Mankind Pharma Shares Gain After Kotak Initiates Coverage With 'Add'

Shares of Mankind Pharma Ltd. rose after Kotak Institutional Equities initiated coverage with an 'add' on the stock.

"It has built a strong distribution network, which, along with its assertive marketing, has helped create megabrands across prescription and over-the-counter [segments]," the brokerage said in a June 21 note.

Kotak has set a target price of Rs 1,875, implying a potential upside of 10.5%.

The brokerage expects a 22% compound annual growth rate in adjusted Ebitda and 15% in sales, led by "deepening presence in existing markets, improved productivity in specialty divisions, entry into newer categories, and steady easing of raw material pressures", the note said.

It also expects a 37% CAGR in free cash flow over the next three years, with "industry-leading return ratios".

Here are some of the key risks for the company according to Kotak:

• Inefficient capital allocation.

• Adverse outcome from the recent tax raids.

• The emergence of e-pharmacies.

• Disruptions in the domestic branded generics market due to trade generics/Jan Aushadhi.

• Raw material volatility (given the lower extent of backward integration).

Despite its success beyond Class I cities, the brokerage highlights that 53% of the company's domestic sales originate from urban markets. Mankind is in a position to benefit from gaps in the domestic branded medical prescription and over-the-counter segments, according to Kotak.

The company's research and development capabilities, through the success of Dydroboon, along with marketing and distribution, are its strengths, the brokerage said.

"Mankind has the most well-rounded therapeutic mix among peers, with strong brands across therapies," it said.

The company's top 25 brands are priced at a 21% discount compared to its key competitors, though the differential has narrowed, the brokerage said.

Mankind sets itself apart from its competitors through its OTC segment, where it is a leader in key categories with a clear domestic focus and agile decision-making, the note said.

Kotak expects Mankind's 15% domestic sales CAGR to outpace the 9–13% projection for the rest of the companies in its coverage, with higher productivity driven by the ramp-up of specialty and large brands.

The brokerage also estimates the company will outperform the Indian pharma market as it yields benefits from the 40% field force addition.

Shares of Mankind Pharma were up 0.47% to Rs 1,704 apiece, compared to a flat Nifty 50 as of 10:51 a.m. The stock rose 2.94% intraday.

The average traded volume so far in the day stood at 1.9 times its monthly average.

Of the 11 analysts tracking the company, 10 maintain a 'buy' rating, and one suggests a 'hold', according to Bloomberg data. The average 12-month consensus price target implies a potential downside of 8.7%.