Marksans Pharma- Can it be the next Pharma Biggie?

Marksans Pharma Ltd

Marksans Pharma (established in 2003) is into OTC and prescription based pharma co having presence in USA, UK, Australia and New Zealand and ROW. It manufactures tablets, gels and ointments for pain management, cough and cold and cardio-vascular therapeutic segments via its 4 manufacturing plants.

Business Model and Industry Analysis

Overview:

Geography: Companies 94% revenue comes from regulated markets of US, UK, Australia and Canada. It has also started to expand itself in Middle East and thus increasing revenue from RoW. Co generates higher margin in UK compared to US. In UK it sells majorly OTC products along with few high end prescription drugs. In US, sales is driven through OTC by forming partnership with large wholesalers like Walmart and Target.

Product: Co deals in 2 segments namely OTC (over the counter) and prescription drugs. OTC contributes around 74% of revenue. In OTC segment, pain management and cough and cold segments contributes majority of revenue. Marksans’ OTC segment is 80% revenue from store brands and 20% from own labels. Prescription segment comprises of Cardiovascular system, oncology, anti diabetic and anti biotic segment

Industry Growth:

Industry is poised to grow at 4.5% CAGR till 2029 for OTC and prescription drugs in USA and UK

Capacity Utilisation:

Marksans has 4 manufacturing plant. 2 in Goa one in UK and one in USA. In goa, Teva is a recently acquired plant which has breakeven in Q1 FY25. Teva plant will contribute to revenue and this contribution will continue to increase Q on Q. Teva plant can manufacture tablet, ointment liquid and creams with scalable capacity to 8Bn units. It is currently 40% utilised. Other goa plant can manufacture 2.4 Bn capsules and 6bn tablets. USA plant can manufacture 6bn tablets and capsules. UK facility can manufacture 2Bn bottles, 1Bn tubes and 1Bn sachet. All plants are at 65% utilisation

Opportunities:

• Expanding OTC Business : Marksans still have a lot of scope to capture multi billion dollar OTC business. It is the most preferred and growing store brand low – cost manufacturing partner
• New Product Launches: Co has maintained 2% of sales expenditure to R&D which has enabled new product launches. Co has healthy pipeline of more than 76 products.
• Backward Integration: The co is in the process of Backward Integration and API manufacturing for captive consumption for its top 4 molecules
• Forward Integration: Co is focusing on inorganic growth by acquiring established marketing and distribution companies in growing markets to improve profit margins

Risk:

• Competitive Industry: Stiff competition as there is pressure from new as well as existing players. The co offsets this risk by strong R&D expenses and launching new products
• Regulatory Risk: As 94% revenue is from regulated markets, any adverse govt policy in US and UK will impact the revenue of company. Further increasing prices in such markets is difficult
• Currency Fluctuations: As the co revenue is from export markets, it faces huge currency risk.

Future Expansion:

• Teva Expansion: The co is set to expand its Teva Facility to 8 bn units to help achieve 3000 cr sales target. Plan is to manufacture tablets, hard capsules, ointments, liquid and cream from the facility
• Inorganic Expansion: With its healthy cash reserve, Marksans is aggressively evaluating inorganic growth opportunities. The focus is to acquire distribution channels in Europe region or in regions where co can expand its market reach.

Management:

Management is forward looking and has achieved all its commitment given to shareholders. Promoters hold 43.9% unpledged shareholding in NHL.

Institutional Investor:

FII and DII continue to hold around 22.3% in the company

Historical Data and Financials

Profit N Loss Account:

* Sales have grown at CAGR of 17% for last 3 years
* Margins have continuously improved and stands at around **21%** currently

Balance Sheet:

* Interest coverage ratio is **41times**
* Debtor days and Inventory days have improved
* Working Cycle and Cash conversion cycle have improved YoY
* Current ratio stands at 7 times.

Cash Flow:

* Co has a positive CFO always
* Co has sufficient cash reserve to do inorganic acquisition

Valuation:

Disclaimer: This is a study report, not for any decision making or investment advisory.

Made by: Nidhi Devidan

Date:3rd September 2024