| Mankind Pharma Limited | ||
| Rating reaffirmed at 'CRISIL AA+/Stable' | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable’ rating on the non-convertible debentures (NCDs) of Mankind Pharma Ltd (Mankind).
Mankind has on July 25, 2024, announced the acquisition of 100% stake in Bharat Serums and Vaccines Limited (‘BSV’) (rated ‘CRISIL AA-/Watch Positive/CRISIL A1+’), from Ansamira Limited and Miransa Limited (affiliates of global private equity firm, Advent International (Advent)) and other minority shareholders at an enterprise value of ~Rs. 13,630 crores. The Board of Directors of Mankind approved the acquisition and definitive share purchase agreement was executed on July 25, 2024. The transaction is expected to close within 3-5 months subject to receipt of regulatory approvals and completion of certain identified conditions precedent. As per the management of Mankind, the acquisition is expected to be funded by a healthy mix of debt, equity, cash surpluses and internal accruals.
The acquisition will result in further improvement in Mankind’s business risk profile as it will result in faster increase in share of complex portfolio for the company, access to strong brands with high entry barriers in women health, fertility and critical care segment. Mankind is also expected to emerge as the market leader in the domestic women's health and fertility drug market, with established complex R&D tech platforms. BSV reported revenues of Rs. 1,723 crore and adjusted operating profits of Rs. 489 crore (adjusted for acquisition related costs, ESAR and other one-time expenses) in fiscal 2024, which will augment Mankind’s strong operating performance, post take-over.
Due to sizeable debt and liquid surpluses (current balance of around Rs.3,456 crore at March 31, 2024) expected to be utilized for the acquisition, Mankind’s currently robust financial risk profile will undergo a temporary moderation in fiscal 2025. The company is however expected to retire a sizeable portion of its debt through a proposed equity raise (already approved by Mankind’s board of directors) and continuing strong annual cash generation, which will help debt protection metrics recover from next fiscal. The management has reaffirmed its philosophy to maintain net debt/ earnings before interest, tax, depreciation and amortisation (EBITDA) ratio at under 2x times by fiscal 2026. The same however, remains a key monitorable.
The rating continues to reflect the established business risk profile of the company, supported by its strong market position in the domestic formulations market, diversified presence across therapies, healthy portfolio of consumer healthcare products and extensive distribution network. The rating also continues to factor in healthy operating profitability and regulatory-compliant manufacturing facilities, as well as strong financial risk profile and robust liquidity position. These strengths are partially offset by high dependence on the domestic market and susceptibility to regulatory changes, including price revisions under the Drug Price Control Order, and volatility in input prices.
Revenue stood at Rs 10,419 crore in fiscal 2024, registering around 18% growth over fiscal 2023, supported by higher exports, robust growth in modern trade channel, price hikes in the domestic formulations market as well as new launches, particularly in the high-growth chronic segment. The revenue increased at compound annual growth rate (CAGR) of 15% over the last five fiscals, beating growth of the broader IPM (Indian pharmaceutical market); Company has consistently been outperforming the IPM in volume growth. CRISIL Ratings expects Mankind to achieve low-mid double digit revenue growth rate over the medium term, supported by leading position in key therapies and continued new launches, as well as addition of revenues from BSV.
