After a 36 percent decline in this pharma stock in the last 1 year, domestic brokerage house Arihant Capital sees around 75 percent upside in this stock in the next 12 months.
The brokerage has maintained its 'buy rating on Marksans Pharma with a target price of ₹80, which implies an upside of as much as 74 percent from its current market price of ₹46.
The stock has fallen 17 percent in the last 6 months and 24 percent in 2022 year-to-date (YTD). In comparison, Nifty50 has declined 5 percent in the past 6 months and 6 percent in 2022 YTD.
According to Arihant, the company is concentrating on major regulated markets of the US and UK with a focus on higher-margin soft gels and over-the-counter (OTC) products. Also, its strong balance sheet will support inorganic growth through acquisitions of ANDAs, product licenses and capacity expansion, it added.
However, the brokerage mentioned that there was margin pressure in the latter half of FY22 due to cost inflation but it is expected to stabilize around current levels. Arihant Capital stated that with a focus on backward integration, operating margins can expand going forward.
Marksans Pharma is engaged in the Research, Manufacturing & Marketing of generic pharmaceutical formulations. Its key focus area includes OTC and prescription drugs.
In FY22, OTC contributed 68.6 percent and Prescription contributed 31.4 percent of the total revenues, informed the brokerage. The company manufactures tablets (plain, enteric-coated and film-coated), hard and soft gelatin capsules, oral liquids and ointments. Its manufacturing facilities are situated at Goa, UK and USA and are accredited by USFDA, UKMHRA and Australian TGA. About 95 percent of the total revenues come from the regulated markets (FY22), added Arihant.
For the March quarter (Q4FY22), the company's revenues increased by 27 percent YoY to ₹418 crore, above estimates of ₹375 crore. However, its net profit declined 63 percent YoY to ₹29.6 crore, below Street estimates of ₹44 crore on the back of higher taxation.
The gross profit margin was also compressed by 673 bps YoY to 53.8 percent, said the brokerage, mainly due to an increase in raw material cost.
EBITDA also declined 33 percent YoY but rose by 10 percent QoQ to ₹63.6 crore, whereas operating margin contracted by 1,366 bps YoY to 15.2 percent. The compression in EBITDA margin was due to the impact of raw material cost inflation, it added.
Post the earnings, the company management stated that there was increased input cost inflation during the quarter, which negatively affected the operating margins of the company.
The firm was not able to pass on the complete increase in input cost to clients and is in discussion with them on the pass-through, added the management. They also noted that the effective tax rate was higher during the quarter due to the deferred tax component, however, the effective tax rate will normalize going forward in the range of 22-25 percent, noted the management.
"The US business witnessed price erosion in the high single-digit, which was in line with the industry trend. We will launch new products in the US market to offset the price erosion and are targeting launch of about 4 products in the US market," added the firm.
The company also acquired Access Healthcare for Medical Products L.L.C in the previous quarter. It is a Dubai-based front-marketing and promotion company. The cash consideration for the acquisition was AED 13 million, which translates to around ₹27-28 crore.
Access Healthcare had revenues of around AED 14 million in 2021 and Marksans Pharma will target to double its revenues in the next 2 years after taking charge of the company, noted the management.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
