Mankind Pharma coming up with IPO to raise around Rs 4326 crore

Mankind Pharma

• Mankind Pharma is coming out with a 100% book building; initial public offering (IPO) of 4,00,58,844 shares of Rs 1 each in a price band Rs 1026-1080 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on April 25, 2023 and will close on April 27, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 1026 times of its face value on the lower side and 1080 times on the higher side.
• Book running lead managers to the issue are Kotak Mahindra Capital Company, Axis Capital, IIFL Securities, Jefferies India and J.P. Morgan India.
• Compliance Officer for the issue is Pradeep Chugh.

Profile of the company

The company is India’s fourth largest pharmaceutical company in terms of Domestic Sales and third largest in terms of sales volume for MAT (Moving annual total, that is, the value sales of preceding 12 months) December 2022. It is engaged in developing, manufacturing and marketing a diverse range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products. It is focused on the domestic market, as a result of which its revenue from operations in India contributed to 97.60% of its total revenue from operations for the Financial Year 2022, which was one of the highest among peers identified by IQVIA, a leading global provider of advanced analytics, technology solutions, and clinical research services to the life sciences industry.

The company has primarily grown organically and are the youngest company among the five largest pharmaceutical companies in India, in terms of Domestic Sales in 2022. It operates at the intersection of the Indian pharmaceutical formulations and consumer healthcare sectors with the aim of providing quality products at affordable prices, and have an established track record of building and scaling brands in-house. It has created 36 brands in its pharmaceutical business that have each achieved over Rs 500 million in Domestic Sales for MAT December 2022. It has one of the largest distribution networks of medical representatives in the Indian pharmaceutical market (IPM) and over 80% of doctors in India prescribed its formulations for MAT December 2022, which has assisted it in establishing its brands in India.

The company’s brands have enabled it to consistently generate the highest share of drug prescriptions in the IPM over the Financial Years 2018 to 2022. The company is present in several acute and chronic therapeutic areas in India, including anti-infectives, cardiovascular, gastrointestinal, anti-diabetic, neuro/CNS, vitamins/minerals/nutrients and respiratory. Moreover, the company has a Pan-India marketing presence, with a field force of 11,691 medical representatives and 3,561 field managers, as of December 31, 2022. It has also established a significant distribution network in India and, during the nine months ended December 31, 2022, it sold its products to over 12,000 stockists and engaged with 75 clearing and forwarding (C&F) agents.

Proceed is being used for:

The company will not receive any proceeds from the offer and all the offer proceeds will be received by the selling shareholders, in proportion to the offered shares sold by the respective Selling Shareholders as part of the Offer.

Industry overview

The global formulation market was estimated at $1,331.17 billion (Rs 99,837.75 billion) in MAT Dec 2022 and is expected to grow at a CAGR of 4.5-5% to reach $1,600-1,650 billion (Rs 120,000 - Rs 123,750 billion) by Financial Year 2027. Growth in the global pharmaceutical market is a function of (a) launch of novel therapies, including biologics, (b) expansion of existing therapies into newer geographies and adjacent indications (c) growing demand for generic medicines and (d) initiatives taken by pharmaceutical companies and governments globally for accelerated access to drugs.

The size of Indian pharmaceutical market (IPM) has increased from Rs 660.53 billion in Financial Year 2012 to Rs 1,859.05 billion in Financial Year 2022 at around 10.90% CAGR over Financial Year 2012-22. The size of the IPM for MAT December 2022 was Rs 1938.38 billion. The IPM is forecast to grow at a CAGR of 10-11% to reach Rs 3,000 - Rs 3,100 billion by Financial Year 2027. Companies in the IPM benefit from defensiveness against recession in a high growth potential market while international markets are typically characterized by headwinds such as regulatory pressures, higher R&D spends and geopolitical tensions. While developed markets like the USA and the EU5 grew at around between 5-6% CAGR over Financial Years 2017-22, IPM witnessed around 10.2% CAGR over the same period.

