According to this press report. UK regulator revoked the licence of Rolenchem (Marksans Pharma) in May 2015.
But same licence was regained in 2017. This might be one of the reasons - why they are doing so well in UK!
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As alembic and strides reported price erosion in US generic market , will marksans also feel the same heat ?
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Q1-FY-22 Results
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=91a655ac-bfb1-4160-b1e1-331cf0a65cf3
Q1-FY-22 - Investor Presentation
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=8712842a-5b1b-4729-a8d6-9fffb1c8021e
Result on expected lines. YoY is good growth. Slight downtrend on QoQ which is expected. Investor Presentation provides great clarity and company seems to have clear thoughts going forward.
Disc: Invested from very low levels.
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I have a question for people following this stock , The issue with this company seems to be market perception ; otherwise I can’t think of any reason why they trade at the current levels . It’s evident that the Q1 results for most US/developed marke focussed generic players have been weak due to raw material increase/ pricing erosion / lack of surgeries/ no new launches due to delayed regulatory inspections but still Marksans has performed in line if not worse than some other more fancied names . The company also ticks the boxes as fast as having a capex plan ( largely internally funded and a strong cash position of 250 odd crs )
The entry of the PE player should have supported the price but again the bigger question is “ Are markets always efficient “ and guess that’s the answer to this puzzling question . Would appreciate if others can also share their thoughts . I plan to listen to today’s results call over the weekend which hopefully should provide some steer .
Disclosure -invested with a small tracking position
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Listened to the Q1 earnings call recoding, overall found the management’s comments restrained and not too specific on many questions around product concentration/growth/specific items impacting margins (being fair to them , don’t think peers have been that forthcoming as well ) . Summary
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Orbimed money -25% has been invested , remaining to come over 18 months , the warrants are compulsory convertible, no debt like feature.
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Ebitda margin guidance of 22-24% . Super high margins seen in FY21 may not continue as seeing significant RM price increase , freight increase which impacted Gross margins
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On track to deliver 2000 crs annual revenue (not clear by when) , new capex to facilitate some portion of reaching this target. The backward integration mostly in API likely to be completed by early 2022 , results to be seen in FY23 . USA to be main growth driver , 3 ANDAs to be launched.
overall I think the street is waiting for execution here and till then this is likely to remain rangebound. Looks like a name with reasonable MOS.
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Find attached key highlights of Q1 con-call
The management remained tight-lipped about the use for all the cash but indicated as they did in the last call that its going to be put to use for many things like expansions, backward integration etc. Management has done a good job so far in cleaning the balance sheet and Orbimed is now on the board so they must have done their homework before agreeing to be a 10% shareholder so I think its fair to give the mgt a long rope on this one. Q1 EBITDA came in at 22% and management has indicated that that’s the steady-state EBITDA. Also, 15-20% topline growth is what they have indicated. There seem to be a good amount of triggers in terms of new products, newer geographies, API integration will improve margins and supply security too. If the co keeps on posting good results, hopefully, investors will cross the wall of worry that they have. Currently, on-balance valuations look attractive.
The key highlight I would like to bring to your attention is Orbimed’s investment in Marksan Pharma. We are very happy to have all been made a long-term investor as a financial partners.
I’m confident that Orbimeds global reach and resources will enable us to make rapid strides in our business for the future.
We remain focused on organic and inorganic expansions in our key markets of US and Europe.
We are confident that our unique front-end presence and our capacity built up at a back end will keep us on part of achieving the target of 2000 cores in the next few years.
Our good results have been on account of increasing market penetration and higher operating leverage. We are cautiously optimistic that this momentum will continue and that margins will remain stable over the foreseeable feature.
Our return on equity increased by 460 basis points on a yearly basis and stood at 25.4% as on June 302021.
Similarly, our return on capital employed also expanded by 370 basis points and stood at 30.7% in Q1 of FY22.
We we have received the money since it is warrant, we have received 25% after upfront payment already
No, no, no, it is not optionally convertible. It is compulsorily convertible warrant and it will be
Uh, as we speak we are in dialogue, you know, acquiring a plant come so we have, uh, also API integration that we are talking about, so it’s on multiple folds. Again, it is the fundraising is to get us to another level. Capacity, backward integration and as well as inorganic acquisitions
So,I mean acquisitions do not come cheap and you know even if you look at plants or you look at manufacturing capacities today, you need some deep pockets to basically get us to that level.
On Gross margins – It aas reduced, uh. I mean, we saw some great gross margins last year, but the gross margin has reduced. We have always predicted it to be around the 52-55% range. It has come to a level of 52-53% and that that primarily because of the cost of material cost of raw material, cost of packing material being inflated, I do believe it’s a short term because oil prices have gone up, so there are a lot of intangible things that have inflated prices of packing material, raw materials and all that stuff, but I I do believe it’s not going to be a long lasting. But we do believe it will be range bound between 52 to 55%.
