Mankind Pharma

Known for reputed consumer healthcare brands

Focused largely on India, which contributed 96.79% in 9M FY23

Mankind Pharma develops, manufactures and markets a diverse range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products. It is India’s fourth largest pharmaceutical company in terms of domestic Sales and third largest in terms of sales volume, according to MAT December 2022.

The company has presence in several acute and chronic therapeutic areas in India, including anti-infectives, cardiovascular, gastrointestinal, anti-diabetic, neuro/CNS, vitamins/minerals/nutrients and respiratory. Its covered market presence in the IPM increased from approximately 62% to approximately 69% between FY 2020 and MAT December 2022.

The company entered the consumer healthcare industry in 2007 and has since established several differentiated brands in the condoms, pregnancy detection, emergency contraceptives, antacid powders, vitamin and mineral supplements and anti-acne preparations categories. For MAT Dec 2022, VMS contributed 74.53% to total sales in consumer healthcare category, antacids 13.39%, condoms 7.54%, emergency contraceptives 0.85%, acne preparations 2.57%, and pregnancy tests 1.12%.

The company is leader in (1) the male condom category, where its Manforce brand had market share of approximately 29.6%, (2) pregnancy detection kit category, where its Prega News brand had market share of approximately 79.7%, and (3) the emergency contraceptives category, where its Unwanted-72 brand had market share of approximately 61.7%, according to MAT December 2022.

As part of its strategies to grow its healthcare business, Mankind is planning to launch a new preconception and pre-natal care range of products as brand extensions under its Prega News brand.

In Nov 2022, company completed a cash acquisition for a majority stake in Upakarma Ayurveda, which is expected to provide Mankind with a direct-to-customer channel in the Ayurvedic medicine category.

Company acquired one dermatology brand (Daffy) and one respiratory brand (Combihale) from Dr. Reddy’s Laboratories in February 2022. Company also acquired several pharmaceutical formulations brands from Panacea Biotec Pharma and Panacea Biotec in India and Nepal. This will enable it to explore new super-specialty therapeutic areas, such as transplant and oncology, and further drive growth. Company plans to continue to pursue strategic acquisitions of brands and companies across key markets as well as explore in-licensing and co-development opportunities.

Key therapeutic areas such as Anti-infectives contributed 14% to total domestic sales for MAT December 2022, Cardiovascular 13%, Gastrointestinal 11%, Vitamins/minerals/nutrients 9%, Respiratory 9%, Anti-diabetic 8%, Dermatology 6%, Gynaecology 8%, Pain/analgesics 5% and Neuro/CNS 3%.

The company operate 25 manufacturing facilities across India and had 4,121 manufacturing personnel as of December 31, 2022. Its formulations manufacturing facilities have a total installed capacity of 42.05 billion units per annum across a wide range of dosage forms including tablets, capsules, syrups, vials, ampoules, blow fill seal, soft and hard gels, eye drops, creams, contraceptives and other over-the-counter products, as of December 31, 2022.

The company has a pan-India marketing presence, with a field force of 11,691 medical representatives and 3,561 field managers, as of December 31, 2022. The company has established a significant distribution network in India. During the nine months ended December 31, 2022, the company sold its products to over 12,000 stockists and engaged with 75 clearing and forwarding (C&F) agents.

As of December 31, 2022, the company had a team of over 600 scientists and a dedicated in-house R&D center with four units located in IMT Manesar, Gurugram, Haryana and Thane, Maharashtra.

During MAT December 2022, its domestic sales in the North India, South India, East India and West India regions amounted to approximately Rs 2967.3 crore, Rs 1917.8 crore, Rs 1599.1 crore and Rs 1906.1 crore, respectively, contributing to approximately 35%, 23%, 19% and 23%, respectively, of total domestic sales.

The company derives most of its revenue from the domestic market. Operations in India contributed to 97.60% of total revenue for FY 2022.

The company’s domestic sales from Class II-IV cities and rural markets contributed to approximately 47% of total domestic sales, according to MAT December 2022, higher than the approximately 36% recorded for IPM. The company plans to increase its penetration in metro and Class I cities.

