Mankind

about 2 years ago

IPO Size: Rs. 4,326 cr 

  • Entirely offer for sale (OFS) – comprising 1/4th by promoters (79% to 76%), 3/4th by 2 PE investors Capital International and ChrysCapital (21% to drop to 13%)

Price band: Rs. 1,026-1,080 per share

M cap: Rs. 43,264 cr, implying 10% dilution

IPO Date: Tue 25th April to Thu 27th April 2023, Listing Tue 9th May 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

 

India’s Fourth Largest Pharma Company

Mankind is an India focused branded generics pharmaceutical company, clocking 10% of Rs. 8,500 cr annual revenue from over-the-counter (OTC) healthcare products like contraceptives, pregnancy kits, antacids etc and 90% from higher-margin chronic and acute pharma segments, in the ratio of 1:2. With a deep reach of 15,000+ field managers and medical representatives, Mankind enjoys 4.4% market share in Rs. 1.9 lakh cr Indian Pharmaceutical Market (IPM) and 5.7% volume market share as its drugs are competitively priced. As 98% revenue is from India, Mankind is insulated from USFDA risks plaguing some of its peers.

 

Multiple Growth Opportunities

  • Mankind is only the 2nd company in the world (after Abbott) to have developed a complex synthetic hormonal API dydrogesterone in-house (marketed as Dydroboon), revenue from which increased from Rs. 85 cr in FY21 to Rs. 205 cr in TTM Dec 22, as market grows at 35% CAGR. A new manufacturing facility for Dydroboon export is under construction, which will aid revenue as well as margin.
  • R&D focus - 2 new chemical entities (NCE) in pre-clinical stage, one anti-diabetic molecule in phase 1 clinical trials.
  • Through Rs. 1,872 cr acquisition of Panacea Biotech’s assets in Feb 2022, Mankind has entered in new therapeutic areas of oncology and transplant.

 

High Growth with Healthy Margin

Since FY20, Mankind’s topline has grown at 1.3x the growth rate of Indian Pharmaceutical Market (IPM), with a very healthy gross margin of 67%. During covid, input cost and corporate overheads rose sharply, shrinking operating margin of 24.7% in FY20 to 21.2% for twelve months ended 31.12.22 (TTM Dec 22) and PAT margin moderating from a high of 20.8%, to 14.4% in TTM Dec 22. Nevertheless, these margins are still superior to some of the listed peers Alkem (11% net margin) and Zydus Life (13%).

 

Chasing Volume over Margin

Despite 87% of Mankind’s products not part of the National List of Essential Medicines (NLEP) subject to maximum price hike of wholesale price index (WPI), company choose not to increase prices, sacrificing margins for volume growth. Thus, as covid effect waded, 9MFY23 PAT declined 19% YoY to Rs. 1,016 cr, from Rs. 1,260 cr in 9MFY22, even as revenue rose 11% YoY to Rs. 6,700 cr.

 

Fully-Valued IPO

Based on TTM Dec 22 PAT of Rs. 1,209 cr and EPS of Rs. 30,2, Mankind shares are being offered at a historic PE multiple of 36x.

India-focused peer Alkem, with over Rs. 11,000 cr topline and 21% RoE, is ruling at a historic PE multiple of 39x while MNC peer Abbott, with healthy double digit profit growth, 17% net margin and 30% RoE is trading at a PE multiple of 51x.

Since Mankind’s RoE of 18% is lower than both these peers, its PE multiple is appropriate making the IPO is fully-priced, especially over the short term.