Earnings before interest, tax, depreciation and amortisation (EBITDA) for fiscal 2024 stood at Rs 2,636 crore (25.3% margin), compared with Rs 1,976 crore (22.5% margin) in fiscal 2023. Higher EBITDA margin in fiscal 2024 was owing to better gross margin led by increase in share of chronic segment, aided by price hikes as well as cost-saving measures undertaken by the company. Improvement in EBITDA will be driven by increase in the share of high-margin chronic segment as well as operating leverage benefits with revenue growth. Besides, BSV is also a strong EBITDA generating entity and reported healthy adjusted EBITDA margins of ~28% in fiscal 2024. Further, as the company continues to scale up brands, improved productivity and benefits of integration with BSV will also support margins. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Mankind and its subsidiaries, associates and joint ventures as they have strong operational and business linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Established position in the domestic formulations market: Mankind is the fourth-largest player by value in the Indian pharmaceuticals market and the third largest in terms of volume. The company has a diversified presence across chronic, acute and consumer healthcare segments, with the top five therapies contributing to around 57% of revenue. The company strategically introduces multiple brands within the same therapeutic area, which allows them to cater to the requirements of a wide range of patients. Further, this also allows them to increase their market presence, enabling them to capture market share, as seen it many of their brands occupying top 3 positions in their respective sub-group (including Dydroboon (Gynaecology), Gudcef (Anti-infectives), Candiforce (Dermatology), Nurokind-Gold (Nutrients), Monticope (Respiratory) etc.) It emphasised presence in the highly stable chronic segment (35.5% in fiscal 2024, up from 32.2% in fiscal 2020) owing to higher realizations and profit. The segment has consistently outperformed IPM chronic growth over the last five fiscals and the management has plans to expand the share of this segment further over the medium term through organic as well as inorganic routes. Furthermore, Mankind has a strong portfolio of over 40 brands (each accounting for revenue over Rs 50 crore), many of which enjoy top ranks in their sub-groups. The company has successfully scaled up a number of brands, with 11 brands contributing revenue over Rs 200 crore in fiscal 2024 (seven as of fiscal 2020). It also remains well-diversified across brands, with the top 20 brands contributing around 36% of revenue in fiscal 2024. It has been continuously gaining market share with new launches across therapies in IPM. Mankind also has a strong consumer healthcare business, with revenue scale of over Rs.700 crore as of fiscal 2024 with multiple brands holding leading market ranking. The acquisition of BSV will solidify Mankind’s position and it will emerge as the market leader in the domestic women’s healthy and fertility drug market. Besides, many products of BSV are super-specialty products in the critical care segment with high entry barriers, and limited competition. Mankind is expected to scale up BSV’s product portfolio besides using its wide and established distribution network to enhance reach and shore up revenues. Mankind and BSV derived 92% and 54% of their revenues from the domestic market respectively, and 8% and 46% respectively from international markets in fiscal 2024; on consolidation, share of revenues from international markets is expected to marginally improve to ~13%. Strong operational efficiency and distribution network: Mankind has largely grown organically, which coupled with strong revenue growth, aided by continuous launches and gain in market share in key therapies, while maintaining operating or EBITDA margin at over 24%, resulting in return on capital employed (RoCE) of over 30%. Its only sizeable acquisition in 2022 was that of brands of Panacea Biotech, which it has successfully integrated in its business, and also scaled up business levels, through its sizeable distribution network and reach. The company also benefits from a strong distribution network, with over 16,000 salesforce, 13,000 stockists, and 500,000 doctors. This has enabled Mankind to scale up new launches quickly. Further, with its strong distribution reach, the company has been able to expand beyond metro and tier 1 cities, with 47% revenue coming in from tier 2 and other cities. Price regulated products accounted for around 15% of the revenue in fiscal 2024 (around 12.7% in fiscal 2022). Hence, the company takes price hikes up to around 10% in non-scheduled formulations (85% of the product portfolio) every year. Its large in-house manufacturing (around 75%) also supports profitability. Comfortable financial risk profile; temporary moderation expected: With revenue CAGR of around 15% over last five fiscals and operating margin of 23-27%, the company has generated strong cash accruals. Tangible networth was Rs 7,893 crore and gearing low at 0.02 time as on March 31, 2024. Debt protection metrics were comfortable, as reflected in interest coverage and net cash accrual to adjusted debt (NCAAD) ratios over 84.43 times and 11.9 times, respectively, in fiscal 2024 (48 times and 10.1 times, respectively, in fiscal 2023). The company has met its capital expenditure (capex) through internal accrual, limiting reliance on external debt and sustaining a strong financial risk profile. Expected organic capex of around Rs 600-700 crore per annum over the medium term will continue to be funded through cash accrual. Furthermore, the working capital cycle is efficiently managed, with inventory of 70-80 days, receivables of 20-30 days and payables of 120-130 days.
As part of its growth strategy, the company is considering enhancing its portfolio, especially chronic therapies, besides entering into new therapeutic segments, which are niche, have high entry barriers and offer high margins. The acquisition of BSV reflects a major step towards this growth strategy. The acquisition shall be funded through a healthy mix of debt, cash surpluses and equity. While the debt raised for acquisition could temporarily moderate the leverage and coverage metrics, the company is committed to maintaining manageable debt levels over the medium term and steady state net debt to EBITDA levels are likely to be maintained at below 2 times.