Domestic manufacturers in IPM, characterized by high entry barriers, control over 80% of the market by value. Further, domestic players stand to grow their share of this market given the demand for high-volumes, fit-for local (in terms of cost proposition) nature of the market, increased penetration of government financing models like universal healthcare coverage, and the associated requirement to contain costs. Local companies are best positioned to benefit from these market dynamics. Further, price competitiveness is particularly important in the market where growth is significantly driven by increasing penetration.

Pros and strengths

Domestic focused business of scale with potential for growth: The company is among the largest domestic formulations businesses in India with Domestic Sales of around Rs 83,902 million during MAT December 2022, ranking fourth in the IPM in terms of Domestic Sales. Between the Financial Year 2020 and MAT December 2022, the company’s market shares in terms of Domestic Sales in the Indian pharmaceutical market (IPM) increased by 0.3% from 4.1% to 4.3%, which represents the fastest growth among the 10 largest corporates in the IPM by Domestic Sales. The supply and demand for healthcare goods and services in India is expected to increase as the urban population in India is projected to grow to 37% of the total population in India by 2027. India’s healthcare expenditure is among the lowest compared to other countries, primarily on account of under-penetration of healthcare services and lower consumer expenditure in healthcare, which indicates an opportunity for growth of the IPM in India.

Domestic Sales growing at 1.3 times the growth rate of the IPM: Between the Financial Year 2020 and MAT December 2022, the company’s Domestic Sales grew at a CAGR of approximately 12%, also outperforming the overall IPM growth in Domestic Sales of approximately 10%, by around 1.3 times. Between the Financial Year 2020 and MAT December 2022, the company’s Domestic Sales had the third fastest growth at a CAGR of around 12% among the 10 largest corporates in the IPM by Domestic Sales, compared to the average growth of around 10% for the 10 largest corporates (excluding the company) in the IPM by Domestic Sales and the average growth of approximately 11% for Peers Identified by IQVIA. The company’s growth has been primarily driven by growth in volumes, and it had the third largest volume share among the 10 largest corporates in the IPM by Domestic Sales for MAT December 2022.

Established consumer healthcare franchise with brand recall: The company operates at the intersection of the Indian pharmaceutical formulations and consumer healthcare sectors with the aim of providing quality products at affordable prices, and have an established track record of building and scaling brands in-house. The consumer healthcare market has witnessed growth and is expected to continue to see value growth in the range of 10-11% driven by new lifestyle patterns leading to disorders or diseases that may be treated with consumer health products, consumer awareness on preventive healthcare and products labelled with natural ingredients, and an increase in consumers’ income level and expenditure on consumer healthcare products. The company has established a number of consumer healthcare brands in the condoms, pregnancy detection, emergency contraceptives, antacid powders, vitamin and mineral supplements and anti-acne preparations categories, among others. The company has leveraged its established presence in the consumer healthcare segment and track record of product innovation to build an established brand.

Pan-India market and distribution coverage: The company has Pan-India marketing and distribution presence, and had one of the largest distribution networks in the IPM with 11,691 medical representatives and 3,561 field managers, as of December 31, 2022, and over 80% of doctors in India prescribed its formulations during MAT December 2022. The company’s medical representatives frequently visit prescribers across medical specialties to market its product portfolio and also visit pharmacies and distributors to ensure that its brands are adequately stocked. It places emphasis on building lasting relationships with its medical representatives. It focuses on improving work habits such as doctor coverage, doctor call frequency and chemist surveys, among other things, rather than reviewing only sales numbers.

Risks and concerns

Maximum revenue comes from limited number of markets: The company is heavily focused on the domestic Indian market, and have historically derived a substantial portion of its revenue from India. For the Financial Years 2020, 2021 and 2022, and the nine months ended December 31, 2021 and December 31, 2022, its revenue from operations in India amounted to Rs 57,888.32 million, Rs 60,285.34 million, Rs 75,947.48 million, Rs 59,183.75 million and Rs 64,815.98 million, respectively, representing 98.70%, 97.01%, 97.60%, 97.73% and 96.79%, respectively, of its total revenue from operations. As a result, its total revenue from operations is dependent on prevailing political, economic and regulatory conditions in India. After India, the company’s major markets are the United States, Bangladesh, Sri Lanka and Nepal, and any developments in the pharmaceutical industry in these regions could have an impact on its business operations.

