Mankind Pharma IPO opens today; should you subscribe to it?

Mankind Pharma Ltd (MPL), the fourth-largest pharmaceutical company in India by domestic sales and third-largest by sales volume, is slated to launch its initial public offering (IPO) on April 25, 2023. The price band of the issue has been fixed at Rs 1,026 - Rs 1,080.   The entire IPO will be an offer for sale (OFS) of 40,058,844 equity shares, amounting to Rs 4,326.36 crore. OFS means the company will not receive any funds from the share sale. The objectives of the public share sale are to carry out the offer for sale by the selling shareholders and achieve the benefits of listing the equity shares on the stock exchanges. The IPO will close on April 27.  

About Mankind Pharma

Mankind Pharma was incorporated in 1991. It is focused on the domestic market, which fetches 97.6 per cent of its revenue. The company has majorly grown organically and is the youngest company among the five largest pharma companies in India, in terms of domestic sales in 2022. Moreover, the company is one of the fastest-growing Indian pharma companies, as it increased its India Pharma Market (IPM) share from 4.1 per cent in CY2020 to 4.3 per cent in CY2022.

MPL sells pharmaceutical formulations and consumer healthcare goods and operates 25 manufacturing sites and a specialised R&D centre with four divisions. In the consumer healthcare category, Manforce ranked 1st in the male condom category (market share of 30 per cent), Prega News ranked 1st in the pregnancy test kit category (market share of 80 per cent) and Unwanted-72, ranked 1st in the emergency contraceptive category (market share of 62 per cent).

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Further, MPL has outperformed IPM by 1.2 times in the acute segment and by 1.4 times in the chronic segment over FY20–9MFY23. MPL is increasing its focus on chronic therapeutic areas, which have higher growth potential, as per brokerages' reports. Through its acquisition of pharmaceutical brands from Panacea Biotec Pharma Ltd, MPL ventured into the transplant and oncology markets, while the purchase of Daffy and Combihale brands from Dr Reddy's Laboratories would further solidify its position in the dermatological and respiratory therapeutic fields, analysts note further.

Key financial summary

Should you subscribe?

At the upper price band of Rs 1,080, MPL is available at a P/E of 30x (FY22), which appears reasonably priced compared to peers, say analysts at Geojit Financial Services. "Considering under-penetration of healthcare services and lower consumer expenditure in healthcare in India, MPL’s focus on chronic therapeutic areas, emphasis on increasing penetration in metro and Class I cities, growth in the consumer healthcare business, good financial performance and strong distribution network, we assign a “Subscribe” rating on a long term basis," the brokerage said in its IPO review note. 

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However, investors should be aware of the key risks listed below - 

• Limited geographical diversification/ risk of over-reliance (FY22-97% revenue from India).
• 13 % portfolio fall under NLEM (National List of Essential Medicines), subject to price control.
• Ongoing acquisitions may enhance its business portfolio, and there is a possibility of higher costs without a proportionate increase in revenues.

ICICI Securities is also positive on the stock and has assigned a 'Subscribe' rating to the issue. Mankind Pharma benefits from its strong foothold in domestic branded formulations with an emphasis on affordable product offerings. At the upper price band, it is valued at 32.5x P/E on annualised FY23E earnings per share of Rs 33.2. 

"We assign SUBSCRIBE rating on the back of opportunities from its newer acquired products and its plan to backwards integrate into its power brands and structural preference for domestic branded formulations among broader healthcare themes," wrote research analysts Siddhant Khandekar, Kushal Shah, and Utkarsh Jain, in an IPO review note issued on April 24, 2023.

Centrum Broking echoes similar views. Alka Katiyar, Research Analyst, Pharma & Healthcare at the brokerage said, " We recommend Subscribe to Mankind given its strong leadership ranking in IPM  (4th) after Sun, Abbott and Cipla. Considering the valuation, Mankind is at a nearly 20 per cent discount to Torrent’s for FY25. Additionally, its strong brand market and doctor coverage in top five therapeutic areas look promising," the brokerage note said.