unless the company can turn this segment around.
Margin Erosion Adds to the Woes of Natco Pharma Share Price
Another critical factor contributing to the Natco Pharma share price drop was the erosion of EBITDA margins. The company’s EBITDA margin for the quarter stood at 8.2%, a sharp decline from 35.3% in the previous year. This margin contraction reflects a combination of higher costs, lower sales, and challenges within the company’s cost structure. A decline of over 2,700 basis points in a single quarter is a significant red flag, particularly for investors closely watching the company’s profitability metrics.
Rising Trading Volumes Exacerbate Natco Pharma Share Price Decline
Alongside the sharp decline in the Natco Pharma share price, a substantial increase in trading volumes further contributed to the stock’s volatility. By mid-morning on February 13, over 24 lakh shares of Natco Pharma had already changed hands, nearly five times the one-month daily average of around 5 lakh shares. This surge in trading volumes indicates heightened investor anxiety and worsens the downward pressure on the stock. With selling escalating and investors fleeing the stock, Natco Pharma share price could face additional downward pressure in the short term.
Outlook for Natco Pharma Share Price: Can the Company Recover?
Given the current situation, the outlook for Natco Pharma share price appears uncertain. The sharp drop in export formulations, the erosion of margins, and the disappointing Q3 earnings raise concerns about the company’s ability to recover in the short term. To regain investor confidence and reverse the downward trend in its share price, Natco Pharma will need to take decisive action.
First and foremost, the company will need to stabilize its export formulations business. Since this segment accounts for a significant portion of Natco Pharma’s revenue, improving performance in export formulations is crucial for any future recovery. Additionally, the company must focus on restoring its EBITDA margins by addressing cost issues and improving operational efficiency.
If Natco Pharma can demonstrate improvement in its export formulations, domestic sales, and margins, there is potential for a recovery in Natco Pharma share price. However, if the company fails to address these challenges, the share price may continue to face downward pressure in the coming quarters.
Conclusion: Is There Hope for Natco Pharma Share Price?
The 18.5% drop in Natco Pharma share price following the disappointing Q3 earnings report is a significant blow to the company. However, it is not all doom and gloom. If the company can address its export formulations segment and restore its margins, there is still hope for a rebound in Natco Pharma share price.
For investors, the outlook remains uncertain, and Natco Pharma share price will likely continue to face volatility in the near term. Investors will need to closely monitor the company’s performance in the next few quarters to determine whether the company can successfully navigate these challenges and return to growth.
