Marksans Pharma (MPL) is seeking to build a differentiated business model focused on supplying softgel capsules (SGC) to the US with strong EU presence. The focus, along with successful inorganic growth strategies pursued in key markets, has enabled MPL to rebound strongly from its financial abyss. MPL’s recent acquisition of Time-Cap Labs (TCL) is positive as it creates a front-end presence in the US, thereby enabling superior profitability and diversifying the regulatory risk with a US-based FDA approved plant. The enhanced US presence, aided by new product approvals (10 SGC ANDAs await approval in US), should drive 28% revenue CAGR and 36% earnings CAGR over FY15-18e. We initiate coverage on the stock with ‘outperformer’ and a 12-month price target of R118.
After initial challenges, MPL’s twin acquisitions in UK, especially Relonchem, have decisively turned the corner (16% consolidated ebitda in FY15 from 5.5% in FY12). This performance, along with a growing US business, has driven MPL’s financial turnaround.
With a steady EU platform and high-growth potential US business, along with a near-debt free balance sheet despite nil domestic sales, MPL is an interesting growth story. MPL’s focus on niche SGC segment and promoters’ willingness to pursue M&A to create new growth drivers add to its attractiveness.