Why Did Natco Pharma Stock Plunge Over 28% in Just Two Days?
Introduction
Natco Pharma, a well-known player in the pharmaceutical industry specializing in formulations and APIs, saw its stock price take a massive hit, plummeting over 28% in just two days. This sharp decline came right after the company reported disappointing Q3 FY25 financial results, showing a significant fall in both revenue and net profits.
So, what caused this steep downfall? Let’s dive deeper into the factors behind Natco Pharma’s stock crash, its financial performance, and what this means for investors.
Natco Pharma Stock Price Movement
With a market capitalization of ₹15,828 crore, Natco Pharma’s stock has witnessed a sharp decline following its Q3 FY25 earnings report.
- Stock Open Price (Feb 14, 2025): ₹963.95 (down 3.78% from the previous close)
- Intraday Low: ₹868.25 (10.80% decline)
- Two-day fall: Over 28%
- 1-Month Return: -30%
- 5-Year Return: +30%
This dramatic drop has left investors wondering whether this is a temporary setback or a long-term concern.
Key Reason for the Stock Price Fall
The primary reason for the sharp decline in Natco Pharma’s stock is its poor Q3 FY25 earnings. The company posted a massive drop in revenue and net profits, mainly due to a significant reduction in export formulations.
Key Factors Behind the Fall
- Steep Drop in Export Formulations Revenue
- Export formulations revenue fell from ₹1,211.3 crore (Q2FY25) to just ₹285.8 crore (Q3FY25).
- This segment was a major revenue contributor, and the decline had a severe impact on the overall financials.
- Decline in Domestic Formulations
- While the drop was not as steep as in exports, domestic formulations also saw a decline, further pressuring the company’s financial health.
- Decline in Profit Margins
- EBITDA Margin fell from 38.3% (Q3FY24) to 33% (Q3FY25).
- Net Profit Margin also dropped from 26.7% to 20.3% YoY.
Natco Pharma’s Financial Performance (Q3 FY25)
The company’s latest financial results have raised serious concerns among investors. Below is a detailed breakdown:
| Financial Metric | Q3 FY24 | Q3 FY25 | YoY Change | QoQ Change |
|---|---|---|---|---|
| Revenue from Operations | ₹758.60 Cr | ₹474.80 Cr | -59.77% | -65.37% |
| Net Profit | ₹212.70 Cr | ₹132.40 Cr | -37.75% | -80.42% |
| EBITDA Margin | 38.3% | 33% | -5.3% | – |
| Net Profit Margin | 26.7% | 20.3% | -6.4% | – |
The numbers clearly indicate a substantial decline in financial performance, which explains the sharp fall in stock price.
Segment-wise Revenue Breakdown
| Business Segment | Contribution to Total Revenue (%) |
|---|---|
| Pharmaceuticals | 96.81% |
| Agrochemicals | 3.18% |
With pharmaceuticals contributing nearly all of Natco Pharma’s revenue, any decline in this segment directly affects the company’s overall performance.
Natco Pharma: Key Financial Ratios
Here’s a look at the company’s key financial ratios to assess its fundamentals:
| Financial Metric | Value |
|---|---|
| Market Cap | ₹15,828 Cr |
| Current Stock Price | ₹884 |
| 52-Week High / Low | ₹1,639 / ₹870 |
| Stock P/E | 8.50 |
| Book Value | ₹399 |
| Dividend Yield | 1.05% |
| ROCE (Return on Capital Employed) | 30.1% |
| ROE (Return on Equity) | 25.9% |
| Debt-to-Equity Ratio | 0.03 |
| Industry PE | 31.3 |
| Debt | ₹208 Cr |
| PEG Ratio | 0.50 |
| Intrinsic Value | ₹940 |
| Graham Number | ₹967 |
| Piotroski Score | 6.00 |
| Price to Book Value | 2.18 |
| Return on Invested Capital (ROIC) | 25.7% |
Despite the poor Q3 performance, the fundamentals of the company remain strong, with healthy return ratios and low debt.
About Natco Pharma
Founded in 1981 and headquartered in Hyderabad, India, Natco Pharma is a leading pharmaceutical company specializing in:
Finished Dosage Formulations (FDFs) Active Pharmaceutical Ingredients (APIs) Key therapeutic areas: Oncology, Cardiology, Neurology Agrochemicals Division: Crop Health Sciences
Natco has built a reputation for developing complex generics and niche formulations. However, the current financial performance suggests that the company is facing challenges in its core business.
Should Investors be Worried?
While the recent financial performance is disappointing, some factors indicate that Natco Pharma still holds potential:
Concerns for Investors:
Steep revenue decline raises concerns over business sustainability. Stock may remain under pressure in the short term due to weak Q3 results. Declining margins could indicate long-term profitability issues.
Reasons for Optimism:
Strong fundamentals: Low debt and high return ratios. Stock valuation is attractive with a P/E ratio of 8.50 (industry P/E: 31.3). If export formulations recover, Natco Pharma could regain investor confidence.
Conclusion
Natco Pharma’s 28% stock crash in just two days was triggered by weak Q3 FY25 results, with a massive drop in revenue and net profits. The company’s core pharmaceutical business, particularly export formulations, saw a steep decline, causing panic among investors.
However, the long-term fundamentals of the company remain strong, and if the management takes corrective actions, there could be a potential recovery in the coming quarters.
Investors should keep a close watch on the next earnings report to see if Natco Pharma can turn things around. In the short term, the stock is likely to remain volatile.
Will Natco Pharma Bounce Back? Let us know your thoughts in the comments!
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.