Marksans Pharma Ltd


BSE: 524404 | NSE: MARKSANS | ISIN: INE750C01026 
Market Cap: [Rs.Cr.] 877 | Face Value: [Rs.] 1
Industry: Pharmaceuticals - Indian - Bulk Drugs

 Discuss this stock

Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENT

Global Pharmaceutical Market

The global pharmaceutical market is expected to grow at a CAGR of 5%, exceeding salesworth US$ 1.1 Trillion by 2017. This market, however, is expected to undergo a number oftransitions which would impact the course of its growth. These transitions include a shiftof growth from the developed to the emerging markets, an increasing focus onbiopharmaceuticals compared to small molecule drugs and an increasing preference forgenerics compared to their branded versions.

Generics-focused companies will continue to benefit from patent expirations in 2013.While generic drug use is rising globally, ongoing price erosion and higher costsassociated with producing more complex drugs are likely to cut into profits.

However, US deficit reduction efforts and persistent pricing pressures from healthcarereforms, in Europe in particular, will continue to weigh on the revenues of pharmaceuticalcompanies.

The regulatory pathway for biosimilars, which are copies of biotech drugs, is likely tobecome clearer in the US, opening the door to regulatory filings this year. Biotech drugsare manufactured in a living system such as plant or animal cells, as opposed totraditional pharmaceutical drugs, which are made by combining chemical ingredients. InEurope, the creation of a pathway for copies of more complex biotech drugs could lead toat least one biosimilar being ready for launch when the patent on Remicade expires inEurope in August 2014.

However, market uncertainty, responding to price pressure, rising competition andregulatory changes are the leading business concerns for the global pharmaceuticalindustry in 2013.

A significant percentage of pharmaceutical manufacturing industry respondentshighlighted that capital expenditure towards 'new product development', 'employeetraining', and 'IT infrastructure development' would increase in 2013.

The top three priorities for global pharmaceutical industry are 'new products andservices', 'improve operational efficiency' and 'expand in current markets'.

The US to offer the highest growth potential among developed countries in 2013-2014.

However, increasing price and cost pressure, regulatory changes and expiring patentsare leading to shrinking margins in the pharmaceutical industry.

The global pharmaceutical industry is facing a major structural change. Even thoughglobal sales have risen in recent years, profit margins have dropped considerably. Thismeans realigning business models to fit the various product/ market constellations andtheir requirements is imperative for ensuring business success.

Strategies for success

(i) pharmaceutical companies must manufacture their products in a cost-efficient way toremain profitable. To do so, companies can completely outsource certain functions orrelocate them to low-cost countries. Companies that can offer high-quality products atreasonable prices will be successful, but this will require efficient administration,marketing and sales models.

(ii) A growing middle class, improving healthcare and rising income levels in emergingmarkets is driving up demand, even for more expensive medication. The development of newand innovative products provides considerable growth potential. However, successful marketentry is possible only if products meet specific market conditions and patientrequirements. To realize this, companies should conduct their medical affairs and R&Dactivities locally. Furthermore, these companies need a strong local sales organizationand to collaborate with regional companies in order to gain effective access to patientswilling to pay higher prices.

(iii) Pharmaceutical companies need efficient production and sales initiatives to drivetheir sales and earnings. To do so, collaborating with local partners makes good businesssense.

US Generic Market:

• There is continued penetration of generics in the US market due to steeplyescalating healthcare costs and the impending patent cliff. Large number of patented drugsare going off-patent in the next few years, thereby offering significant opportunities forIndian pharmaceutical players.

• The US generic market presents the following advantages for the Indian genericsplayers:

- Approval from US FDA can open up a large USD 35bn market;

- The market is easier to penetrate as it is dominated by 'generic generics' comparedto branded-generics markets in the emerging world;

- Distribution chain already in place and hence large upfront investments in sales andmarketing infrastructure are not required; and

- The gestation period is shorter, as there is no need to build relationships withphysicians.

• The US market accounts for approximately 40 percent of the global genericsmarket and therefore offers a large scope for scaling up operations.

Impending 'Patent Cliff'

• Approximately USD 150bn worth of drugs are expected to go off-patent by 2015.The value of these drugs going off-patent is expected to peak in the currentfiscal.

• The sale value of drugs going off-patent over the next five years in the USmarket is approximately double the sale value of drugs that went off- patent in the lastfive years.

• New generics sales are expected to be the key growth drivers in the regulatedmarkets of the US and Europe.

• The new generics sales are expected to grow at a CAGR of 22 to 23 percent in theUS. However, the existing generics market is expected to grow slowly at a rate of around 3percent.

