Natco's margin rebounds, but profit remains reliant on other income
Consolidated operating margin improved 8.11 percentage points QoQ, though net profit fell 23.23% as the tax rate normalised from the prior quarter's negative rate.
Filed 14 Aug 2026, 14:12 IST · Natco Pharma Ltd (NATCOPHARM)
Key takeaways
- The 44.68% YoY revenue contraction outpaced the 27.60% decline in expenses, cutting operating margin by 17.60 percentage points.
- Operating margin rebounded 8.11 percentage points QoQ as expenses fell 10.27% while revenue slipped 0.53%.
- Other income contributed 53.17% of pre-tax profit, while a 73.10-percentage-point QoQ rise in the tax rate pulled net profit down 23.23% despite a 50.11% rise in pre-tax profit.
Price around the results
Margin recovery follows two weak quarters
Natco Pharma's consolidated revenue was nearly flat QoQ, but lower expenses helped operating profit rise 46.16% and operating margin recover by 8.11 percentage points to 25.37%. The YoY comparison remains weak: revenue fell 44.68%, while expenses declined only 27.60%, leaving operating margin 17.60 percentage points below Q1FY26. This quarter breaks the margin decline from 42.49% in Q2FY26 to 24.52% in Q3FY26 and 17.26% in Q4FY26.
Tax normalisation obscures the operating improvement
Pre-tax profit rose 50.11% QoQ, but net profit fell 23.23% because the tax rate moved from -49.61% to 23.49%. Other income of Rs 143.5 cr accounted for 53.17% of pre-tax profit, making reported earnings less dependent on operating profit than the margin recovery suggests. Interest expense also rose 19.27% QoQ and was up 306.25% YoY.
Margin remains above the healthcare peer median
Natco's 25.37% operating margin was 2.56 percentage points above the 22.81% median among 74 healthcare peers that had reported the same quarter. However, it remains well below the 42.97% recorded in Q1FY26, so the sequential recovery has not restored last year's profitability level.
The market reaction was worse than Natco's usual results-day move
The stock fell 4.70% on the results day, with a 7.16-times volume ratio and a -4.57% relative move. That decline was larger than the stock's 1.72% median absolute move after its recent results; six of the last eight reactions were negative.
Q1FY27 at a glance
Consolidated figures as filed with NSE — cross-checked against an independent source.
| Line item | Q1FY27 | Q4FY26 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹735 cr | ₹739 cr | -0.53% | -44.68% |
| Other income | ₹144 cr | ₹114 cr | +26.43% | +132.58% |
| Expenses | ₹549 cr | ₹612 cr | -10.27% | -27.60% |
| Operating profit | ₹187 cr | ₹128 cr | +46.16% | -67.34% |
| Operating margin (%) | 25.37% | 17.26% | — | — |
| Interest | ₹13 cr | ₹11 cr | +19.27% | +306.25% |
| Depreciation | ₹47 cr | ₹50 cr | -6.55% | -18.23% |
| Profit before tax | ₹270 cr | ₹180 cr | +50.11% | -52.81% |
| Tax | ₹63 cr | ₹-89 cr | — | -30.79% |
| Net profit | ₹207 cr | ₹269 cr | -23.23% | -57.01% |
| EPS (₹) | ₹11.53 | ₹14.96 | -22.93% | -57.04% |
Operating margin of 25.37% compares with a Healthcare sector median of 22.81% across 74 peers that have reported Q1FY27.
How the stock reacted
| Window | Stock | vs NIFTY |
|---|---|---|
| Results day | -4.70% | -4.57% |
Volume on the results session was 7.16× its 20-day average.
What to watch
- Whether consolidated operating margin holds above 25.37% after the QoQ recovery.
- Whether revenue improves from Rs 735.2 cr without expenses again growing faster than revenue.
- Whether other income's 53.17% contribution to pre-tax profit declines.