Natural Capsules Limited , a leading manufacturer of capsules and APIs, reported a challenging second quarter for FY26, with a net loss of Rs 6.99 crores despite a modest revenue growth. The company faced headwinds from US tariff impacts on HPMC capsule exports and technical challenges in scaling up its API facility.

Financial Performance

Natural Capsules reported a quarterly revenue growth of 1.33% to Rs 45.80 crores. However, the company posted negative EBITDA margins of 1.93%, resulting in a net loss of Rs 6.99 crores for Q2 FY26.

Capsule Business Performance

The company's capsule business showed resilience despite external challenges:

• Gelatin capsule production reached 4.74 billion units in Q2 FY26, up from 4.66 billion in Q1.
• HPMC capsule production decreased to 67 million units in Q2 from 969 million units in Q1, primarily due to US tariff impacts.
• The company maintains an EBITDA margin of 11.5% to 12% in its capsule division.

API Division Challenges

The API division faced significant hurdles:

• Revenue from the API division was approximately Rs 1.22 crores in Q2.
• The division reported an operational loss of Rs 11.47 crores, including depreciation and interest.
• Technical challenges in scaling up from 10KL to 60KL fermentation batches have impacted production.

Strategic Initiatives

To address current challenges, Natural Capsules is undertaking several initiatives:

1. Engaging Chinese consultants to improve fermentation yields and process efficiency.
2. Exploring contract manufacturing opportunities to utilize spare API capacity.
3. Diversifying export markets for capsules, with increased focus on Brazil and other countries.
4. Continuing efforts to obtain US FDA and European regulatory approvals for the API facility.

Revised Guidance

Due to the ongoing challenges, Natural Capsules has revised its annual revenue guidance:

Management Commentary

Sunil Mundra, Managing Director of Natural Capsules, stated, "We are demonstrating resilience through disciplined investment capacity, ongoing R&D efforts, and strengthening regulatory compliance. These short-term headwinds do not alter our long-term strategy or the fundamentals of our business."

Future Outlook

Despite current challenges, the company remains optimistic about its long-term prospects:

• The new HPMC production line is scheduled for commissioning by the end of Q3 FY26.
• Management expects to resolve API production issues by Q4 FY26.
• The company aims to achieve cash break-even in the API division at a revenue of about Rs 100 crores with 7-8% EBITDA margin.

Natural Capsules continues to navigate through a complex business environment, balancing short-term challenges with long-term growth strategies. The company's ability to overcome technical hurdles in API production and capitalize on potential opportunities in the US market post-tariff resolution will be crucial for its future performance.

Natural Capsules Limited , a leading manufacturer of hard capsules in India, has reported a net loss of ₹6.99 crores for the second quarter of fiscal year 2026, according to the company's latest financial results. This loss represents a significant increase from the ₹5.58 crores loss reported in the previous quarter.

Revenue Growth and EBITDA Margins

Despite the challenging environment, the company managed to achieve a modest revenue growth of 1.33% quarter-on-quarter, with revenues rising to ₹45.80 crores. However, the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins turned negative at -1.93%, indicating pressure on the company's operational efficiency.

Impact of US Tariffs on Capsules Business

The company's capsules business, which has been a key revenue driver, faced significant headwinds due to the imposition of 88% tariffs on Indian exports to the US market. This development has severely impacted demand from the US, a crucial market for Natural Capsules.

API Manufacturing Challenges

Natural Capsules' foray into API (Active Pharmaceutical Ingredient) manufacturing encountered technical difficulties despite obtaining necessary regulatory approvals. The company's subsidiary, Natural Biogenex Private Limited, which commenced commercial operations on March 31, 2025, is still grappling with scaling up fermentation batches from lab to commercial scale.

Financial Performance Overview

Here's a breakdown of the key financial metrics for Q2 FY26:

Management Commentary

Sunil Mundra, Executive Director of Natural Capsules Limited, commented on the results: "Q2FY26 has been a stable quarter for our capsules business. Demand remained steady, and overall, our performance was in line with the guidance we had shared earlier. However, the key growth triggers, especially related to the HPMC capacity expansion, were temporarily affected due to tariffs imposed on Indian exports to the US."

Regarding the API business, Mundra added, "After finally obtaining all necessary approvals from the Pollution Control Board, we aimed to ramp up commercial production from Q3. Yet, we have run into technical difficulties scaling up fermentation batches—a complex process where new issues often surface when moving from lab to commercial scale."

Future Outlook

Despite the current challenges, Natural Capsules remains optimistic about its long-term prospects. The company is proceeding with its capital expenditure plans and expects to commission a new production line by the end of the current quarter. Management believes that growth in the capsules segment will pick up once there is more clarity on the US tariffs.

For the API business, the company is navigating through the technical challenges and remains confident in its ability to scale up production rapidly once these issues are resolved.

Natural Capsules Limited acknowledges that FY26 has been a tough year, with both the capsules and API businesses facing external pressures. However, the company maintains that it is on the right path and expects to emerge stronger from these challenges in the coming year.