• This provides a considerable opportunity for generic manufacturers to capturegreater generics' share of the US pharma market.

• Additionally, generic companies will also benefit by the US healthcare bill toextend healthcare coverage to Americans who are still uncovered, as part of healthcarereforms. The provisions of the new healthcare bill are expected to provide a big impetusto generic drug manufacturers, globally.

• The absorption rate for generics in the US market is thus expected to steadilyincrease over the next few years.

Emerging markets offer growth opportunities

Focusing on high-growth emerging markets could provide a way out of this toughsituation. These markets will play a major role in driving the growth of the globalpharmaceuticals market in the coming years. While the market for pharmaceutical productswill grow on average by 4.5% annually through 2016, growth in emerging market willincrease by almost 12%. Especially China, Brazil, India and Russia are experiencingabove-average growth. Overall, emerging markets are expected to account for nearly 40% ofthe global market for pharma solutions by 2016.

The rising purchasing power in these regions, the growing middle class and betterhealthcare systems are driving the demand for medication. Many pharmaceutical companiesare increasingly focusing on emerging markets to better leverage the considerable growthpotential in these regions. More and more pharmaceutical companies are already planning torelocate their administration, R&D and sales departments to these high-growthcountries.

Global outsourcing market:

Recent structural changes in the global pharmaceutical industry has led to outsourcingbeing a key strategy for improving profitability for innovator companies. These include a)declining productivity, b) rising costs of R&D, c) looming patent cliff, d) increasinggenericization of products coupled with weaker pipelines of innovator companies, e) fewerblockbuster launches, and f) delays in new product approvals.

Major decisive factors for pharmaceutical companies to adopt outsourcing includeflexibility, quicker time-to-market and lower scale-up costs in order to meet increasingdemand for new drugs and focus on core competencies. Outsourcing also helps in thereduction of excess capacity in their manufacturing networks and restructure supplychains.

• Global outsourcing market reported a slowdown in growth driven by factors suchas inventory rationalization by global innovators, reduced R&D spending etc.,triggered by the recent economic crisis.

• However, over the medium to long-term, this market is likely to grow at a CAGRof about 20-25 percent, backed by strong fundamental drivers such as a) increasedoutsourcing by big pharmaceutical companies; and b) increased traction in the new andhigh-end service contracts.

Asia emerging as a preferred outsourcing hub

• The nucleus of outsourcing is fast shifting from western territories of NorthAmerica and Europe towards Asia. Asia has number of local contract manufacturing playersand a significant number of these players have US FDA and GMP certifications.

• Asian countries provide significant cost advantage as compared to the westernregion.

• Pharmaceutical companies have already realized the potential offered by thesemarkets with about 32 percent of them preferring Asia for outsourcing.

Indian CRAMS Market

• Indian CRAMS industry (both contract manufacturing and contract researchtogether) is growing at about 12 percent of the global CRAMs market. Growth in the CROsector is expected to be greater than the growth in the CMO sector.

• Formulations outsourcing forms a small part of the Indian CMO sector. However,formulation outsourcing is expected to capture greater market share in the next few years.

• Indian CRAMs players have diversified in terms of their product offerings andare building competencies to match the global players. The players are investing in MNCrelationship and have also made some overseas acquisitions to gain access to customers andcritical technologies/capabilities.

PERFORMANCE REVIEW

The Company is actively engaged in R&D and offering CRAMS to global pharmaceuticalcompanies. The R&D capability of the Company includes Dossier Development Service,Formulation Development and Specified Drug Delivery System.

The Company's state-of-the-art manufacturing facility in Goa is of internationalstandards adhering to stringent quality norms and are approved by US FDA, UK MHRA,Australian TGA, Brazillian ANVISA and other foreign health authorities. This facility isdesigned to produce high quality, high value formulations using cost-effective methods andprocesses. The company meets international standards of quality at each step of themanufacturing process. It is one of the biggest manufacturing facilities for soft gelatincapsules and tablets in Asia.

International formulation business

Main focus market for the Company is US, UK, Australia, New Zealand, Canada and otherEuropean markets. It is also eying to tab huge Russian and CIS markets and has starteddossier filling in these countries.

US Market: The Company has received ANDAs approval from US FDA and are in the processof approval for more products.

The Company has already tied up with major distributors/ big pharma companies in the USmarket for sales and distribution of these products.

The Company has now started its next phase of development of molecules with highpotential in the US and European markets. The Company has adopted a cognizant strategy ofidentification of products involving complex chemistry, difficult formulations andproducts guided by stringent regulatory norms. This focused presence in niche areas willhelp to ensure a sustainable market opportunity and continued profitability.