Significant portion of domestic sales comes from products in certain therapeutic areas: The company generates a significant proportion of its domestic sales of products in certain therapeutic areas in India, such as the anti-infectives, cardiovascular and gastrointestinal therapeutic areas. The company’s domestic sales of products in these therapeutic areas may decline as a result of increased competition, regulatory action, pricing pressures or fluctuations in the demand for or supply of its products, and other factors outside its control. Any reduction in demand or a temporary or permanent discontinuation of manufacturing, sale or use of products in these therapeutic areas, and its failure to effectively react to these situations or to successfully introduce new products in these therapeutic areas, could have an adverse effect on the business, financial condition, cash flows and results of operations.

Operates in labor intensive industry: As of December 31, 2022, the company employed a total of 22,494 permanent employees, of which 41 were located outside India. For the Financial Years 2020, 2021 and 2022, and the nine months ended December 31, 2021 and December 31, 2022, the company had attrition of 2,972, 2,783, 3,483, 2,311 and 3,126 permanent employees, respectively, representing attrition rates of 20.29%, 18.17%, 20.34%, 12.98% and 16.02%, respectively. Any disagreements with labor unions or labor unrest directed against it, could directly or indirectly prevent or hinder its normal operating activities, and, if not resolved in a timely manner, could lead to disruptions in its operations, which in turn could adversely affect its business, financial condition, cash flows and results of operations.

Sale of products may be affected by seasonal factors: The company experiences some seasonal fluctuations in the demand for and sales of its pharmaceutical and consumer healthcare products. It typically experiences higher sales (by around 10%) during the first half of the Financial Year as compared to the second half of the Financial Year due to changes in the climatic conditions prevailing in India. It is not sure that the effects of such seasonal changes on the sale of its products will not exacerbate in the future and adversely affect its business and results of operations.

Outlook

Mankind Pharma develops, manufactures, and markets pharmaceutical formulations across various acute and chronic therapeutic areas and several consumer healthcare products. It operates 25 manufacturing facilities across India, in the states of Himachal Pradesh, Sikkim, Rajasthan, Andhra Pradesh, Maharashtra and Uttarakhand, and had 4,121 manufacturing personnel as of December 31, 2022. The company’s in-house manufacturing and R&D capabilities have contributed towards its track record of product innovation and launches and assisted it with maintaining consistent product quality. On the concern side, certain therapeutic areas contribute to a more significant portion of its total revenue in India, and its business, financial condition, cash flows and results of operations may be adversely affected if its products in these therapeutic areas do not perform as expected or if competing products become available and gain wider market acceptance.

The issue has been offered in a price band of Rs 1026-1080 per equity share. The aggregate size of the offer is Rs 4110.04 crore to Rs 4326.36 crore based on lower and upper price band respectively. Minimum application is to be made for 13 shares and in multiples thereon, thereafter. On the financial front, the company’s total income increased by 24.94% to Rs 79,775.84 million for the Financial Year 2022 from Rs 63,853.80 million for the Financial Year 2021 due to increases in revenue from operations and other income. Moreover, the company’s restated profit for the year increased by 12.37% to Rs 14,529.56 million for the Financial Year 2022 from Rs 12,930.34 million for the Financial Year 2021.

Going forward, the company intends to continue to increase its Covered Market presence and strengthen its position in the IPM. The company is aiming to increase its market share by expanding its product portfolio to increase sales, with a focus on chronic therapeutic areas. In addition to consolidating presence in its existing brands and therapeutic areas, it also intends to focus on pursuing opportunities in therapeutic areas where it seeks to grow its presence. Moreover, the company is aiming to deepen its presence in its existing markets and facilitate its entry into new markets. It intends to strategically acquire brands and companies across key markets as well as explore in-licensing and co-development opportunities with other companies to diversify its therapeutic portfolio.