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Marksans Pharma specializes in the R&D, manufacturing, and marketing of generic pharmaceuticals, offering a comprehensive portfolio of over 300 products including tablets, capsules, oral liquids, and ointments across various therapeutic areas like pain management, cardiovascular health, anti-infectives, CNS disorders, anti-inflammatory conditions, and gastrointestinal ailments. Serving both over-the-counter (OTC) and prescription (Rx) markets, Marksans operates globally in over 50 countries with c.96% of its revenue coming from regulated markets such as the US, UK, Europe, Australia, and New Zealand, showcasing a steadfast commitment to quality and regulatory compliance. Investment Rationales 

* Tevapharm's acquisition driving further growth: The acquisition of Tevapharm's Goa unit by the company is set to expand its manufacturing capabilities to include tablets, hard and soft gel capsules, ointments, gummies, creams, etc. With a scalable capacity, the unit plans to double its existing Indian capacity by an additional 8 bn units annually over the next two years. This expanded capacity is poised to capture emerging opportunities across diverse geographical markets. The full revenue potential from this unit is expected to be realized starting from FY25, promising substantial growth prospects for the company. This acquisition is anticipated to serve as the cornerstone for achieving the company's targeted topline growth, aiming for sales of INR 30,000mn over the next 2 years.

* Revenue shift towards OTC: Marksans Pharma has experienced remarkable growth in its OTC segment, with its revenue share soaring from 51.0% in FY19 to 74.1% in FY24, with a notable CAGR of 25.9% over the same period. The OTC market is perceived as relatively stable compared to the Rx market, characterized by lower pricing volatility and pressures. With expectations to further increase, Marksans anticipates the OTC segment to contribute 80-85% to its revenue from FY25 onwards. This strategic shift towards OTC is aimed at providing the company with sustainable growth and better operating stability (low-cost manufacturer).

* Doubling revenue in the US market: The US is Marksans' core market, accounting for more than 42% of its consolidated revenue. The US is also expected to contribute between 45-48% of company sales, and the company is extremely optimistic about doubling its US revenue over the next two years due to its strong order book visibility. US market is the growth driver for the next 2 years as the company has increased its presence, capacity, and product portfolio in the region.

* Outlook and Valuation: We believe Marksans will benefit from scaling up and upgrading its newly acquired Tevapharm manufacturing facility, increasing revenue share from the OTC segment, a strong product pipeline, particularly in the USA and the UK, and its backward integration initiative, which will enhance operating leverage and slightly improve margins. We expect Revenue/EBITDA/PAT to grow at a CAGR of 20.8%/22.1%/24.5% over FY24-FY26E. We value the company at a PE of 20x on FY26E EPS to arrive at a target price of INR 215 and initiate our coverage with an OUTPERFORM rating on the stock.

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SEBI Registration no.: INZ 000160131