R & D has developed the new formulations for existing molecules and drugcombinations which include its standardization and execution at production site,evaluation of these batches against reference samples for pharmaceutical andbio-equivalence. Alliances for the said molecules are already in place for the US market.

Europe Market: The company currently has more than 100 product registrations acrossvarious therapeutic segments. For contract manufacturing opportunities, the Company hastied up with major Generic players across Europe. The Company has also registered growthin its business via supply to major retail brands in the analgesics and anti inflammatorysegment. The following are some of the major products in these markets:

Product Therapeutic Category
Ibuprofen softgel caps 200/400mg analgesic
Metformin anti-diabetic
Paracetamol antipyretic, analgesic
Gabapentin anti-epileptic
Ranitidine anti-ulcerant
Quanapril anti-hypertensive
Terbinafine skin infections
Loratadine anti-allergic
Aspirin E antipyretic, analgesic
Temazepam insomia
Tramadol pain reliever
Fluoxetine depression
Norfloxacin anti-infective
Lisinopril anti-hypertensive
Alprazolam anti-anxiety
Piroxicam NSAIDs
Chlordiazepoxide sedative
Cyclazine HCI antihistamine
Mitrazapine depression
Co-trimoxazole anti-infective
Domeperidone antiemetic
Phenytoin anti-epileptic
Dextromethorphan cough Scold
Paracetamol + Phenylephrine HCI analgesic, antipyretic
Diphenhydramin HCI anti-allergic
Gliclazide anti-diabetic
Acebutolol anti-hypertensive
Bisoprolol anti-hypertensive

Australia & New Zealand Markets: After getting approvals for the Ibuprofen 200mgSoft gel product within Australia and New Zealand, major Pharmacies have already tied upfor supply of the product through their retail chains.

Emerging Markets: The Company is aggressively spreading its wings in the emergingmarkets. Till now it has filed 529 registrations across all emerging markets and about 150products are in the process of filing. Out of the total registration filed, it has alreadygot 313 products registered in these countries. Company's products are well accepted inthese countries.

Further, statutory compliances are in process for entering in central and south Americaand other CIS countries.

New Products to drive growth

The Company has introduced several new products in global markets in the last twoyears. The new products launched in FY12 and FY13 generated revenues of Rs 274mn in FY13.We expect the new products to drive future growth of the company. These products are asfollows:

Year Product Therapeutic category
FY12 Quinapril anti hypertensive
Terbinafine skin infections
Loratadine anti-allergic
Temazepam insomnia
Norfloxacin anti-infective
Alprazolam anti-anxiety
Domeperidone antiemetic
Phenytoin anti-epileptic
FY13 Gabapentin anti-epileptic
Piroxicam NSAIDs
Chlordiazepoxide sedative
Cyclazine HCI antihistamine
Mirtazepine depression
Co-trimoxazole anti-infective
Dextromethorphan cough Scold
Parecetamol + Phenylepherine HCI analgesic, antipyretic
Diphenhydramin HCI anti-allergic
Gliclazide anti-diabetic
Acebutolol anti hypertensive
Bisoprolol anti hypertensive

Subsidiaries

The Company's global manufacturing and marketing functions are organized amongst fourlegal entities in India, UK and Australia.

Relonchem Limited is engaged in licensing, marketing and supply of genericpharmaceutical products across UK. Nova Pharmaceuticals Australasia PTY Limited is awholesale distributor of private label OTC and pharmaceutical products which operates inAustralia and New Zealand. Whereas Bell, Sons & Co. (Druggists) Limited is amanufacturer and distributor of OTC products in the UK.

Major products of these subsidiaries are as follows:

Bell, Sons & Co. (Druggists) Limited, UK Relonchem Limited, UK Nova Pharmaceuticals Australasia Pty Limited. Australia
Bronchial Balsam Fluoxetine capsules Hedanol
Emmollient Lisinopril tablets Hedafen
Muscle Rub Ibuprofen tablets YLC tablets
Coop Dry Tickly Loratadine tablets HB cream dispenser
Vapour Rub Tamoxifen tablets HBcreme refill
Cough Linctus Aciclovir ointment 2% Strataderm
Asda Bronchial Balsam Metformin tablets B & G cough syrup
Tesco Adult Cough Omeprazole capsules Signature Say & Night
Menthodex Cough Mix Propanolol tablets Signature Allergy
Hydrogen Peroxide Ranitidine tablets Signature Sinus
Menthodex Lozenges Simvastatin tablets Signature Head Cold
Baby Cough Terbinafine tablets HB capsules
Gliclazide tablets B & Gchestrub
Finasteride tablets Soft gel Headafen
Medi Choice Ibuprofen
Terry White Aspirin
Chem Mart Aspirin Pharmacy Choice Aspirin

OPERATIONAL REVIEW

The Company constantly reviews its product-market portfolio with a view to strengthensustainable growth. It has worked towards strengthening its competitive status byinvesting in long-term value assets.

