Will it break the jinx of IPOs priced above 1000 times the face value?
None of the IPOs which was priced more than 1000 times its face value in the past is currently quoted above the offer price. Mankind with stronger fundamentals should be different from others.
|
MANKIND PHARMA OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | NIL |
| Offer for Sale | 4,00,58,844 equity shares (Rs 4,326 Cr) |
| Face Value | Re 1 |
| Price Band | Rs 1026 – 1080 |
| Mkt/Bid Lot | 13 Nos. |
| Implied M-Cap | Rs 43,264 Cr |
| Implied Equity Cap | Rs 40.05 Cr |
| Free Float | 23.50% |
| Lead Manager | Kotak Mahindra Capital, Axis Capital, IIFL Securities, Jefferies India, J P Morgan |
| Registrar | KFin Technologies |
| Listing At | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening : 25-Apr-2023 | Closing : 27-Apr-2023 |
| Allotment : 03-May-2023 | Refunding : 04-May-2023 |
| Demat Credit : 08-May-2023 | Trading : 09-May-2023 |
The Offer
Mankind Pharma Ltd, controlled by the South Delhi-based Junejas, is going public with an IPO of Rs 4,326 Cr. There is no fresh issue from the company. The offer comes from three individual promoters and four investor-shareholders of the company. The offer is being made through the book-building route with a hefty price band of Rs 1026-1080 for Re 1 paid-up share.
Applicants should bid for a minimum lot of 13 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on May 9, 2023. Kotak Mahindra Capital, Axis Capital, IIFL Securities, Jefferies India and J P Morgan India are acting as managers to the offer and KFin Technologies has been roped in as registrar to the issue. The bidding opens on Tuesday, April 25 and closes on Thursday, April 27, 2023.
The objects of the IPO are to carry out the Offer for Sale of 40,058,844 shares by the Selling Shareholders and achieve the benefits of listing the shares on the Stock Exchanges. The IPO is expected to provide liquidity to the existing shareholders besides enhancing the company’s visibility and brand value.
Lineage
Mankind Pharma was incorporated on July 3, 1991 as a private limited company by Juneja brothers Ramesh and Greesh. However, currently Ramesh Juneja, Rajeev Juneja, Sheetal Arora, Ramesh Juneja Family Trust, Rajeev Juneja Family Trust and Prem Sheetal Family Trust are presented as the promoters of the company.
Mankind has primarily grown organically and is the youngest company among the 5 largest pharmaceutical companies in India (in terms of domestic sales in 2022). Mankind is present in several acute and chronic therapeutic areas in India, including anti-infectives, cardiovascular, gastrointestinal, anti-diabetic, neuro/CNS, vitamins/minerals/ nutrients and respiratory. The company reportedly operates 25 manufacturing facilities across India, in the states of Himachal Pradesh, Sikkim, Rajasthan, Andhra Pradesh, Maharashtra and Uttarakhand.
Mankind entered the consumer healthcare industry in 2007 and have since established several differentiated brands in the condoms, pregnancy detection, emergency contraceptives, antacid powders, vitamin and mineral supplements and anti-acne preparations categories. The company’s products are focused on the domestic market which contributed about 98% of the total revenue in fiscal 2022.
Mankind claims to have experienced sustained growth and has reportedly outperformed the growth of the Indian Pharma Market during last three years. The company has strived to establish “Mankind” as a well-recognized brand in India. They have demonstrated track record of creating brands with Domestic Sales of over Rs 100 Cr and had the 3rd highest number of such brands for any company in the Indian Pharma Market as of December 31, 2022.
Mankind has a pan-India marketing presence. As of December 31, 2022, Mankind had a sales and marketing team of 400 personnel, as well as 11,691 medical representatives and 3,561 field managers. The company has also benefitted from the support of private equity investors, which include affiliates of Capital International Group and ChrysCapital.
Key Management
Founder-promoter Ramesh Juneja (67) is the Chairman and Whole-Time Director of the Company. Though he does not hold any formal educational qualification he has experience of over 31 years in the pharmaceutical industry.
Younger brother and co-promoter Rajeev Juneja (57) who has been associated with Mankind since December 22, 1992 has been designated as the Vice-Chairman and Managing Director of the company. He too does not have any formal educational qualification but has experience of over 29 years in the pharmaceutical industry.
