Mangalam Drugs and Organics Ltd- Sustainable Turnaround Story!

Hello All,
Around 5-6 quarters ago company was posting losses but it has turned around from thereon with consistently positive net profit, along with increase in sales. It is one of the largest Malaria API producer in the world and it has WHO ,GMP approved facilities.

Key points:

1)From negative EPS, it has turned to TTM EPS of around 10. 3 Year CAGR NP 107%.
2)Promoters knew about this turn around in advanced and that why they increased stake in the company by 10%(by issuing warrants, 5% converted, remaining 5% will be converted in next FY soon). New holding will be 52% after conversion of remaining 5% warrants.
3)Company’s sales is also increasing with the increasing demand in domestic segment. 3 year CAGR sales 13%.
4)Company has reduced debt drastically recently by using warrants money received, this will reduce interest and improve NPM in near future, thus EPS will be increased.
5)Expansion is going on the existing plant for newly approved product on HIV and some new approvals waiting for WHO approval(please refer to the investor presentation for product details).

Important links:
1)Company management is doing an Excellent job by publishing the result within 2-3weeks after completion of q(it was 5-6 weeks earlier) and again they have proved it by putting enough effort to create such a well written Investor Presentation.
Must read Investor Presentation containing all required information for all investors:

2)Article on Mangalam Drugs:

3)Company website:

1)Promoter stake pledged is around 60%(decreased from 97%), however it has been pledged at price less than 20, so there is no risk of invoking, however it should be released for confidence of investors.
2) With TTM EPS 0f 10, it should start paying dividend(no dividend as of now for reducing debt and expansion , but in near future it should share the profit with shareholders).

I know a lot of VP boarders are having huge knowledge on Pharma sector, I would request them to analyze the company fundamentals, potential of its products and future prospect ignoring the price chart movement(sharply up/down movement is being seen recently).

Disclosure: Invested.

I’ve been tracking this stock for sometime.

A few concerns -

  • Why does the trading history over the past year look like this stock is manipulated? This stock has spent too many days in the past 6 months, residing in the upper and lower circuits, as if price discovery for this stock is problematic. Is the market that inefficient?
  • The company enjoyed a two-year moratorium on paying back debt, and loan repayments commenced in June 2014. This is from their 2012-13 AR. Reasons for high debt at that time are not meant to be shrugged off. I don’t consider this company to have a moat if it is susceptible to dumping by Chinese manufacturers and adverse forex movements.
  • The clients of the company are other pharma manufacturers (from the investor presentation), and if you were to consider the end products (anti-malarials), it would be governments in the developing world. Difficult to say the company enjoys pricing power when it does not sell directly to the consumer.
  • Stock looks great from the point of view of returns if you bought it 6-12 months back, but should it command a PE (TTM) of 28? I think some of the forward estimates regarding pending WHO approvals for APIs are already priced in to the stock currently (CMP of 290). The MD gave an interview some time back with some forward guidance on operating margin and WHO approvals.

Disclosure: uninvested currently.

Could it be because of lack of liquidity? As per the original post, promoter stake was 97%.

Hello Vineet,
Concern 1: I agree that stock trading pattern is strange, however as i said in last line, we have to analyze the company product and potential. As per management , company’s OPM is set to improve in near future, exports are set to increase, new high margin products is ready to be launched, its going to be debt free in next FY(long term debt free), this will improve NPM…considering all these factors and company’s potential there is every chance of the big party/HNIs are trying to squeeze the shares from retail investors (the same kind of up down was being seen in other stock which have done well in long term).

Concern 2: As far as i know company is buying raw materials from China itself, so YUAN devaluation is positive for our company, exports to Europe/Africa is set to increase with new products which are approved so if INR weakens (which is expected as per analysts) then that will also be positive for our company. Regarding debt, it is going to the long term debt free in next FY as per management.

