Buy Mankind Pharma Ltd for the Target Rs. 2,910 by Motilal Oswal Financial Services Ltd
Higher marketing/promotional costs drive a miss
Work-in-progress to enhance productivity/integrate BSV
* Mankind Pharma (Mankind) delivered in-line revenue in 4QFY25; however, EBITDA/PAT came in 14%/12% below our estimates. Higher-than-expected spending on marketing and promotional activities affected the company’s 4Q performance.
* In the domestic formulation (DF) market, Mankind has been consistently focusing on increasing the chronic share in its portfolio and outperforming the industry. The company outperformed the industry in chronic therapies by 230bp YoY in 4Q.
* Mankind undertook a review of its BSV portfolio review after acquisition. It also tried to implement measures to integrate with Mankind offerings. This process affected the BSV business to some extent. Having said this, it is now well positioned to take the portfolio on a superior growth path.
* We cut our earnings estimates by 12%/9% for FY26/FY27, factoring in a) slower growth in acute therapies at the industry level, b) higher financial leverage, and c) increased product development/marketing spend. We value Mankind at 44x 12M forward earnings to arrive at a price target of INR2,910.
* FY25/FY26 are transformative years for Mankind. It undertook course correction measures in its MR team of 16,500 people to considerably improve productivity. With strong focus on differentiated offerings, it acquired BSV, which provided Mankind access to a specialty complex portfolio and strong R&D capability/manufacturing capacity in domestic as well as export markets.
* FY26 would be the year of integrating BSV. Further, higher financial leverage taken to acquire BSV would weigh on earnings growth in FY26. Having said this, we expect Mankind to deliver 35% YoY earnings growth in FY27 with improved sales/profitability of overall business and reduction in interest cost. Maintain BUY.
Segmental mix benefit offset to some extent by higher opex YoY
* Sales grew 26.1% YoY to INR30.7b for the quarter (vs est INR30.6b).
* DF revenue (83% of sales) grew 17% YoY to INR25.4b for the quarter. Prescription business (Rx; 93% of DF sales) grew 17.2% YoY to INR23.6b, aided by 7% YoY organic growth and addition of BSV domestic business.
* Consumer business (7% of domestic sales) grew 14.1% YoY to INR1.7b.
* Exports (17% of sales) grew 100.4% YoY to INR5.3b, aided by new launches and BSV addition. The organic YoY growth in exports was 25% for 4QFY25.
* Gross margin expanded by 180bp to 71.6 % due to change in product mix.
* EBITDA margin contracted 120bp YoY to 23% owing to higher other expenses (+350bp YoY as % of sales), offset by lower employee benefit expenses (-60bp YoY as % of sales) and higher gross margins.
* There was a one-time expense related to BSV to the tune of INR250m.
* Adj. for the same, EBITDA grew 20% YoY to INR7b (our estimates of INR8.1b).
* Sale of non-core assets (Mahananda spa) led to a capital gain of INR1.5b.
* Adjusting for the same, PAT declined 31% YoY to INR3.2b (our est: INR3.6b).
* For FY25, revenue/EBITDA/PAT grew 18%/19%/5% YoY to INR122b/INR30b/INR20b.
Highlights from the management commentary
* Mankind enhanced marketing spend during the quarter for select product launches, driving opex higher for the quarter.
* It guided for EBITDA margin to be 25-26% for FY26.
* Mankind guided for revenue growth 1.2x IPM growth from chronic therapies and acute therapies’ revenue growth in line with IPM growth for FY26.
* The company expects YoY growth in exports to be in single digits in FY26.
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