The company has created 36 brands in pharmaceutical business that have each achieved over Rs 50 crore in domestic sales, according to MAT December 2022.

The company aims to increase its market share by expanding the product portfolio, with a focus on chronic therapeutic areas. In particular, the company plans to grow its market share in the following therapeutic areas: (1) anti-diabetic, (2) cardiovascular, (3) neuro/CNS (4) respiratory, (5) critical care, (6) ophthalmology, and (7) gynaecology.

The company has developed digital platforms to improve doctor engagement. Its in-house developed DrOnA Health service is a dedicated virtual-consultation platform that enables doctors to easily consult and interact with their patients across various channels, including in-clinic and virtually.

Offer and its objects

The IPO will be complete offer for sale of Rs 4326.35 crore by existing shareholders Ramesh Juneja, Rajeev Juneja, Sheetal Arora, Cairnhill CIPEF, Cairnhill CGPE, Beige and Link Investment Trust.

Price band for the IPO is Rs 1026 to Rs 1080 per equity share of face value of Re 1 each.

The company will not directly receive any proceeds from the offer. All the offer proceeds will be received by the selling shareholders, in proportion to the offered shares sold by them.

Promoters of the company are Ramesh Juneja, Rajeev Juneja, Sheetal Arora, Ramesh Juneja Family Trust, Rajeev Juneja Family Trust and Prem Sheetal Family Trust. The promoters and promoter group hold an aggregate of 316,464,857 equity shares, aggregating to 79% of the pre-offer issued and paid-up equity share capital. The post-IPO shareholding is expected to be around 76.5%.

The issue, through the book-building process, will open on 25 April 2023 and close on 27 April 2023.

Strengths

Mankind Pharma is an established and growing consumer healthcare franchise. The company‘s reputed brands like Manforce and Prega News are extremely popular in India and are likely to act as a moat. Manforce condoms had domestic sales of approximately Rs 461.6 crore, as per MAT December 2022, ranking 1st in the male condom category, with approximately 29.6% market share. Prega News products had domestic sales of approximately Rs 184.4 crore, as per MAT December 2022, ranking 1st in the pregnancy test kit category, with approximately 79.7% market share.

The company has consistently outperformed the growth of IPM. Between FY2020 and MAT December 2022, the company’s domestic sales grew at a compounded annual growth rate (CAGR) of approximately 12% from approximately Rs 6094.2 crore to approximately Rs 8390.2 crore, which is approximately 1.3 times that of IPM.

The company has demonstrated track record of creating brands with domestic sales of over Rs 100 crore. In MAT December 2022, 21 of its brands had annual domestic sales of more than Rs 100 crore, compared to approximately 16 brands on average among the 10 largest corporates in IPM.

The supply and demand for healthcare goods and services is expected to increase as the urban population is projected to grow to 37% of the total population in India by 2027. India’s healthcare expenditure is among the lowest compared to other countries, primarily because of under-penetration of healthcare services and lower consumer expenditure in healthcare, this indicates a growth opportunity for companies like mankind pharma.

The company has a diversified portfolio of products across leading therapeutic areas. In terms of domestic sales (in FY2022), it is among the 10 largest companies in 10 of the leading therapeutic areas.

The company has one of the largest distribution networks of medical representatives in the Indian pharmaceutical market. Over 80% of doctors in India prescribed its formulations, as per MAT December 2022.

The production-linked incentive (PLI) scheme is expected to promote domestic manufacturing of critical key starting materials, drug intermediates, and APIs, which will boost the company‘s growth.

The company benefits from its brand and leadership positions in key therapeutic areas, which can be used to launch related products, thereby capturing a wider molecule coverage.

The company has a dedicated in-house R&D center, with four units located in IMT Manesar, Gurugram, Haryana and Thane, Maharashtra. Its R&D capabilities enable it to ensure supply of quality products to the domestic market.

In addition to a professional and experienced management team, the company benefits from the support and experience of private equity investors, which include affiliates of Capital International Group and ChrysCapital.

Weaknesses

The pharmaceutical and consumer healthcare industries are highly competitive with several major pharmaceutical companies as key players.

