Mankind Pharma: Volume & Chronic-led outperformance to sustain

14 Jun 2023 , 11:18 AM

Recommendation: Buy; Target Price: Rs 1715

 

Analysts of IIFL Capital Services initiate coverage on Mankind with a BUY rating and value it at ~30x 2YF EPS (ex-amortization) to arrive at their TP of Rs1,715, implying a potential upside of 13%. While Mankind’s sustained volume-led outperformance in the domestic Pharma market by 300-350bps p.a. over the past 5-7 years and strong execution in the Chronic segment (amongst the highest MS gains of 70-80bps in Cardiac & Diabetes over FY20-23) justifies Mankind’s premium valuations, analysts of IIFL Capital Services believe the valuation rerating is largely captured and stock’s performance from here will be a function of consistent mid-teens Ebitda growth. Volume outperformance, ramp-up of the Chronic portfolio in metros and improving productivity of the expanded rep team should drive 13% Cagr in Mankind’s India sales. Margin normalisation will likely drive 21/23% Ebitda/EPS Cagr over FY23-26. With a predominantly India-focused business, they expect Mankind to generate strong FCF of Rs10-20bn p.a. over the next 3 years and adjusted RoIC to improve to 40% in FY26.

Consistent Volume and Chronic-led outperformance in India: 

Most of the large Indian Pharma players have struggled to outperform IPM volume growth. However, Mankind’s expanding CVM presence and increasing Chronic exposure (34% in FY23 vs 28% in FY18) have enabled it to grow its volumes at 6% Cagr over FY18-23 vs IPM volume growth of 2% Cagr. Mankind’s execution in the Chronic segment has also been significantly better than other acute-heavy players, with Mankind outperforming Chronic market growth by ~550bps p.a. over FY18-23.

Sales-rep expansion undertaken during FY20-23 to aid further ramp-up in Chronic: 

In order to further increase Mankind’s CVM presence (64% for Mankind vs 66-68% for other large peers), the company expanded its India field force by ~35% over FY20-23 and added 8 new Chronic-focused divisions for the metro markets. 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% Cagr over FY23-26.

Ebitda margins to expand from 22% currently to 24.5-26.5% over FY24-26 driven by API cost moderation, price increases and operating leverage benefit expected from improving PCPM. Analysts of IIFL Capital Services believe Mankind’s Ebitda margins can also potentially improve to 28-30% over the mediumterm, given peers with >50% revenue contribution from the Chronic segment make almost 28-44% Ebitda margins on their India business.