Motilal Oswal initiates coverage on Mankind Pharma with buy rating, sees an upside of 20%

Domestic brokerage firm Motilal Oswal has initiated coverage on Mankind Pharma, citing its robust brand visibility, sustainable earnings growth, and superior return ratios. 

The brokerage firm has recommended a ‘buy’ rating with a target price of ₹2,650, sees an upside potential of 20 per cent.

“Accordingly, we expect a 16% earnings CAGR for MANKIND over FY24-27. Considering its strong brand visibility, sustainable earning growth and superior return ratios, we value MANKIND at 40x12M forward earnings (30% premium to the Healthcare sector PE) to arrive at a TP of INR 2,650,” the firm said in its note.

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Considering the company's broadened product range across key therapies, a growing focus on chronic treatments, expansion of its brand portfolio, enhanced productivity of medical representatives, and increased presence in metro and Tier-I cities, the domestic brokerage has applied a 40x multiple on projected earnings for the next 12 months. This valuation reflects a 30% premium compared to the pharmaceutical sector's current valuation.

The firm noted that Mankind Pharma has implemented a disruptive strategy to build its DF business, focusing on engaging customers and influencers in tier II and lower cities. This approach has propelled the company to the forefront of the industry in terms of prescription volume.

“Mankind Pharma is working on multiple levers to boost growth over the next three to five years: a) increasing the scope of business in chronic therapies (36% of DF sales in FY24) by expanding niche products in portfolio, b) enhancing its presence in metro/Tier-I cities (53% of DF sales in FY24), and c) investing aggressively in brand building in the prescription and consumer healthcare segments,” the firm added.

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Mankind has shown significant outperformance in respiratory therapies, achieving an 11% sales compound annual growth rate (CAGR) compared to the industry's 10% CAGR over MAT Apr '20-24. Its leading products in this category include cough preparations and bronchodilator inhalant preparations.

However, Motilal Oswal pointed out that lower-than-expected growth in the dermatophytosis (DF) segment, subdued export demand, and decreased medical representative productivity pose key risks to the company's ratings.