Concern 3: Most API players sells their product to other formulations players unless they have their own formulation facility on their own. company was having pathetic OPM in past, due to operation inefficiency(which has improved now) and less sales(this improved dramatically, TTM sales growth 63%), so it has already improved margins to 11%, with debt free and less interest NPM will improve as well. But yes, if we compare with other players, the OPM is less here. Management has good intent and focused on their business…so if everything goes well some day in future it might forays into formulations as well using it own API, then margin will be improved more-----this is a bet on management which has done excellent jobs from last 6 quarters and gained confidence of investors.

Concern 4: P/E is something which market will decide. As far as i know that if a pharma company is turning around with demand of its products, managements plan and efforts, with good growth expected in near future, debt free status expected, ongoing expansion, approvals pending , then the stock can command higher P/E(its difficult to say what would be that P/E value).

Actually i am impressed with your questions, i will request others as well to raise questions and
investigate further to assess if this company can become become next Natco kind of company.
Stock price/pattern should be adjusted as per the business developments, so if this has business potentials then stock price should go much higher.

1 Like

Hello Aashish,
the liquidity issues are there due to 5% CF, however volume is increasing after it crossed 200 in the current move. Regarding 97%, it was the promoter pledging %, Promoter holding now 46%, which will be 52% after conversion of remaining warrants in early FY 2016-2017.

Another thing i missed in original post:
Mangalam has also signed an agreement with the prestigious Clinton Health Access Initiatives (CHAI) under their Fight Malaria Program for supply of anti malarial bulk drugs worldwide.


1 Like

I got a call around Rs.45.It went up by 10 times with in six months…Its 100% manupulated. Do some good research before entering the stock.If everything goes well u are lucky.

Hello Bosevaddi,
As i mentioned before, there might be big party/HNI doing this ups and down to create fear on the minds of retails investors and grab the share------there is a point behind this also----

Question----why do the big people do not call for buying share of of Unitech/DLF etc…because they are sue that these companies are not doing well and there is no immediate possibility of the stock price going higher----so some big people or say operator (as we say) are sure of the business potential of the company, good earning visibility(that has happened also in last 6 month) and possibility of stock price going is higher , that is why the are betting on this stock-----with better quarterly result expected, more people knowing about the business potential , it will not be possible for those operator to control the price any more in the long run------for me its a bet on management and business potential------stock price can fluctuate in short term but in long run it should be free from operator and it should be trading normally…anyway trading is something we cannot control-------

We can assess the company(not stock price/charts) products, business potential etc. instead ignoring the company just because trading pattern(pattern might change anytime soon and then we might feel missed opportunity)…

i think this is a very naive argument… just because a stock moves up fast, that does not mean its bad or manipulated… cupid also did something similar by the way. just my two cents.

1 Like

Hello j2EE,
This is what i am trying to say herein that let us assess the company, its products, potential, expansion , approvals etc. and dig it further----if all these happens as planned by management then stock price is bound to go up in long run-----

Please refrain from giving price targets.

1 Like

where is my post gone? as far as i remember there was no price targets given.

as expected it gave retracement to the breakout levels.

Hello Manish ji,
Point noted and re posting the modified message so that the new VPs are aware of these 2 very important developments in the company.

Two Good news on Mangalam Drugs.

1)As per Q1 SHP, FIIs have entered with around 8,000 shares(0.05%), number of shares is not important here, important is that they are interested in this growing pharma company and that is why they entered/added. If they start buying with full strength then that will give the strength to the stock and confidence of retail investors.

2)Rating agency CRISIL has upgraded the rating from B+ to BB(stable) for long term loan facility and from A4 to A4+ for short team loan facility. They have also mentioned the growth has been good with margin expansion and if it continues further rating upgrade will follow. This rating upgrade will reduce interest cost and thus NPM will improve.

Thanks & Regards,

Yes, it has retraced, any idea how can it behave in near future? is it still strong technically?

yes it is still good technically and so far behaving as expected. as of now still looks the bottom is already made and should stay. Most likely downside is relatively limited from 160-162.

management interview after results.

Has the company reduced debt in FY16 ? Latest investor presentation shows d/e of 0.8 while screener and moneycontrol are still showing it as 2.65 . Am i missing something ?

yes, the company has reduced its debt significantly as evident from the balance sheet.

Please post the AGM update. What is the status of company’s pledge? Will the company release anytime soon?