Upgrade Marksans Pharma to ‘buy’ with TP of Rs 55

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Published: February 23, 2018 4:14:04 AM

We upgrade Marksans Pharma (MPL) to Buy from Hold rating with a TP of Rs 55 (earlier Rs 45) based on 18x March’20E EPS of Rs 3.0. MPL’s Q3FY18 revenues and EBIDTA were lower than our expectations but net profit was in-line with the expectations.

Marksans Pharma, EBIDTA, EBIDTA margin, USFDA, UK MHRA, EU businesses The drug maker’s Q3FY18 revenue grew 2% YoY, EBIDTA margin improved 80bps to 13.3% and net profit grew 72% YoY. (PTI)

We upgrade Marksans Pharma (MPL) to Buy from Hold rating with a TP of Rs 55 (earlier Rs 45) based on 18x March’20E EPS of Rs 3.0. MPL’s Q3FY18 revenues and EBIDTA were lower than our expectations but net profit was in-line with the expectations. The drug maker’s Q3FY18 revenue grew 2% YoY, EBIDTA margin improved 80bps to 13.3% and net profit grew 72% YoY. 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 USFDA. 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 USFDA. MPL’s revenues grew 2%YoY to Rs 219 crore from Rs 215 crore due to marginal growth in the UK and Europe. MPL’s US and N America business (42% of revenues) declined by 1% YoY to Rs 92.3 crore from Rs 93.5 crore.

MPL’s UK & Europe business (41% of revenues) grew by 5%YoY to Rs 90.8 crore from Rs 86.4 crore due to clearance of Goa facility by UK MHRA and TGA-Australia.
The drug manufacturer’s Australia and New Zealand business (11% of revenues) declined by 6% YoY due to lower off-take. We expect sales to grow, driven by US, and UK Europe businesses. MPL’s EBIDTA margin improved by 80bps YoY to 13.3% from 12.5% due to the reduction in material cost and personnel cost. Material cost declined by 360bps to 52.3% from 55.9% due to the change in the product mix. Personnel cost declined by 130bps YoY to 16.5% from 17.8%.

Other expenses grew by 390bps YoY to 17.8% from 13.9% due to R5 crore forex loss in Q3FY18 against nil in Q3FY17. We expect margins to improve from strong growth in its products in the US, UK and Europe and additional ANDA approvals from USFDA. MPL’s net profit for the quarter grew by 72%YoY to R17.2 crore from R10 crore due to margin improvement and lower depreciation. 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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