Marksans Pharma (NSE:MARKSANS) is a mid-sized pharmaceutical company with a large presence in the US, UK, Australia, and New Zealand markets. forward-integrated business model. The company manufactures products in various therapeutic categories, including pain, cough, and cold; cardiovascular and central nervous systems; antidiabetic; gastrointestinal; antiallergic; and others.
It has manufacturing facilities in Goa (India), Southport (UK) and New York (USA) equipped to deliver significant growth by maximizing its operational leverage. The company has approvals from various authorities including US FDA, UK MHRA, Australia TGA and others. Marksans has built a strong, forward-integrated business model focusing on over-the-counter and prescription drugs with applications in diverse areas ranging from oncology, CVS, CNS, anti-diabetic, gastroenterology to pain and cough and cold management.
Marksans Pharma has 1,400 employees as of March 2022. It has presence in more than 50 countries, the key ones being UK, USA, Australia and New Zealand, etc. The company’s research and development capabilities include documentation development services, formulation development and specific drug delivery system. The company’s home business is a specialized division that focuses primarily on oncology and intensive care therapy. The company has built its presence in various therapeutic segments in the US, Europe, Russia and CIS, Africa, Latin America, Southeast Asia and Australia.
Marksans portfolio is biased towards OTC segments and soft gel products mainly in the US and UK markets. Due to its leading presence in these markets, it was able to optimally monetize the opportunities. The OTC segment is likely to see stable demand with low price erosion.
Consolidated revenues grew at a CAGR of 13% over FY18-22, led by a shift to front-end distribution through subsidiaries in the US, UK and Australia, product launches, market share gains for existing products and capacity additions. Marksans is primarily engaged in the export of oral solid preparations with a particular focus on over-the-counter and soft gelatin/hard gelatin preparations.
It generates most of its revenue from OTC business (~70% of total revenue) while the rest from Rx business. While the oral solids business is extremely competitive, it still sees an opportunity to build on the base it has created through its diversified global presence and focused approach. Marksans will bear the capital expenditure to upgrade the existing facility. Management expects gross margin of 50-52% and EBITDA margin of ~17% in FY23.
Marksans has a portfolio of more than 300 generic products in 10 therapeutic areas. As of March 2022, it has more than 70 products in the pipeline. The company has a presence in more than 50 countries, the key ones being the UK, USA, Australia and New Zealand etc. The acquisition of Access Healthcare, which also has a presence in the North African regions, will enable Marksans to leverage Marksans’ leading sales and marketing infrastructure. to market its products made in India, UK, USA and MENA regions. Management drives strong growth in Cough & Cold and Gastro-Intestinal led by new launches.
Marksans focuses on the major regulated markets in the US and UK, focusing on higher margin softgels and OTC products. Also, its strong balance sheet is likely to support inorganic growth through ANDA, product license and capacity acquisitions. The company witnessed margin pressure in H2FY22 due to cost inflation.
However, it is expected to stabilize around current levels. With the focus on backward integration, operating margins are expected to improve in the coming quarters. Consolidated EBITDA margin fell to 17.4% in FY22 (FY21: 25%). This was due to the tilting of the product mix towards the OTC segment versus the prescription segment, higher raw material costs, shipping costs and packaging material.
According to management, the higher base effect in FY21 was due to panic buying triggered by COVID-19. Shipping costs have also more than doubled due to container shortages and rising oil prices. Margin improvement is expected due to normalization of operating expenses, balanced focus of OTC and prescription segments and backward integration (API business).
The company has a strong balance sheet with cash and equivalents of Rs 335 cr as of September 2022. We estimate 16.7% CAGR in revenue led by strong growth from UK & Australia & New Zealand and healthy growth from the US market for FY22-24E.
Sales increased by 25% year-on-year to 452.6 kr. EBITDA margin improved by 110 bps year-on-year to 17.7%. Net profit increased by 30% year-on-year to 60.1 kr. Other income increased by 63% year-on-year to 14.2 kr. The gross margin was 50.7%. Research and development costs amounted to 9.8 kr or 2.2% of sales.
Total H1FY23 revenue rose 24.8% YoY to Rs 886 crore. EBITDA margin fell by 210 bps to 17.3%. Net profit increased by 10.5% year-on-year to 120.3 kr. Other income increased by 113% year-on-year to 30.7 kr. R&D expenses were 19 cr or 2.1% of sales. Net cash amounted to 335 crowns in September 2022.
US business grew 13.7% YoY to Rs 190, despite price erosion by high single digits in the Generic Rx segment. UK and Europe growth was 32.6% y-o-y at 194 cr. Led by volume growth and market share gains in the existing portfolio, Rs. Sales in Australia and New Zealand were up 39% year-on-year, while the rest of the world was up 56.4% year-on-year.
Research and development costs would increase to 4-5% of sales over the next few years. In the UK, the company has planned 34 new filings over the next three years, with 7 planned in FY23. In addition, 16 products are already filed and awaiting approval.
There are 32 products under development in the US, of which 20 are oral solids and 12 are ointments and creams. There are 4 soft gels within the oral solids. In Australia and New Zealand: 10 products are in development and expected to be launched over the next two years.
The company plans to file a DMF with the CDMO in May-June 2023. The benefits of backward integration could mostly be reflected by Q4FY24E. It will be for own consumption and guide for ~500bps expansion in gross margin and EBITDA margin.
Access Health (SAE) reported revenues of AED 5m (12cr) for the quarter and there is also competitive intensity in the OTC segment. Many players entered it. However, the price erosion is not like that of Rx. Marksans has a strong presence in the UK market. The company is poised for strong growth in the UK in the coming quarters. In FY24, the US business is expected to see strong growth led by new launches.
Transport and related costs and RM prices are stabilizing/declining which should also benefit the margin. Management guided for sales of around Rs 1800 crore in FY23 and Rs 2000 crore in FY24. EBITDA margin should be ~17% for FY23 and 18-19% for FY24. The company aims to achieve 20%+ operating margin over the next 2-3 years.
The acquisition of capacity from Teva pharm India will provide further growth support in the long term. The total cost including capital expenditure and the acquisition of the Teva unit would be approx Rs 200 cr. The capacity increase will take place over the next 24 months.
The company is expected to double India’s capacity from current levels (8 billion units per annum) as a result of the recent acquisition of Tevapharm India, bringing total capacity to INR 26 billion over the next 18–24 months.