Mankind Pharma: Low on risk, but needs more boosters

Mankind expects an Ebitda margin of 24-26% in FY24, up from nearly 22% in FY23. (Photo: Reuters)
Mankind expects an Ebitda margin of 24-26% in FY24, up from nearly 22% in FY23. (Photo: Reuters)

Summary

  • While there are no downside risks to Mankind’s earnings growth, pricey valuations also do not offer comfort. Moreover, one should be wary of the regulatory risks in the pharmaceutical sector, analysts say

Investors who were allotted Mankind Pharma Ltd shares during the initial public offering are a happy lot. After the stellar listing gain of about 32% on 9 May, the stock has continued its upward trajectory, soaring another 48% to date.

Mankind derives more than 90% of its revenue from the domestic markets with popular brands such as Manforce (condoms), PregaNews (pregnancy test kit) and Gas-O-Fast (antacid powder) in its portfolio.

 

However, these brands are a part of the consumer healthcare segment, which is too small to move the needle for the company's overall revenue. This segment’s revenue formed only about 7% of Mankind’s consolidated revenue in the nine-month ended December (9MFY24).

Hence, the key driving force behind investors’ enthusiasm is the domestic branded prescription business, catering to therapies such as anti-infectives, gastrointestinal and cardiovascular. In fact, the company outperformed the Indian pharmaceutical market (IPM) by clocking secondary sales growth of 8.6% versus IPM’s 8.2% in 9MFY24.

Mankind is focusing on increasing the share of revenue from the chronic segment as it enjoys higher price realization thus boosting margins. The chronic segment’s margin is higher by 10-12 percentage points versus the acute segment. In 9MFY24, the share of chronic segment in the domestic branded prescription business stood at 35% against 34% in the same period last year.

Mankind expects an Ebitda margin of 24-26% in FY24, up from nearly 22% in FY23. Increasing contributions from the chronic segment, improved productivity and brand creation are expected to lead to margin expansion ahead.

Also, Mankind’s products are priced lower than its peers, which means there is room for steady price increases. To be sure, the company aims to take judicious price hikes while retaining its tag of affordability. These price hikes will be in line with or lower than the IPM price trends.

While Mankind intends to stay focused on the domestic market, it also plans to increase its footprint in the overseas markets if there are opportunities. The one-off monopolistic opportunity in the US would boost the export business in FY24.

Export revenue growth of 118% in the December quarter was mainly contributed by the one-off product. In FY25, Mankind expects export business to grow but at a comparatively slower pace than seen in FY24.

The consumer healthcare segment may see a weak FY24 amid the company’s corrective actions towards optimization of channel inventory. But FY25 is likely to be better with the company looking to expand the reach of key brands such as Gas-o-Fast and Prega News in the rural market.

“On the whole, we expect Mankind to deliver about 26% Ebitda margin and about 13% earnings per share CAGR over two years," said analysts at Antique Stock Broking in the Q3 earnings report.

But after the sharp rally, valuations of the stock are high. Mankind’s shares trade over 38 times their FY25 estimated earnings, showed Bloomberg data. “While we see no downside risks to Mankind’s earnings growth, pricey valuations do not offer comfort. Moreover, one should be wary of the regulatory risks in the pharmaceutical sector," said Vishal Manchanda, analyst, Systematix Shares and Stocks (India).

Further, investors should track the developments relating to the government’s public welfare scheme Pradhan Mantri Bhartiya Janaushadhi Pariyojana, which aims to provide quality medicines at affordable prices.

“Janaushadhi stores are weighing on the IPM growth, which is estimated to be around 8% in FY24 lower from the earlier levels of 10-11%," said Tausif Shaikh, an analyst at BNP Paribas Securities India. He expects Mankind to be shielded to a certain extent by the right strategies for domestic business and would continue to outperform the Indian pharmaceutical market.

 

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