In fiscal 2024, Income Tax officials conducted a search operation at the premises of Mankind. The company has provided necessary documentation to the authorities and is awaiting further development in this regard. Any sizeable outgo, which may result in contraction of the liquid surplus or raising debt will be monitorable.
Weaknesses Limited geographical diversification with high dependence on the domestic market Company has limited geographical diversification, with sales in the domestic market accounting for around 92% of overall revenue in fiscal 2024 and exports the balance. While Mankind’s exports are also growing at a reasonable pace, management intends to focus largely on the domestic market and therefore exports are not expected to account for more than 10-12% of overall sales over the medium term. While this safeguards the company from global headwinds, it also limits exposure to global growth opportunities and diversification benefits, increasing vulnerability to local market-specific issues.
Susceptibility to regulatory changes and fluctuations in raw material prices The company is susceptible to regulatory changes in Indian and global markets. Addition to the list of drugs covered under National List of Essential Medicines (NLEM) affect product pricing and hence profitability. In international markets, regulatory risks are manifested by increasing scrutiny and inspections by the United States Food and Drug Administration (US FDA), European Medical Agency and Therapeutic Goods Administration, Australia. Currently, none of the company’s facilities have any outstanding observations from the US FDA. Continued regulatory compliance and product launches will be critical for revenue growth and will remain key monitorables. Prices of active pharmaceutical ingredients (key raw materials) are volatile. Hence, profitability is susceptible to fluctuations in input prices. |
Liquidity: Strong Cash accrual, expected at around Rs 2,000 crore per annum, will sufficiently cover the annual capex of Rs 700 crore and working capital requirement. Debt was modest at Rs 196 crore as on March 31, 2024, mainly comprising short-term debt. Unencumbered cash surplus was Rs 3,456 crore as on March 31, 2024. Working capital limit of around Rs 895 crore was utilised 1% on average over the 12 months through March 2024. For the planned acquisition, the company will deploy a substantial portion of the existing liquidity; nonetheless, liquidity, on a steady state basis, will remain heathy, and will gradually ramp up, due to strong annual cash generation. Besides, a proposed equity raise to repay part of the debt to be raised for the acquisition of BSV, will also help augment cash generation. |
Outlook: Stable The business risk profile of Mankind will remain stable over the medium term supported by its diversified presence across therapies and established position in the domestic market through strong brands. The company is also expected to sustain operating profitability in the range of 25-26% on a steady state basis. Healthy cash accrual and prudent capital spending will help sustain a strong financial risk profile over the medium term. Any further sizeable acquisition is also expected to be prudently funded, obviating pressure on the balance sheet. |
Rating Sensitivity Factors Upward factors * High double-digit revenue growth supported by improved revenue diversification across therapies and geographies, with operating profitability improving above 26-27% on a sustained basis, benefitting cash generation * Sustenance of healthy financial risk profile, and strong debt metrics, including due to retirement of debt from potential equity raise.
Downward factors * Substantial decline in revenue or deterioration in operating margins to below 21-22% on a sustained basis * Higher-than-expected outflow towards any acquisition or change in management stance on equity raise (to refinance the acquisition debt) leading to substantial delay in the deleveraging trajectory; for instance, net debt to EBITDA remaining in excess of 2.5 times * Any adverse outcome of the income tax search proceedings adversely impacting financial risk profile. |
About the Company Commenced its operations in 1995, Mankind is engaged in developing, manufacturing and marketing a diverse range of pharmaceutical formulations across various acute and chronic therapeutic segments as well as several consumer healthcare products. It is India’s fourth-largest pharmaceutical company in terms of domestic sales and third largest in terms of domestic sales volumes. The company has 30 manufacturing across 6 locations, and all of the facilities have necessary accreditations.
Ramesh Juneja, Rajeev Juneja and Sheetal Arora are the promoters, and along with their family members they hold 74.87% stake in Mankind and balance shareholding is held with the public and other shareholders. |
Key Financial Indicators
Note: Debt excludes lease liabilities. Numbers mentioned in rationale are CRISIL Ratings adjusted numbers. |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be placed |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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