Marksans Pharma - With Focus On Backward Integration, Operating Margin Is Expected To Improve: HDFC Securities

HDFC Securities Retail Research

Marksans Pharmaceuticals Ltd. is concentrating on regulated markets of U.S. and UK with focus on higher margin softgels and over the counter products.

Also, its strong balance sheet is likely to support inorganic growth through acquisitions of abbreviated new drug application, product licenses and capacities.

With focus on backward integration, operating margin is expected to improve in the coming quarters. Consolidated Ebitda margin contracted to 17.4% in FY22 (Ebitda margin of 24.7% in FY21).

For nine months-FY23, Ebitda margin slipped 140 basis points at 16.8%. It was due to product mix tilted towards OTC segment vis-a-vis prescription segment, higher raw material costs, freight and packaging material costs.

FY21 base was high due to Covid-19 driven by panic buying. Freight costs also more than doubled due to the container shortages and increase in crude oil prices.

Margin is expected to improve led by-

1. normalisation of operating expenses,

2. balanced focus of both OTC and prescription segments and

3. backward integration (active pharma ingredient business).

Marksans Pharma has strong balance sheet with cash and equivalents of Rs 417 crore as on December 2022 and including money received of warrants it would be around Rs 696 crore.

We estimate 17% compound annual growth rate in revenue led by strong growth from UK and Australia and New Zealand and healthy growth from U.S. market over FY22-25E.

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