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Disruptor with a dose of care

* In a span of 30 years, Mankind Pharma (MANKIND) has built a robust domestic formulation (DF) franchise and become the fourth largest player by market share.

* Contrary to common wisdom, MANKIND has followed a disruptive strategy to establish its DF business by approaching customers and influencers in tier II and below cities, becoming the industry leader in terms of the number of prescriptions.

* It has diversified its portfolio in terms of both therapies and brands.

* MANKIND is working on multiple levers to boost growth over the next three to five years: a) increasing the scope of business in chronic therapies (36% of DF sales in FY24) by expanding niche products in portfolio, b) enhancing its presence in metro/Tier-I cities (53% of DF sales in FY24), and c) investing aggressively in brand building in the prescription and consumer healthcare segments.

* Accordingly, we expect a 16% earnings CAGR for MANKIND over FY24-27. Considering its strong brand visibility, sustainable earning growth and superior return ratios, we value MANKIND at 40x12M forward earnings (30% premium to the Healthcare sector PE) to arrive at a TP of INR2,650.

* Initiate coverage with a BUY rating.

Focus on chronic therapies to support growth

* After establishing a meaningful presence in acute therapies, MANKIND is making efforts to expand its chronic portfolio. It has delivered a 15% sales CAGR in chronic therapies over FY20-24. In FY24, MANKIND’s revenue growth of 14% outperformed the industry by 400bp YoY and achieved chronic sales of INR34b (36% of total DF sales).

* The company is expanding its presence in chronic therapies, such as transplant, urology, nephrology and oncology, and is also firming up its presence with a new differentiated launch, along with an in-licensing opportunity. It has increased the field force for chronic therapies to expand its reach in metro/Tier-I cities. Overall we expect a 12% sales CAGR in chronic therapies over FY24-27.

Cardiovascular - Launches/wider reach to aid robust outlook

* MANKIND clocked a 17% sales CAGR in cardiovascular (CVD) therapies over MAT Apr’20-24 vs. a 10.7% CAGR for the industry (IPM). In MAT Apr’24, its CVD sales grew 19% YoY (14% of FY24sales) vs. IPM growth of 10.5%. MANKIND has diversified offerings and widened its prescriber base as well.

* It launched new formulations to treat heart failure. In addition to own development, the company also plans to acquire brands. For instance, it inlicensed Neptaz (Sacubitril + Valsartan) from Novartis, which are used to treat chronic heart failure. The combination of Sacubitril + Valsartan helps to reduce blood pressure by relaxing blood vessels in different ways.

* We expect 19% sales CAGR in CVD to reach INR22.5b over FY24-27.

Respiratory – Enough scope to expand product offerings

* MANKIND has considerably outperformed the industry in respiratory therapies, with a 11% sales CAGR vs. industry sales CAGR of 10% over MAT Apr’20-24. Its top products in this segment are cough preparation and bronchodilator inhalant preparation.

* However, due to a ban on Codistar, a key brand, in Jun’23, respiratory sales declined by 2.5% YoY in FY24. To strengthen its focus on inhalers, the company acquired Combihaler from Dr. Reddy’s, in-licensed Symbicort from Astrazenca and leveraged the specialty chronic division launched 3-4 years ago to increase penetration in metro/tier-I cities. We expect a 10% sales CAGR to INR11b over FY24-27.

Anti-infectives – A strong base therapy

* With improved hygienic conditions, growth has been moderating in antiinfective (8% CAGR in MAT Apr’20-24). However, MANKIND outperformed the industry in this therapy by a wide margin (11% CAGR), forming ~14% of total FY24 sales. In addition to the current portfolio of penicillin, cephalosporin, macrolides and quinolones, MANKIND has added critical care anti-infective. We expect MANKIND to sustain its outperformance (8.5% sales CAGR) in this segment over FY24-27.

Enhancing niche portfolio through own development/in-licensing

* In addition to extending reach, MANKIND is also focusing on differentiated offerings. MANKIND has entered into the transplant segment through the acquisition of Panacea Biotec. It has in-licensed specialty limited competition products like Neptaz (Sacubitril + Valsartan) and Symbicort from Novartis and Nobeglar (Insulin glargine) from Biocon.

* With the launch of these brands, MANKIND is further deepening its presence in therapies like Cardiology, Diabetes and Respiratory to aid superior growth.

* Further, it is expanding its presence across segments, from sexual wellness to consumer wellness, through the launch of line extensions, leveraging ecommerce channels, and introducing products from Rx to OTC channels.

Dydroboon – Case of niche product development/scale-up

* Dydroboon’s manufacturing process involves the complex conversion of natural Progesterone. MANKIND has not only manufactured and introduced its own branded generic version of Dydrogesterone, but also served as a manufacturing partner for other Indian companies.

* MANKIND garnered annual sales of INR2.5b from dydroboon in a period of four years since launch. This product highlights MANKIND’s capability to not only develop but also scale up the manufacturing of complex molecules.

Consumer healthcare – Brand building beyond prescription

* In addition to a strong brand franchise in the prescription space, MANKIND has built a robust portfolio of consumer healthcare, comprising OTC drugs, contraceptives and herbal/traditional products. Total sales of this segment stood at INR7b, forming 6.8% of FY24 sales.

* MANKIND is implementing strategies to improve growth visibility like line extensions, increasing reach, introducing new digital initiatives and investments in brand building. We expect a 7% sales CAGR in this segment to reach INR8.6b over FY24-27.

Valuation and view: Initiate with BUY

* Overall, we expect a 16% earnings CAGR over FY24-27, led by a 12% sales CAGR and a 270bp margin expansion. Considering a) expanding product offerings in major therapies, b) capitalizing on leverage, c) a gradual increase in the share of chronic therapies, d) increasing more brands to INR500m-INR1b size, e) improving MR productivity, and f) footprint expansion in metro/Tier-I cities, we assign a multiple of 40x on 12M forward earnings, which represents a 30% premium to the pharma sector’s valuation of 31x on 12M forward basis, given the company’s superior execution and sustained visibility for earnings. ? Accordingly, we initiate coverage on MANKIND with a BUY rating and a TP of INR2,650.

Key Risks:

* Lower-than-expected growth in the DF segment, muted off-take in exports, and a reduced MR productivity are key risks to our BUY rating and TP.

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