Mankind Pharma: Moving up the value chain with chronic focus

In its maiden Annual Report post listing, Mankind reiterated its consistent volume and chronic-led outperformance in the India pharma market by 30-50% and focus to move up the value chain by expanding its presence in Metro/Tier I towns, further increasing its covered market presence, and pursuing opportunities in the chronic segment. Analysts of IIFL Capital Services expect Mankind to sustain its outperformance vs IPM and forecast its India business to clock 13.5% Cagr over FY23-26. Continued scale-up and leadership in the chronic segment is likely to translate into higher margins and analyst of IIFL Capital Services believe Ebitda margins can potentially improve to 30% over the next five six years vs 27% assumed in FY26. With a 22% Ebitda Cagr over FY23-26, analysts of IIFL Capital Services expect FCF generation of Rs13-20bn p.a. over the next 3 years and RoIC (ex-intangibles, post-tax) to improve to 44% in FY26. Maintain BUY with a TP of Rs2,180 (23% upside). 

Mankind’s volumes grew ~3x the volume growth of IPM over FY20-23, driven by consistently generating higher prescription share, thereby creating a more sustainable and resilient long-term domestic business. Mankind’s India sales grew 13% Cagr over FY20-23 (1.3x of IPM growth), with its PCPM steadily improving from Rs5.5lakhs pm in FY21 to Rs6.8lakhs pm in Q1FY24 despite 30% increase in field force. Mankind has aggressive plans to expand its CHL business by launching brand extensions and moving certain Rx products to OTX/OTC as they reach critical mass. Analysts of IIFL Capital Services have built-in high-teens growth in CHL business, in-line with mgmt’s guidance. 

Strong execution in chronic segment driving India business outperformance: 

Mankind’s chronic segment revenue contribution has increased from 28% in FY18 to 36% in Q1FY24 led by launch of 8-10 dedicated specialty divisions, in-licensing deals and Panacea brand acquisitions. Mankind has outperformed chronic market growth by 430bps over FY20-23 and has gained 70-80bps MS in cardiac and diabetes segments over FY20-23. Further ramp-up of the chronic portfolio in metros, niche launches, and improving PCPM of the expanded rep team should help Mankind sustain its India growth momentum at 13.5% Cagr over FY23-26. 

Ebitda margins will likely improve to 27% in FY26, driven by ~200bps GM expansion led by API/RM cost moderation, increasing chronic revenue share, and operating leverage from PCPM improvements to Rs8lakhs pm in FY26. With strong Ebitda-to-OCF conversion of 70-75%, analysts of IIFL Capital Services expect FCF generation of Rs13-20bn p.a. over FY23-26.