To ensure superior control of operations, the company has been able to better monitorits operations and costs.

Revenue

Turnover of the Company has increased from Rs 15459.13 Lacs in 2011-12 to Rs 19229.70Lacs in 2012-13 i.e. an increase by 24.39%.

Cost of Sales

Cost of sales has increased to Rs 10270.37 Lacs in 2012-13 from Rs 8775.84 Lacs in2011-12 i.e. an increase by 17.03%.

Other Expenses

Other Expenses decreased from Rs 17105.90 Lacs in 2011-12 to Rs 2993.19 Lacs in 2012-13i.e. a decrease by 82.5%. The other expenses were high during 2011-12 due to one timeexceptional charges.

Depreciation and amortization expenses

Depreciation and amortization expenses decreased from Rs 1798.12 Lacs in 2011-12 to Rs870.33 Lacs in 2012-13 i.e. a decrease by 51.60%.

Finance Cost

Finance cost has decreased from 4908.76 Lacs in 2011-12 to Rs 1013.24 Lacs in 2012-13i.e. a decrease by 79.36%. During

2011- 12, it was high due to provisioning of foreign exchange fluctuation loss onFCCBs.

Share Capital

Share Capital has increased to Rs 5203.07 Lacs in 2012-13 from Rs 5028.07 Lacs in theyear 2011-12 i.e. an increase by 3.48% due to conversion of warrants into equity shares.

Reserves and Surplus

The Reserves & Surplus is Rs 5794.56 Lacs in 2012-13 as compared to a negativeResearve & Surplus of Rs 23951.58 Lacs in the year 2011-12 i.e. an increase by124.19%.

Long term borrowings

Long term borrowings has reduced to Rs 787.68 Lacs in 201213 from Rs 1520.13 Lacs in2011-12 i.e. adecrease by 48.18% due to the repayment during the year.

Short term borrowings

Short term borrowings has reduced to Rs 7531.23 Lacs in 2012- 13 from Rs 7718.34 Lacsin 2011-12 i.e. a decrease by 2.42%.

Trade Payables

Trade payables has increased to Rs 2985.94 Lacs in 2012-13 from Rs 2947.85 Lacs in2011-12 i.e. an increase by 1.29%.

Other current liabilities

Other current liabilities has reduced to Rs 7505.16 Lacs in 2012-13 from Rs 29443.49Lacs in 2011-12 i.e. a decrease by 74.51% due to FCCB settlement.

Tangible Assets

The Company's tangible assets has increased to Rs 5029.12 Lacs in 2012-13 from Rs4895.55 Lacs in 2011-12 i.e. an increase by 2.73%.

Intangible Assets

During the year 2012-13, the Company's Intangible Assets has reduced to Rs 2256.34 Lacsfrom Rs 2770.13 Lacs in 2011-12i.ea decrease by 18.55%.

Non-current investments

Non-current investments has increased to Rs 6761.64 Lacs in 2012-13 from Rs 2351.46Lacs in 2011-12, on account of reinstatement of the investment value at cost due toimproved financial performance of the subsidiaries.

Long term loans and advances

Long term loans and advances has decreased to Rs 120.21 Lacs in 2012-13 from Rs 395.09Lacs in 2011-12.

Inventory

Inventory has increased to Rs 5131.75 Lacs in 2012-13 from Rs 4024.70 Lacs in 2011-12i.e an increase by 27.51%.

Receivable

Receivable has increased to Rs 9141.88 Lacs in 2012-13from ^ 7418.94 Lacs in 2011-12due to increase in sales.

Short term loans and advances

Short term loans and advances has increased to Rs 2542.51 Lacs in 2012-13 from Rs648.52 Lacs in 2011-12.

Cash and cash equivalents

Cash and cash equivalents has reduced to Rs 41.29 Lacs in 2012-13 from Rs 1758.49 Lacsin 2011-12.

OPPORTUNITIES

We see the following forces to provide ample opportunities for the Indianpharmaceutical sector.

1. The Indian pharmaceutical market is expected to grow at 13% to 16% in the comingyears.

2. Many big global players are outsourcing Contract Research and Manufacturing services(CRAMS) in India.

3. Billions of US$ worth of drugs going off patent each year in US opening the vast USmarket for the Indian pharmaceutical sectors.

