Downgrade Marksans Pharma to ‘hold’ with TP of Rs 31

By: | Published: June 12, 2018 4:21 AM

We downgrade Marksans Pharma (MPL) to Hold from Buy rating with a TP of Rs 31 (earlier Rs 55) based on 18x March’20E EPS of R1.7. MPL’s Q4FY18 results were lower than our expectations.

Marksans Pharma, EBIDTA, EBIDTA margin, USFDA, UK MHRA, EU businesses MPL’s revenues grew 8%YoY to Rs 199 crore from Rs 185 crore due to strong growth in the UK and Europe.

We downgrade Marksans Pharma (MPL) to Hold from Buy rating with a TP of Rs 31 (earlier Rs 55) based on 18x March’20E EPS of R1.7. MPL’s Q4FY18 results were lower than our expectations. The drug maker’s Q4FY18 revenue grew 8% YoY, EBIDTA margin declined by 200bps to 2.1% and net profit declined to Rs (65)mn YoY from Rs (33)mn.

The Goa facility was approved by UK MHRA and TGA-Australia. We expect MPL’s performance to improve led by the recent launch of four new products in the US and expected approvals for softgel capsules from US FDA. Key positive trigger to our assumption includes stupendous growth in the US market and key negative risk includes regulatory issues for the Goa facility from US FDA.

MPL’s revenues grew 8%YoY to Rs 199 crore from Rs 185 crore due to strong growth in the UK and Europe. MPL’s US and N America business (45% of revenues) declined marginally by 0.3% YoY to Rs 89.8 crore from Rs 90.1 crore. The company did not witness any piecing pressure in the US market. MPL’s UK & Europe business (45% of revenues) grew by 40%YoY to Rs 87.2 crore from Rs 62.5 crore due to clearance of Goa facility by UK MHRA and TGA-Australia.

The drug manufacturer’s Australia and New Zealand business (12% of revenues) declined by 7% YoY due to lower off-take. We expect sales to grow, driven by US, UK and Europe businesses. MPL’s EBIDTA margin declined by 200bps YoY to 2.1% from 4.1% due to the increase in other expenses. Material cost declined by 1,100bps to 53.2% from 64.2% due to the profitable product mix. Personnel cost declined by 160bps YoY to 19.1% from 20.7%. Other expenses grew by 1,460bps YoY to 25.6% from 11.0%.

We expect margins to improve from strong growth in its products in the US, UK and Europe and additional ANDA approvals from US FDA. MPL’s net profit for the quarter declined to R(65)mn from R(33)mn YoY due to sharp decline in margin and rise in interest cost. MPL’s interest cost grew 122%YoY to `3.5 crore from `1.6 crore due to the rise in working capital. We expect the company to report sustainable growth, driven by the US, UK and EU businesses and commencement of the domestic formulation business.

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