Company derives significant portion of revenue from operations in India. For the Financial Years 2020, 2021 and 2022, and the nine months ended December 31, 2021 and December 31, 2022, its revenue from India was 98.70%, 97.01% and 97.60%, 97.73% and 96.79%, respectively, of its total revenue. Domestic pharma industry can at best grow at a steady rate. Most Indian pharma companies are focusing on exports to grow at a faster rate. The company’s track record in terms of exports, which is the key growth driver in this industry is limited.

Company acquired dermatology brand (Daffy) and respiratory brand (Combihale) from Dr. Reddy’s Laboratories in February 2022. Company also acquired several pharmaceutical formulations brands from Panacea Biotec Pharma and Panacea Biotech. If company fails to properly integrate and capitalise on these acquired product lines, its financial performance will be impacted.

During 9M FY23, the company had around 13.44% of total domestic portfolio under price control. It is likely that the Indian government may bring more such drugs and formulations under price control, which in turn will have an adverse impact on the company’s domestic value growth.

The company has entered certain transactions with related parties, including Group Companies, Promoters, and certain members of its Promoter Group and Key Managerial Personnel, and is likely to continue to do so in the future. The arithmetic aggregated absolute total of related-party transactions (post inter-company eliminations) was Rs 909.50 crore, Rs 749.73 crore, Rs 770.07 crore, Rs 495.07 crore and Rs 473.97 crore for FYs 2020, 2021 and 2022, and the nine months ended December 31, 2021 and December 31, 2022, respectively. Such related-party transactions in the future may potentially involve conflicts of interest, which may be detrimental to the interest of the company.

The company’s business prospects depend on its ability to build, maintain and enhance its brands image and reputation. Any negative publicity in relation to company’s products would damage its brands image and reputation.

Valuation

During 9M FY2023, consolidated sales were up by 10.58% to Rs 6696.77 crore compared to 9M FY2022. OPM decreased by 599 bps to 22.16% due to the costs of acquisitions during the period, which led to 12.94% decrease in operating profit to Rs 1483.96 crore. Other income decreased 50.12% to Rs 23.09 crore, while interest cost fell 13.75% to Rs 39.31 crore and depreciation increased 102.41% to Rs 241.4 crore. PBT decreased 24.40% to Rs 1293.95 crore. Tax expenses for 9M FY23 was of Rs 277.98 crore compared to tax expense of Rs 451.31 crore in 9M FY22. Minority interest for 9M FY23 was Rs 19.56 crore compared to Rs 16.85 crore in 9M FY21. Net profit fell 19.86% to Rs 996.42 crore, however company’s acquisition of dermatology brand (Daffy), respiratory brand (Combihale) and several pharmaceutical formulations brands from Panacea Biotec Pharma and Panacea Biotec will enable it to explore new super-specialty therapeutic areas, such as transplant and oncology, and drive company’s future growth ahead of IPM.

In FY2022, consolidated sales were up by 25.22% to Rs 7781.56 crore compared to FY2021. OPM decreased by 95 bps to 25.57%, which led to 20.71% increase in operating profit to Rs 1989.36 crore. Other income increased 14.67% to Rs 196.03 crore, while interest cost increased 190.91% to Rs 58.61 crore and depreciation increased 40.05% to Rs 166.62 crore. PBT increased 16.73% to Rs 1974.60 crore. Tax expenses for FY2022 were Rs 521.64 crore compared to tax expense of Rs 398.58 crore in FY2021. Minority interest for FY2022 was Rs 19.48 crore compared to Rs 27.61 crore in FY2021, Net profit rose 13.28% to Rs 1265.43 crore.

The TTM EPS on post-issue equity works out to Rs 29.62. At the upper price band of Rs 1080, P/E works out to 36.46.

As of 23 April 2023, its listed peers such as Pfizer India traded at TTM P/E of 29.91, and Eris Lifesciences traded at TTM P/E of 21.02. For FY2022, Mankind Pharma OPM and ROE stood at 25.57% and 23.29%, respectively, compared to 32.01% and 21.38% for Pfizer India, 36% and 21.28% for Eris Lifesciences, respectively.