Junejas’ nephew and another co-promoter Sheetal Arora (47) is the Chief Executive Officer and Whole-Time Director of the company. He has been associated with the company since September 21, 2007. He holds a bachelor’s degree in commerce and has over 14-year experience of in the pharmaceutical industry.
Satish Kumar Sharma (49), who holds a bachelor’s degree in pharmacy and has associated with the company since September 23, 2016, is also a Whole-Time Director of the company. He was previously associated with T.C. Health Care Private Ltd as senior officer – validation, Nicholas Piramal India Ltd as assistant manager – production and Wockhardt Ltd as a supervisor.
Promoter Ramesh Juneja’s son Arjun has been designated as Chief Operating Officer. He has been associated with the company since May 15, 2009. He holds a bachelor’s degree in science (accounting and finance) from the University of Bradford and a master’s degree in business administration from the University of Strathclyde, United Kingdom.
Co-promoter Rajeev Juneja’s son Chanakya is employed by the company as Director – Technology. He has been associated with the company since November 15, 2019. He holds a bachelor’s degree of science in economics from the University of Bath, England. He holds a master’s in science degree and Diploma of Imperial College (DIC) in international health management from Imperial College London.
Stakeholders
As on the date of the Red Herring Prospectus, Mankind had an equity capital of 40.05 Cr shares of Re 1 each of which the Promoters namely Ramesh Juneja, Rajeev Juneja, Sheetal Arora, Ramesh Juneja Family Trust, Rajeev Juneja Family Trust and Prem Sheetal Family Trust held 67.29% and seven relatives of individual promoters held 11.71%. Four private equity investors had 17%. Post IPO, of the unchanged equity capital, the promoter group would hold 76.5% at a negative cost. Private equity investors Cairnhill CIPEF and Cairnhill CGPE will have 2% at an extremely negative cost. Beige Ltd and Link Investment Trust will hold at an average cost of less than Rs 374 a share.
Business
Mankind is engaged in developing, manufacturing and marketing a diverse range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products. The company’s formulation manufacturing facilities have a total installed capacity of 42.05 billion units per annum across a wide range of dosage forms, including tablets, capsules, syrups, vials, ampoules, blow fill seal, soft and hard gels, eye drops, creams, contraceptives and other over-the-counter products. The company has already implemented partial backward integration to manufacture some of its own APIs (including APIs, intermediates and key starting materials) for certain of its key brands such as Telmikind and Dydroboon, among others.
The company’s principal competitors in the domestic market include leading pharmaceutical companies operating in similar therapeutic areas and product categories, such as Alkem Laboratories, Abbott India, Aristo Pharmaceuticals, Cipla, Eris Lifesciences, Intas Pharmaceuticals, Ipca Laboratories, J. B. Chemicals, Lupin, Sun Pharmaceuticals, Torrent Pharmaceuticals, Zydus Lifesciences, etc. It also faces competition from multinationals such as GlaxoSmithKline Pharmaceuticals, AstraZeneca PLC, Boehringer Ingelheim, Janssen Pharmaceuticals, Merck & Co, Novartis, Pfizer, Procter & Gamble Health, Sanofi and Viatris.
Prospects
Last year Mankind invested a significant amount in acquiring some of the popular brands and copyrights in the pharmaceutical market. It has purchased the pharmaceutical formulations brands in India and Nepal, including their related trademarks and copyrights and other related intellectual property rights, from Panacea Biotec for a consideration of over Rs 1800 Cr. Also, it has acquired word marks and logos associated with the brands ‘Daffy’ and ‘Combihale’, from Dr. Reddy’s Laboratories, for Rs 39 Cr. The benefits of these acquisitions will accrue in the coming years.
