Broker’s Call: Mankind Pharma (Buy)

Target: INR 1,520

CMP: INR 1398.15

Mankind Pharma reported its first quarterly earnings post-listing and was ahead of our estimates, with revenue growing 12.4 percent for fiscal ’23 and 18.9 percent year-over-year (YoY) for the fourth quarter of fiscal ’23.

EBITDA grew 46.3% YoY in Q4FY23 supported by a lower other expense to sales ratio of 22.7% (vs. 26.6% in Q4FY22) resulting in EBITDA margin expanded 380 basis points year over year to 20.3%.

PAT grew by 50.2 percent in Q4FY23 on the back of lower ETR of 22.2% (vs. 26.7% in Q4FY22) due to tax benefits from the Sikkim plant. We expect steady double-digit growth momentum through fiscal 23-26 on the back of continued growth outperformance versus IPM.

The company continued its trend of outperforming industry growth and reported a 17.6 percent year-over-year increase in its domestic revenue for the quarter (versus IPM’s growth of 14.9 percent). This was driven by high growth in the chronic sectors, which accounted for 35% of domestic revenue in the fourth quarter of FY23 versus 33% in FY22.

For fiscal year ’23, the company’s growth in India held steady at 11.3% versus IPM’s growth of 7.9%. Panacea’s acquired portfolio stabilized and its five largest brands grew 19 percent year-over-year in the fourth quarter of fiscal ’23.

According to management, fiscal 2013 EBITDA margin compression of 380 basis points was due to higher raw materials costs of 130 basis points, employee costs of 110 basis points, and integration costs of 60-70 basis points for Panacea assets; CAPEX guidance of Rs.600 crore for FY24; The price increase taken in the second quarter of fiscal year ’23 helped offset higher raw material costs.

We expect continued outperformance in the domestic market with an increased contribution of chronic products. We expect Revenue / EBITDA / PAT to be 12.6% / 18.5% / 21.9% during fiscal year ’23-26.

We factor in higher India sales and are raising our earnings for fiscal year 24/25 by 2-3 percent. We also provide estimates for FY26. We maintain Buy with adjusted TP of Rs.1,520 (earlier Rs.1,500), based on 30 times (unchanged) earnings for FY25E.