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Leading domestic pharma player with diverse product portfolio KEY CHANGES: TARGET

Mankind Pharma Ltd (MPL) is the fourth largest pharmaceutical company in India by domestic sales and third largest by sales volume. With 97% of its revenue from India, MPL sells pharmaceutical formulations and consumer healthcare goods, and operates 25 manufacturing sites and a specialised R&D centre with four divisions.

• The size of the Indian pharmaceutical market (IPM) was ?1,859 billion in FY22 and is anticipated to grow at a CAGR of ~11% to reach ?3,100 billion by FY27 while consumer healthcare market is also anticipated to grow at ~11%.

• MPL has outperformed IPM by 1.2x in the acute segment and by 1.4x in the chronic segment over FY20–9MFY23. MPL is increasing focus on chronic therapeutic areas, which has higher growth potential.

• Through its acquisition of pharmaceutical brands from Panacea Biotec Pharma Ltd, MPL ventured into the transplant and oncology markets, while the purchase of Daffy and Combihale brands from Dr. Reddy's Laboratories would further solidify its position in the dermatological and respiratory therapeutic fields.

• In the consumer healthcare category, Manforce ranked 1st in the male condom category (market share of 30%), Prega News ranked 1st in the pregnancy test kit category (market share of 80%) and Unwanted-72, ranked 1st in the emergency contraceptive category ( market share of 62%).

• MPL’s revenue from operations grew at a CAGR of 15.2% between FY20 and FY22 from ?5,865cr to ?7,782cr. PAT grew at a 17.3% CAGR during the same period. In 9MFY23, Mankind reported operating revenue of ?6,697cr and a net profit of ?1,016cr.

• MPL has an average EBITDA and PAT margins of ~25.5% and ~19.2% (3 yr. Avg FY20-FY22) and has an average RoE of 27% during the same period.

• At the upper price band of ?1,080, MPL is available at a P/E of 30x (FY22), which appears reasonably priced compared to peers. Considering under-penetration of healthcare services and lower consumer expenditure in healthcare in India, MPL’s focus on chronic therapeutic areas, emphasis on increasing penetration in metro and Class I cities, growth in consumer healthcare business, good financial performance and strong distribution network, we assign a “Subscribe” rating on a long term basis.

Purpose of IPO

The IPO consists of only OFS of 40,058,844 equity shares, amounting to Rs.4,326.36cr. The objects of the offer are to (i) carry out the offer for sale by the selling shareholders and (ii) achieve the benefits of listing the equity shares on the stock exchanges.

Key Risks

• Limited geographical diversification/ risk of over-reliance (FY22-97% revenue from India).

• 13 % portfolio fall under NLEM (National List of Essential Medicines), subject to price control.

• Ongoing acquisitions may enhance its business portfolio, there is a possibility of higher costs without a proportionate increase in revenues.

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