Financial Track
Mankind has impressive financials. For fiscal 2022, on an equity capital of Rs 40 Cr, the company posted a top line close to Rs 8,000 Cr on which it netted a profit of Rs 1,453 Cr. The company’s bottom line yielded an EPS of more than Rs 35 on Re 1 paid up share. The company’s operational assets (net block) are worth more than Rs 4,700 Cr and the company’s earned surpluses amounted to more than Rs 7,700 Cr at the end of December 2022. The company’s profit margins too are quite impressive and they are among the best in the industry.
|
Mankind Pharma Consolidated Financials (Amt in Cr) |
|||||
| Period Ended |
Dec-22 |
Mar-22 | Dec-21 | Mar-21 |
Mar-20 |
| Months |
9 |
12 | 9 | 12 |
12 |
| Revenue |
6697 |
7782 | 6056 | 6214 |
5865 |
| Operating Profit |
1485 |
1999 | 1714 | 1655 |
1438 |
| OPM% |
22.2 |
25.7 | 28.3 | 26.6 |
24.5 |
| Other Income |
81 |
196 | 163 | 171 |
110 |
| EBIDTA |
1566 |
2195 | 1876 | 1826 |
1548 |
| EBIDTA % |
23.1 |
27.5 | 30.2 | 28.6 |
25.9 |
| Interest |
39 |
59 | 46 | 20 |
22 |
| Depreciation |
241 |
167 | 119 | 119 |
99 |
| Tax |
238 |
469 | 455 | 396 |
414 |
| Net Profit |
1016 |
1453 | 1260 | 1293 |
1056 |
| NPM% |
15.0 |
18.2 | 20.3 | 20.2 |
17.7 |
| Equity |
40 |
40 | 40 | 40 |
40 |
| Reserves |
7106 |
6115 | 5925 | 4682 |
3445 |
| Borrowing |
168 |
868 | 269 | 235 |
127 |
| Fixed Assets |
4710 |
4264 | 2311 | 2011 |
1891 |
COVID Impact
Most of the pharmaceutical companies reported improved profit margin in fiscal 2021 and Mankind’s margin (26.6%) was the second best in the industry. Due to the pandemic the industry witnessed a margin squeeze in fiscal 2022. Whereas many a pharma player conceded more than 100 basis points, mankind lost only 90 basis points in fiscal 2022 and posted a margin of 25.7% which was higher than many of its peers.
|
PHARMA OPERATING MARGIN TREND |
|||
| FISCAL YEAR |
2022 |
2021 |
2020 |
| Abbott India |
22.1 |
21.4 |
18.5 |
| Alkem Labs |
19.3 |
21.9 |
17.7 |
| Aurobindo Pharma |
18.7 |
21.5 |
21.1 |
| Cipla |
20.9 |
22.2 |
18.7 |
| Dr Reddy’s Lab |
17.5 |
20.3 |
14.1 |
| Lupin |
12.8 |
16.9 |
15.3 |
| Mankind Pharma |
25.7 |
26.6 |
24.5 |
| Sun Pharma |
26.5 |
25.3 |
21.2 |
| Torrent Pharma |
28.6 |
31.0 |
27.3 |
| Zydus Lifescience |
21.9 |
22.1 |
19.5 |
(Source: India Aarthik Research)
Valuation
Mankind has kept a price band of Rs 1026-1080 for Re 1 paid-up share. The secondary market performance of IPOs that were priced more than 1000 times their paid-up value may not exude optimism. Incidentally, all the four IPOs which were priced more than 1000 times their face value are currently quoted below the offer price. Nonetheless, unlike the other high-priced IPOs that have inflicted capital loss on gullible investing public, Mankind has strong fundamentals to justify its IPO price band.
| IPOs WHOSE PRICE WAS MORE THAN 1000 TIMES THEIR FACE VALUE | ||||
| COMPANY NAME | IPO DATE | IPO PRICE | CURNT PRICE | GAIN/LOSS % |
| Adani Enterprises* | 27-01-2023 | 3276 | 1811 | -44.7 |
| One97 Comm | 08-11-2021 | 2150 | 665 | -69.1 |
| Gland Pharma | 09-11-2020 | 1500 | 1307 | -12.9 |
| FSN Nykaa | 28-10-2021 | 1125 | 120 | -36.0 |
| Mankind Pharma | 25-04-2023 | 1026-1080 | 1080 | |
| * – Adani’s offer was withdrawn after the closing date | ||||
(Source: India Aarthik Research)
Even though Mankind’s IPO price may look steep, its financials compare favourably with the industry peers. The company’s Return on Capital Employed (RoCE) is the highest among the leading Indian pharmaceutical companies. In terms of RoE (return on net worth), only Torrent’s is slightly better. In terms of Price-Earnings, Mankind is better than Torrent, Dr Reddy’s and Sun Pharma.