THREATS, RISKS AND CONCERNS

Compared with other sectors, pharmaceutical sector works in a dynamic environment andare subject to the following threats, risks and concerns.

1. High competition is adversely affecting the margins.

2. High attrition rate.

3. Lack of talented and technical field staff.

4. Government action on price control.

5. Rising audit burdens, inspections and fitness regulations.

6. Though the global economy has started recovery, growth in the US and Europeanmarkets which are the major focused market for the Company, is relatively low.

7. Foreign Exchange fluctuations

8. IPR issues

OUTLOOK

Despite the aforesaid threats, risks and concerns, the Management looks forward to asatisfactory performance in the coming years in the light of the opportunities available.The following key factors will drive the Company forward :

1. Global presence - Export Oriented Unit

2. Low cost manufacturing base

3. World class manufacturing facilities with huge capacities approved by major globalhealth authorities

4. Own front ends into UK/Europe and Australia

5. Tie up with big pharmaceutical companies

6. Strong R&D, Dossier development capabilities

7. Preferred outsourcing partner

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has an adequate internal control system including suitable monitoringprocedures commensurate with its size and the nature of the business. The internal controlsystem - based on existing laws, regulations and the company policies - comprises regularinternal audits, management reviews and use of standard policies and guidelines aimed atensuring reliability of financial and other records.

CAUTIONARY STATEMENT

Statements in the Management's Discussion and Analysis Report describing the Company'sobjective, projections and estimates are forward looking statements and progressive withinthe meaning of applicable Security Laws and Regulations. Actual results could differmaterially from those expressed or implied since the company's operations are influencedby many external and internal factors beyond the control of the Company.

   

Peer Comparison

Company Market Cap
(Rs. in Cr.)
P/E (TTM)
(x)
P/BV (TTM)
(x)
EV/EBIDTA
(x)
ROE
(%)
ROCE
(%)
D/E
(x)
Lupin 42,831.10 22.71 8.84 15.10 29.4 33.5 0.21
Divi's Lab. 17,600.00 22.55 6.89 14.99 25.9 32.9 0.02
Jubilant Life 2,724.03 11.92 1.46 15.32 4.2 7.0 1.52
Shilpa Medicare 1,581.85 22.35 4.78 9.81 14.9 14.9 0.25
Vinati Organics 1,319.13 16.49 5.47 5.75 32.1 27.2 0.96
Marksans Pharma 876.56 10.02 9.10 4.97 41.9 19.5 0.00
Suven Life Scie. 876.00 7.27 5.67 6.69 21.9 18.5 0.76
Hikal 812.71 10.03 2.37 8.61 -2.5 5.0 1.57
Dishman Pharma. 713.79 12.56 0.99 5.90 9.1 11.6 0.72
Sequent Scien. 660.26 0.00 6.27 0.00 0.0 0.0 2.06
Granules India 561.15 8.49 2.07 5.09 11.7 13.3 0.76
Nectar Lifesci. 517.01 7.48 0.60 4.00 10.4 12.8 1.16
Shasun Pharma. 496.67 19.63 1.73 9.51 9.6 8.3 1.17
Elder Pharma 473.65 61.66 0.61 5.93 10.2 11.5 1.38
Aarti Drugs 390.67 7.38 1.88 3.80 23.6 19.9 1.48

Futures & Options Quote

 
Expiry Date
NA
Instrument: NA
Expiry Date: NA
Strike Price: NA
Open Price: NA
Average Price: NA
No. of Contracts Traded: NA
Open Interest: NA
Underlying: NA
Option Type: NA
Market Lot: NA
Previous Close: NA
Day’s High | Low: NA | NA
Turnover (Cr.): NA
Open Int. Change: NA | NA
View detailed F& O quotes >>

Key Information

Key Executives:

Mark Saldanha , Chairman & Managing Director  

Harshavardhan Panigrahi , Company Secretary  

Ajay S Joshi , Director  

Balwant Shankarrao Desai , Whole-time Director  


Company Head Office / Quarters:
11th Floor Lotus Business Park,
Off New Link Road Andheri (W),
Mumbai,
Maharashtra-400053
Phone : 91-22-40012000
Fax : 91-22-40012011/40012099
E-mail : companysecretary@marksanspharma.com
Web : http://www.marksanspharma.com
Registrars:
Bigshare Services Pvt Ltd
E-2/3 Ansa Indl Est
Saki Vihar Road
Sakinaka Andheri(E)
Mumbai - 400072

Fund Holding


Calendar

Apr-2014
M T W T F S S
14 15 16 17 18 19 20
IPO
listNo IPO today
Economic Events
list No economic event today
Results
list No result today