Marksans Pharma: We downgrade Marksans Pharma (MPL) to Hold from Buy rating with a TP of `31 (earlier `55) based on 18x March’20E EPS of `1.7. 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 R(65)mn YoY from `(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 `199 crore from `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 R89.8 crore from R90.1 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 R87.2 crore from R62.5 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.