Hello Sir,

Hope you are doing well.

Recently, I came across Natural Capsules Ltd.

It is the 2nd largest Indian manufacturer for gelatin capsules and now foraying into API manufacturing. API division is yet to start contributing to sales.

Source: Natural Capsules Presentation


What interesting is, even though the total demand for such APIs seems small, the company claims that it will be the only manufacturer for 2 out of 3 APIs in India and 1 of the 2 for the 3rd API.

Below, we have shared interesting insights from the Q2 FY 24 con-call of Natural Capsules to understand the current situation and the outlook for both the Capsules and the API divisions.


Before that, if you ever find a good stock in an ignored sector with promoter buying from market and increasing his stake, you should sit up and study the company in greater detail…something good might be brewing.

We recently released our new stock recommendation for Alpha/Alpha + members based on the same framework – for details click HERE


Natural Capsules – Insights from Q2 FY 24 con-call of the company

– Basic details

  • In Q2 FY 24 , we faced challenges similar to the previous quarters. We observed a flat quarterly top line performance and a YOY decline of approximately 17%
  • Domestic markets remained robust with a slight increase in realization, approximately 3-4%
  • Our exports faced significant challenges due to currency availability issues in markets like Kenya, Ghana, and Nigeria…adversely impacting our pricing and overall performance
  • Despite consistent YOY volume in Q2 FY 24, top line declined is attributed to a decrease in realization over the year

– Raw material

  • We experienced some difficulties with raw material availability last quarter, but now there is a positive development with the stabilization of gelatin prices
  • There is a potential for domestic price reduction in gelatin in the near future due to softening international raw material prices
  • Average price, what we paid for gelatin in Q2 FY 23 was Rs 627 per kg and this has dropped to Rs 538 in Q2 FY 24

– API division

  • In September, we inaugurated our Kilo lab for small volume production batches in our new API facility
  • The permission from the Pollution Control Board for our kilo lab is expected in next 3-4 weeks
  • Once we receive this clearance, we can commence operations for manufacturing intermediates and API productions can start following the receipt of the drug license
  • Post the kilo lab, we will be doing the first phase of fermentation and then second phase of fermentation will happen sometime around beginning of Q2 or end of Q2 FY 25
  • The total Capex after the second phase would be somewhere around 162 crores
  • As regarding the demand side, it is consistent for steroids API
  • The API prices have softened drastically in last four quarters; in our segment also price corrections are in the range of 25-30% in all these major drugs Prednisolone, dexamethasone, betamethasone

– HPMC capsules

  • HPMC first line installation completed in August
  • Following the successful operation of the first line, we will proceed with the installation of the second and third lines, which are ready with the vendor and they have been partially paid for
  • For three lines the total investment is about 20 plus crore, out of which major amount has already been spent
  • On an annualized basis, each of these lines would give something like 0.9 billion capsules, which should give a revenue of about 40-45 crore

– Outlook

  • Once the HPMC capsule lines are up, I think we should be doing about 40-45 crores per quarter
  • We hope that the revenues will incrementally go up but at this moment alone 45 crores with the existing capacity (without HPMC lines) maybe it could take another 3-4 quarters

– Guidance

  • Q2 FY 25 – we should be doing capsule sales about 45 to 50 crores keeping in mind the incremental revenue coming in from HPMC capsules. For API I think we should be doing a quarterly run rate of about 20-25 crores
  • Capsule margins could be around in the range of about 12 to 15%. There are chances this can go back to 18% with higher of exports to regulated markets
  • API margin and sales – we expect 20% + or so on a weighted average basis when we are able to do asset turns of 2 in 3-4 years



Disclaimer: This is not a recommendation to buy/sell Natural Capsules. The securities quoted are for illustration only and are not recommendatory.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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