IPO Analysis: Mankind Pharma Limited IPO

IPO Rating: Apply for long term

Incorporated in 1991, Mankind Pharma Limited develops, manufactures, and markets pharmaceutical formulations across various acute and chronic therapeutic areas and several consumer healthcare products. The Company is coming out with its initial public offering (IPO) of equity shares of the face value of Re 1 per equity share. The price band of the issue has been fixed at Rs 1026 to Rs 1080 per equity share. The issue size is Rs 4,326.36 crore at a higher price band.

The IPO opening date is April 25, 2023, and it will be closing on April 27, 2023. The issue is likely to be listed on the exchange on May 08, 2023. The IPO market lot size is 13 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 14 lots (182 shares or ₹ 196,560) at the upper price band.

Objects of the Issue

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.

Promoter holding

The pre-issue shareholding is 79.00 per cent, post the IPO the promoter stake will be 76.50 per cent.

About the company:

Mankind Pharma Ltd (MPL) is India's fourth-largest pharmaceutical company by domestic sales and third-largest by sales volume. The company develops, manufactures, and markets a wide range of pharmaceutical formulations for acute and chronic therapeutic areas, as well as several consumer healthcare products.

MPL is focused on the domestic market, and as a result, its revenue from operations in India contributed 97.60% of total revenue from operations for FY22, which was among the highest among peers. It operates at the intersection of the Indian pharmaceutical formulations and consumer healthcare sectors, with the goal of providing high-quality products at reasonable prices, and it has a proven track record of building and scaling brands in-house. For MAT December 2022, the company has created 36 pharmaceutical brands, each of which has achieved over Rs 50 crore in domestic sales.

MPL has one of the largest medical representative distribution networks in the Indian pharmaceutical market (IPM), and over 80 per cent of doctors in India prescribed its formulations for MAT in December 2022, assisting MPL in establishing its brands in India.

MPL's domestic sales increased at a CAGR of approximately 12 per cent from approximately Rs 6094 crore to approximately Rs 8390 crore over the same period, which is approximately 1.3 times that of the IPM, which increased at a CAGR of approximately 10 per cent from approximately Rs 1,503 crore to approximately Rs 1,938 crore. In India, the company is active in a variety of acute and chronic therapeutic areas, including anti-infectives, cardiovascular, gastrointestinal, anti-diabetic, neuro/CNS, vitamins/minerals/nutrients, and respiratory. Since entering the consumer healthcare industry in 2007, the company has established several distinct brands in the categories of condoms, pregnancy detection, emergency contraception, antacid powders, vitamin and mineral supplements, and anti-acne preparations.

As of December 31, 2022, MPL had a Pan-India marketing presence, with a field force of 11,691 medical representatives and 3,561 field managers. It has also established a significant distribution network in India, where it sold products to over 12,000 Stockists and worked with 75 clearing and forwarding (C&F) agents in the nine months ending December 31, 2022.

As of December 31, 2022, it operated 25 manufacturing facilities in India and employed 4,121 manufacturing workers.  The Company had over 600 scientists and a dedicated in-house R&D centre as of December 31, 2022. Manforce Condoms, Prega News, Gas-O-Fast, Nurokind, Telmikind, Dydroboon, and other well-known brands are among its top sellers.

Financial

On the financial performance front, for the last three fiscals, MPL has (on a consolidated basis) posted a revenue/net profit of Rs 4794.41 crore/Rs 958.22 crore (FY20), Rs 5523.18 crore /Rs 1084.37 crore (FY21), and Rs 7257.04 crore/Rs 1335.13 crore (FY22).

Valuation and Outlook

The issue is priced at a P/BV of 6.8x based on its post-IPO NAV of Rs 153.7 per share and a P/BV of 5.9 based on its NAV of Rs 178.4 as of December 31, 2023 (at the upper price band). If we annualize FY23 earnings and attribute it to the post-IPO paid-up capital of the company, the issue is priced at a P/E of around 32.13x. As a result, the issue appears fully priced. The company paid a total dividend of 755% for FY20 and thereafter, it skipped. It will adopt a prudent dividend policy post-listing of its shares based on its financial performance and prospects.

The company has suffered a minor setback in the bottom line for 3 quarters of FY23. Management attributes this to one-time adjustments for recent takeovers and sluggish global trends following the Russia-Ukraine war. Management is optimistic about resuming its previous earnings trends after streamlining operations. It will maintain its focus on the domestic market, as India is the largest consumer of high-quality, affordable healthcare products. Hence, we recommend investors to apply for the long term.