Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA+/Stable’ rating on the non-convertible debentures and bank loan facilities of Mankind Pharma Ltd (Mankind). CRISIL Ratings has also reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Mankind.

 

Mankind has on October 23, 2024 announced the completion of 100% stake of Bharat Serums and Vaccines Limited (“BSV”) (rated ‘CRISIL AA+/Stable/CRISIL A1+’) for a consideration of Rs. 13,768 crore as per the terms and conditions of the share purchase agreement dated July 25, 2024 (including amendments thereto). Post completion of the aforesaid acquisition, BSV has become a wholly owned subsidiary of Mankind. The acquisition has been funded with debt of Rs. 10,000 crore through non-convertible debentures and commercial papers, and rest through cash surpluses and internal accruals. Further, as per discussions with the management, a proposed equity raise is also under process (already approved by Mankind’s board of directors) which shall be utilised to bring down the acquisition debt and is expected to be completed by the end of current fiscal.

 

In Q1 fiscal 2025, Mankind registered 12% growth on-year to Rs. 2,893 crores, led by strong performance of exports business (62% growth on-year to Rs. 259 crores) and steady growth in domestic business (9% on-year growth). Operating margins stood at 23.6% against 25.4% in Q1,fiscal 2024. Adjusted for one time acquisition related expense and other non-recurring cost, margins stood at 25.1%.

 

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.

 

Due to sizeable debt and liquid surpluses (current balance of around Rs.3,456 crore at March 31, 2024) used for funding 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. CRISIL Ratings has also amortised goodwill and intangibles from the acquisition of BSV over 10 years.

 

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 as of fiscal 2024. 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 brand families (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 brand families 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 total 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 600-800 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 has been funded with debt raise of Rs. 10,000 crore through non-convertible debentures and commercial paper, and rest through cash surpluses and internal accruals. While the debt raised for acquisition has temporarily moderate the leverage and coverage metrics, the company is committed to maintaining manageable debt levels over the short to medium term and steady state net debt to EBITDA levels are likely to be maintained at below 2 times. As per discussions with the management, a proposed equity raise is under process (already approved by Mankind’s board of directors and shareholders) which shall be utilised to bring down the acquisition debt.

 

In fiscal 2024, Income Tax officials conducted a search operation at the premises of Mankind. The company has been providing the necessary documentation to the authorities and is awaiting the outcome for the same. 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

As of March 31, 2024, the company’s debt stood modest at Rs. 196 crore, primarily comprising short-term obligations, with an unencumbered cash surplus of Rs. 3,456 crore. To finance the acquisition of BSV, the company has raised Rs. 10,000 crore in debt and has deployed a significant portion of its existing liquidity. However, a proposed equity raise is under process, which shall be utilised to bring down the acquisition debt in the current fiscal.

 

Following this debt and equity raise, annual repayment obligations stand at around Rs. 2,000-2,500 crore during fiscal years 2026 and 2027. Additionally, company has organic capex requirements of Rs. 600-800 crore per annum and limited incremental working capital requirements. These requirements shall be managed through strong consolidated cash accruals of Rs. 2,500-3,000 crore per annum over the medium term, and further supported by a working capital limit of Rs. 895 crore, with an average utilization of approximately 2% over the 12 months up to July 2024. With strong annual cash generation, nonetheless, liquidity, on a steady state basis, will remain heathy, and gradually ramp up.

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

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	10419	8799
Reported profit after tax (PAT)	Rs crore	1942	1310
PAT margin	%	18.6	14.9
Adjusted debt / adjusted networth	Times	0.02	0.03
Interest coverage	Times	97.61	47.99

Note: Debt excludes lease liabilities. Numbers mentioned in rationale are CRISIL adjusted numbers.

Any other information: Not Applicable

Annexure – List of entities consolidated

Names of entities consolidated		Extent of consolidation	Rationale for consolidation
Mankind Medicare Private Limited		Full	Subsidiary
Mankind Prime labs Pvt Ltd		Full	Subsidiary
Shree Jee Laboratory Pvt Ltd		Full	Subsidiary
Lifestar Pharma LLC		Full	Subsidiary
Mankind Pharma Pte Ltd		Full	Subsidiary
Medipack Innovations Pvt Ltd		Full	Subsidiary
Broadway Hospitality Services Pvt Ltd		Full	Subsidiary
Pavi Buildwell Pvt Ltd		Full	Subsidiary
Prolijune Lifesciences Pvt Ltd		Full	Subsidiary
Jaspack Industries Pvt Ltd		Full	Subsidiary
Packtime Innovations Pvt Ltd		Full	Subsidiary
Mahananda Spa and Resorts Pvt Ltd		Full	Subsidiary
Relax Pharmaceuticals Pvt Ltd		Full	Subsidiary
Copmed Pharmaceuticals Pvt Ltd		Full	Subsidiary
Vetbesta Labs		Full	Partnership cum subsidiary
Mediforce Healthcare Pvt Ltd		Full	Subsidiary
JPR Labs Pvt Ltd		Full	Subsidiary
Appian Properties Pvt Ltd		Full	Subsidiary
Penta-Latex		Full	Limited liability partnership cum subsidiary
Pharma Force Labs		Full	Partnership cum subsidiary
Qualitek Starch Pvt Ltd		Full	Subsidiary
North East Pharma Pack		Full	Partnership cum subsidiary
Mankind Specialties		Full	Partnership cum subsidiary
Mediforce Research Pvt Ltd		Full	Subsidiary
Pharmaforce Excipients Pvt Ltd		Full	Subsidiary
Superba Warehousing LLP		Full	Limited liability partnership cum subsidiary
Lifestar Pharmaceuticals Pvt Ltd		Full	Subsidiary
Mankind Life Sciences Pvt Ltd		Full	Subsidiary
Mankind Pharma FZ LLC		Full	Subsidiary
Appify Infotech LLP		Full	Limited liability partnership cum subsidiary
Mankind Consumer Healthcare Pvt Ltd		Full	Subsidiary
Mankind Agritech Pvt Ltd		Full	Subsidiary
Upakarma Ayurveda Pvt Ltd		Full	Subsidiary
N S Industries		Equity method	Partnership cum associate
A S Packers		Equity method	Partnership cum associate
Sirmour Remedies Pvt Ltd		Equity method	Associate
ANM Pharma Pvt Ltd		Equity method	Associate
J K Print Packs		Equity method	Partnership cum associate
Superba Buildwell		Equity method	Partnership cum JV
Superba Developers		Equity method	Partnership cum JV
Superba Buildwell (South)		Equity method	Partnership cum JV
Bharat Serums and Vaccines Limited#		Full	Subsidiary
BSV pharma private Limited#		Full	Subsidiary
BSV Biosciences Inc, USA (BSVBI)#		Full	Subsidiary
BSV Biosciences Gmbh, Germany (BSVBG)#		Full	Subsidiary
BSV Biosciences Philippines Inc (BSVBPI)#		Full	Subsidiary
BSV Biosciences Malaysia Sdn. Bhd#	Full		Subsidiary
Genomicks Sdn Bhd#	Full		Subsidiary

#post completion of acquisition in October, 2024