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Unlocking new vertical through BSV acquisition

Aim to be EPS-accretive from second year after deal closure

* Mankind Pharma has agreed to acquire Bharat Serum Vaccines (BSV) for EV of INR136b, implying EV/EBITDA of 28x/22-23x on FY24/FY25 basis.

* This acquisition not only expands Mankind’s niche portfolio, but also provides a specialty R&D tech platform, in-house complex manufacturing capabilities and strong institutional reach.

* Considering access to a high-entry barrier business, a healthy mix of domesticinternational segments and potential for sustainable EBITDA growth (27% EBITDA YoY growth in FY25), we believe the deal valuation is fair.

* We await clarity on the deal structure in terms of debt/equity fund raise to fund the deal from the concall scheduled for 26th Jul’24 at 5pm. Having said this, considering current cash of INR42b from internal accruals, we assume debt/equity of INR60b/INR32b to complete the transaction. Free cash generated from the base business would subsequently lower debt for Mankind. Maintain BUY.

BSV – well placed to deliver high EBITDA growth in medium term

* BSV has posted sales CAGR of 21% over FY21-24 to INR17b. Adjusting for acquisition/exit-related costs, EBITDA margin was 28.4% for FY24.

* Management comment about 22-23x FY25 EBITDA implies potential to garner INR6b EBITDA in FY25 from INR4.8b in FY24.

* The top 10 brands form 60% of domestic sales (54% of total sales). International sales witnessed a 25% CAGR over FY21-24.

Multiple moats in BSV business

* BSV has a high-entry barrier specialty portfolio across India/EMs. It has not only shown commercial success but also has a product pipeline in segments like women’s health, fertility and critical care.

* It has differentiated technology platforms like Recombinant tech, complex deliver system, and immunoglobulins.

* BSV has a wide coverage of doctors as well as institutional reach.

* It has presence in international markets with marketing/regulatory teams.

* BSV also has complex manufacturing capabilities at Ambernath/Germany. ? Mankind gains access to an exhaustive fertility drugs portfolio.

Pro forma financials based on our assumptions

Given a surplus cash of INR42b and a limit of 2x EBITDA for debt, we assume Mankind will raise debt of INR60b and equity of INR32b in the near term to complete the transaction. The robust growth in business and the repayment of debt from cash flow generated in the base business can enable earnings accrual from FY27 onward. FY25 would have one quarter of business after the deal closure.

Complex product/synergies to drive growth

Complex and high-entry barrier product portfolio

* Over the years, BSV has developed a niche portfolio while establishing a strong presence across women healthcare.

* With its strong R&D capabilities, BSV is the sole innovator of recombinant AntiD in the world. This drug is used to treat Rhesus disease, which is a condition where antibodies in a pregnant woman's blood destroy her baby's blood cells.

* Further, BSV has a strong presence across women health care, particularly in IVF segment (In vitro fertilization), which has a huge room for improvement due to low penetration in India and emerging markets. BSV also has coverage across Pregnancy & Post-Pregnancy.

* Additionally, BSV has a presence in the animal bites category, including drugs like Snake Venom Antiserum and Equine Rabies IgG.

* To develop these complex biologic drugs/complex delivery systems, it requires 5-10 years of R&D and complex manufacturing process, which makes it a highentry barrier space.

Differentiated portfolio/strong reach driving growth in India market

* BSV was the first Indian company to launch Anti thymocyte Ig, r-FSH, High Pure HMG and r-HCG products in India.

* Thymogam (anti-thymocyte globulin) helps to prevent the immune system from attacking transplanted organs.

* Further, BSV has a field force of 1.2k and GP/CP coverage of 28k in India market. Also, it has strong gynae coverage of 28k.

* Additionally, BSV has solid institutional reach, which would add value for growth

Expanding reach globally with scalable portfolio

* BSV has a presence in more than 70 countries, including key emerging markets and developing countries with 260+ sales teams across 15 markets.

* BSV has a strong presence across ASEAN, MENA, LATAM and RCIS with two home markets in Philippines and Malaysia.

* BSV generates 46% of revenue from international markets. Over FY21-24, BSV registered a 25% CAGR in CC terms to USD77m, led by Complex & Specialty portfolio in Critical Care and fast-growing Fertility segment.

* BSV is expanding its reach in international markets by entering attractive EMs with higher regulatory barriers, scaling portfolio with add-on filings and increasing focus on fertility.

Niche manufacturing capabilities

* BSV has two manufacturing facilities at Ambernath and Germany with strong manufacturing capabilities in injectable and API space.

* At its Ambernath facility, BSV has five dedicated injectable lines and two API lines. It manufactures human & equine biological, thrombolytic and urinary hormone products at its manufacturing plant.

* At its Germany facility, BSV manufactures six products in partnership with innovator companies. Further, BSV has adjacent land available for expansion.

* BSV has received a land parcel at Genome valley to further expand its manufacturing capacities.

Strong synergies to drive growth over medium term

* With this acquisition, the product mix of Mankind would expand to recombinant and fertility, unlocking a new therapeutic segment.

* Further, the strong reach of Mankind would boost sales of the portfolio.

* Additionally, improved MR productivity and in house-manufacturing would improve the profitability.

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