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13 February 2025

Natco Pharma Shares Plunge 20% After Q3 Results Shock

The company's disappointing earnings report reveals steep declines, straining investor confidence and triggering market sell-off.

Natco Pharma saw its share price plummet by nearly 20% following the announcement of disappointing third-quarter (Q3) results for the fiscal year 2025, sending shockwaves through the stock market. The Hyderabad-based pharmaceutical company reported significant declines across financial metrics, which have raised concern among investors and analysts alike.

The pharmaceutical firm's consolidated net profit for Q3 FY2025 was ₹132.4 crore, down 37.75% from ₹212.7 crore during the same period last year. The results fell short of market expectations, as they were substantially lower than the consensus estimate of ₹247 crore from analysts tracked by Bloomberg. Similarly, revenue from operations dropped by 37.4%, amounting to ₹474.8 crore, compared to ₹758.6 crore recorded year-over-year. This stark decline is primarily attributed to the underperformance of their export formulation business, which is the largest revenue contributor for the firm.

After the release of these figures late on February 14, 2025, Natco Pharma’s shares opened substantially lower the next day at ₹986, representing an 18.8% drop from the previous closing price of ₹1,216.65 on the Bombay Stock Exchange (BSE). The stock continued to decline, even hitting lows of ₹981.85, leading the company’s market capitalisation to shrink to ₹17,588 crore. Notably, the current stock price is down approximately 40% from its 52-week high of ₹1,638.35 observed on September 12, 2024.

The plummet of Natco Pharma’s stock began to take shape well before the Q3 results were disclosed, with the company struggling for several sessions leading up to the earnings report. Over the course of those five sessions preceding the report, the share price eroded nearly 26% of its market value. Observers have noted the stock's slow but certain descent, especially as it faced increasing pressure from declining performance metrics.

Financial details released by Natco Pharma revealed severe impacts on its performance. The earnings before interest, tax, depreciation, and amortisation (EBITDA) dropped sharply by 85.5% year-over-year to ₹38.8 crore, illustrating severe operational challenges. The company also reported narrowing profit margins to 8.2%, down from the 35.3% margin noted for the same quarter the previous fiscal year. During the quarter, the revenue from the export formulation alone nearly halved, falling to ₹285.8 crore from ₹605.6 crore compared to the same quarter the year prior.

Despite the bleak results, Natco Pharma’s management expressed optimism about future growth. “During the quarter, the contribution from the export formulation business was lower. We expect healthy growth of business in the ensuing quarters,” they stated. Such remarks suggest the company maintains hopeful expectations for upcoming periods, even against the backdrop of these dismal results.

Alongside announcing the financial results, Natco Pharma declared its third interim dividend of ₹1.50 per share, with the record date set for February 18, and the payment expected to start from February 28, 2025. Investors will be closely watching how these dividends may impact their decisions as the company's stock appears to falter.

Market sentiment surrounding Natco Pharma reflects these rocky earnings. Data indicates the stock has advanced 17.74% over the last twelve months compared to declines of over 32% within the last six months. Certain analysts remain cautiously optimistic, with six out of twelve maintaining a 'buy' rating, though four advised caution with 'sell' recommendations based on current performances.

Overall, the sharp decline in Natco Pharma's stock serves as a stark reminder of the volatility inherent within the pharmaceutical sector, particularly amid disappointing financial results. Investors and analysts are left to question how the company's strategies moving forward can stabilize its standing within the market. With management hinting at models for recovery, only time will tell if they can recover from this substantial setback and regain investor confidence.