|
HOW MANKIND PHARMA COMPARES WITH SELECT INDUSTRY PEERS |
|||||||
| (Amount in Cr) |
Mankind |
Sun Pha | Dr Reddy’s | Cipla | Torrent | Zydus Life |
Alkem |
| Market Cap |
43264 |
238826 | 81783 | 73588 | 53996 | 52351 |
39940 |
| Borrowing |
868 |
931 | 3088 | 824 | 4018 | 4196 |
2580 |
| Fixed Assets |
4264 |
17197 | 8868 | 7250 | 6793 | 7550 |
2838 |
| Revenue |
7782 |
38654 | 21545 | 21763 | 8508 | 15265 | 10634 |
| Other Income |
196 |
922 | 484 | 281 | 197 | 225 |
163 |
| EBIDTA |
2195 |
11165 | 4252 | 4834 | 2628 | 3565 |
2216 |
| Interest |
59 |
127 | 96 | 106 | 255 | 127 |
52 |
| Net Profit |
1448 |
7819 | 2112 | 2742 | 1258 | 2214 |
1695 |
| Equity Cap |
40 |
240 | 83 | 161 | 169 | 101 |
24 |
| Reserves |
7106 |
47771 | 19129 | 20680 | 5783 | 16897 |
8614 |
|
Stock Features |
|||||||
| Current Price (Rs) |
1080 |
995 | 4909 | 912 | 1595 | 517 |
3341 |
| Face Value (Rs) |
1 |
1 | 5 | 2 | 5 | 1 |
2 |
| Book Value |
178 |
200 | 1153 | 258 | 176 | 168 |
723 |
| Promoter Stake % |
76.5 |
54.5 | 26.7 | 33.6 | 71.3 | 75.0 |
57.2 |
| Debt/Equity |
0.12 |
0.02 | 0.16 | 0.04 | 0.67 | 0.25 |
0.30 |
|
Profitability |
|||||||
| OPM % |
25.7 |
26.5 | 17.5 | 20.9 | 28.6 | 21.9 |
19.3 |
| Net Margin % |
18.2 |
19.8 | 9.6 | 12.4 | 14.5 | 14.3 |
15.7 |
| Cash EPS (Rs) |
39.81 |
40.71 | 196.72 | 46.54 | 56.73 | 27.63 |
164.36 |
| E P S (Rs) |
35.65 |
31.78 | 126.78 | 33.51 | 37.17 | 20.58 |
138.94 |
|
Return |
|||||||
| RONW % |
20.3 |
16.3 | 11.0 | 13.2 | 21.1 | 13.0 |
19.6 |
| ROCE % |
25.3 |
18.4 | 13.8 | 17.5 | 19.7 | 13.5 |
17.0 |
|
Discounting |
|||||||
| Price/Earnings |
30.3 |
31.3 | 38.7 | 27.2 | 42.9 | 25.1 |
24.1 |
| Price/Cash EPS |
27.1 |
24.5 | 25.0 | 19.6 | 28.1 | 18.7 |
20.3 |
| Price/Book Value |
6.1 |
5.0 | 4.3 | 3.5 | 9.1 | 3.1 |
4.6 |
| Price/EBIDTA |
19.7 |
21.4 | 19.2 | 15.2 | 20.6 | 14.7 |
18.0 |
| Price/Revenue |
5.6 |
6.2 | 3.8 | 3.4 | 6.4 | 3.4 |
3.8 |
| Price/Fixed Assets |
10.2 |
13.9 | 9.2 | 10.2 | 8.0 | 6.9 |
14.1 |
|
Distribution |
|||||||
| Dividend % |
0 |
1000 | 600 | 250 | 660 | 250 |
1700 |
| Yield % |
0 |
1.0 | 0.6 | 0.6 | 0.9 | 0.5 |
1.0 |
| Pay-out % |
0 |
30.7 | 23.7 | 14.7 | 88.8 | 11.4 |
24 |
(Source: India Aarthik Research)
Concern
One factor that may weigh against the Mankind stock post lock-in period is the negative or low cost of holding of the promoters and private equity investors.