Mankind Pharma shares at Rs 1,400? Macquarie initiates coverage on stock ahead of listing

Ahead of Mankind Pharma's listing today, global brokerage Macquarie came out with an initiation report on the stock with an outperform rating and a target of Rs 1,400 apiece.

Mankind Pharma, the second-largest domestic pharma company in terms of volume, appears to be well positioned to double its profit after tax by FY26, Macquarie said, adding that continued sales outperformance to the India market, focus on chronic therapies and improved salesforce productivity are growth drivers for the drug maker.

Mankind Pharma derives 98 per cent of revenue from the domestic pharma market. Within its domestic business, 90 per cent of revenue comes from prescription pharmaceuticals and the rest from the consumer health business.

"It has one of the largest networks of medical representatives in India and over 80 per cent of doctors prescribe its products. We believe growth potential in the chronic segment would likely drive meaningful margin expansion from 22 per cent in FY23e to 28 per cent by FY26e, leading PAT to more than double (from Rs1,300 crore in FY23e to Rs 2,800 crore in FY26e)," Macquarie said. 

Macquarie noted that Mankind has a net cash of about Rs 280 crore as of December 2022 with strong cash flow generation. FY22 ROIC of 30 per cent and ROE of 26 per cent fare much better than its domestic peers (average ROIC of 17 per cent, ROE 16 per cent) and are in line with MNC peers such as Abbott, Pfizer, and GSK India.

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That said, capacity utilisation remains low, suggesting room for improvement, Macquarie said.

"At the upper band of its IPO price of Rs 1,080, the stock is valued at 19 times PER on our FY25e EPS of Rs 56. Our target price of Rs 1,400 is based on 25 times FY25e PER, at a 20 per cent discount to MNC peers to account for innovative product launch optionality with MNC companies. We initiate coverage with an Outperform rating," the brokerage said.

Macquarie said a failure to gain market share in chronic, regulatory changes in IPM, further stake sale by PE investors are a  few risks to Mankind Pharma valuations. 

The Mankind Pharma IPO, which ran from April 25-April 27 in the Rs 1,026-1,080 price band, was subscribed 15.32 times. The quota reserved for qualified institutional bidders was subscribed 49.16 times, while the portion for non-institutional bidders was booked 3.80 times. The allocation of retail investors was subscribed merely 92 per cent.

Mankind Pharma develops, manufactures, and markets pharmaceutical formulations across various acute and chronic therapeutic areas and several consumer healthcare products. It has 36 brands across the segments including anti-infectives, cardiovascular, gastrointestinal, anti-diabetic, well-being and respiratory.

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