Marksans Pharma- Can it be the next Pharma Biggie?

Q3FY24 Concall notes:

• Guidance – 3000 Cr revenue in next 2 years, operating leverage to kick in further, effective tax rate to be 25%

• Revenue growth of 22% due to market share gains and new product launches

• Gross margins at 53.5% up from 50.1% last year

• EBITDA margin of 22.7% in Q3, led by operating leverage, consistent cost optimisation initiatives, and a reduction in raw material costs.

  • Third of Margin improvement has come from RM softening and remaining from operating leverage

• Moderate price erosion in US markets for Rx but overall gross margins increase due to lower RM costs

• Teva facility update –

  • ramped up to 3.6B units pa and ramp up to 6B units to happen by FY25

• Filing first DMF for APIs for backward integration

• Capex for 9M was 160 Cr, 80-85 Cr in Teva facility out of that. 200 Cr more to be spent in Teva and other facilties in FY25

  • Management expects Teva facility to churn 600 Cr revenue
  • Teva plant is yet to breakeven and management expects it to provide operating leverage

• OTC vs prescription splits

  • In UK, split is around 60-40. So, 60 is OTC and 40 is Rx, and our US is about 75-25.

• As per management OTC does not go through same price volatility as Rx and contracts are higher gestation

• Market split –

  • US – 257 Cr 18% growth
  • UK + EU – 251 Cr 34% growth
  • Aus + NZ – 48 Cr
  • RoW – 29 Cr

• Management says UK market is mature while US market is relatively new for them and has higher scope to grow

• US and UK market growth drivers

  US market is huge. This is just the tip of the iceberg. So, I think double-digits on a low base is the least we could do.

  Growth will continue being robust in UK for the next couple of years. Again, sheer strength of our product pipeline and product launches that have been planned. We’ve been filing them for quite some time. So, we’ve been investing on all the filings, everything of that stuff. So, obviously products, product launches are happening on a quarter-to-quarter basis and we are able to penetrate. But it’s also the product mix which is basically also giving that growth in terms of that specific market. And products that were not able to penetrate into certain accounts, we’ve actually broken into those accounts.

• More focus on bottomline with launch of new products which are more niche

  New products are little niche products, high value products, great bottom lines. They are not, they will not be driving the top line, but as a basket collectively, the top line will basically, will grow. We are planning only 34 new filings in the next two years in UK itself, and these are all products where you would see amazing bottom lines being generated. So, you will see, while the cycle, the life cycle of every product is limited, while you may see a price erosion on A product, you will see gains on a B product or on a new product that has just got approved based on, and we have to foresee that, and hence we have gone into molecules which can basically – is more focused on bottom line than top line.

• Red sea issues related to freight cost and forex remain key risk