So the order book looks like we will be on project. I mean we will achieve a growth maybe this year of maybe 15% if things go well but again these are very early days to give a year end statement. Well, yeah, I mean I, I would assume it will be overall company level. It may touch 20%.
We’ve got over 300 products in in Europe and we’ve got over 100 products. Is difficult to actually give you a percentage, but there are certain products in UK where we enjoy even 60% 65%. There are certain products we enjoy 5% or 10%.
USA In fact we’ve got a long way to go in terms of market penetration, which gives us, which makes us more optimistic that there is a there is a growth. There is a growth potential, you know as and when we do penetrate the market.
On price erosion - Uh, but but at the end of the day, I believe I’m more optimistic. I do believe this is a passing trend and this is the nature of the beast and it happens in year to year period to period. it’s like a wave which comes in and goes and we just have to take it in our stride.
So these all have impacts on bottom line in terms of top line while pricing pressure may be there in couple of molecules,again depends on a basket and we may just be lucky that we don’t face it.
I’ve always presented an EBITDA anything about 22% is a great EBITDA and I do believe we will maintain that or we may slightly grow on that , but obviously we have seen some great EBITDAs last year.
We have, I mean in in US we have a target of filing. We have about 5 ANDAS per year. This year we’ll be launching towards the fag-end end of this year. We plan to launch at least 3 new products in UK. We have launched 2 products and we have another 5 –6 products that we plan to launch.
We have a basket of over 20 products in the pipeline for UK where we are filed and you know or waiting or in the process of filing so we have a whole segment in UK that we are now focusing on which we do believe In the next 2 to 3 years will be will add tremendous value to our bottom line.
We do plan to file 2 DMS in this financial year and we have 2 maybe 3 more DNS that we are planning to file by early next year.
Towards the early mid early part of 2022, we’d probably be fully backward integrated, hopefully. With own raw materials that would help us to get the better pricing and more important, they will help us to have more sustainability and you know reliability on sourcing.
Uh, then obviously we are getting into Gastro segment and that is again we we are, you know we do plan to grow and focus on to that segment basically and then last but not the least, and we’ll come to the cough and cold segment.
Had it been a normal quarter, it’s difficult to predict how the outcome would have been, but we would have definitely have expected at least a double-digit outlook growth.
Pretty fragile, but we do believe a better quarter in July. In the second quarter than the first quarter . We do believe it’s going to get better and I think assuming that the second quarter will be better. I think the 3rd quarter will be better than the second quarter.
Share of soft gel in overall revenue is right now it is around 25%. Capacity utilization of Goa plant is around 70-75%. Basically we are increasing [capacity of goa plant] it to 3.6 billion by this year.
We are getting into niche delivery systems soft gel there are only a couple of them but they are more solid, oval tablet or pelletization pellet products which are extended release bi-layered type of delivery systems. But definitely we are getting into little more complex molecules.No, no, no they are big value drivers. They are not small molecules. You know we are hopeful at least one of them we will be there among the top 2 or top 3 to market.
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After listening to the con-call this is what I could make of it:
- Mark S - he is trying his best to be investor friendly by holding qtr calls on each qtr.
- Mark S - he is being very conservative in giving numbers on revenue, ebitda, margin. Not throwing numbers in the air, giving a false expectation for investors. He mentions we are not insulated from the adversaries of market. With each number he mentions about the factors that can have an impact on it. I would consider it as setting good example.
- They are trying to utilize every penny very wisely and make sure that Orbimed association is setup for the growth of the company.
- QoQ results have been good.
Disc: Invested from very low level with good MOS.
Thanks
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In generic bulk division soft gelatin capsules are any type of moat? Is there any other company involved in soft gelatin generic business?
In terms of CRAMS business they have totally come out of it and involved in generic branded business to increase its profit margins. Company plans to undergo backward integration for API to further increase its profit margins. Would like to know how much this strategy is useful for Marksans business?
Over period of time this strategy may impact profits margins due to other company coming in same segment of soft gelatin business.Does soft gelatin can act as moat for Marksans and continues to be the work horse for markans in terms of branded generic business?
Dis: Invested from 70 levels and take a position recently.
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The US price erosion issue is impacting generic generic business and not branded generics right (prob that’s why marksans isn’t much impacted)? Can someone tracking US business pls clarify
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Sir I would like to understand whether soft gelatin capsules which is the main source of revenue for Marksans have any type of moat? Is it any sophisticated technology which act as entry barrier for other pharma company entering in this segment?@desiguru, @Malkd
Can someone throw some light why this stock has not caught much rally(has comedown 20% lately)? Do you foresee any further upside and what are potential trigger?
Recently added around 70 rupees in large quantities.Imo market will look for 2 more quarters for stable results. If company perform well in next 2 quarters then rerating of share may be possible.
Will add further if price goes below 65.
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Interesting is the Promoter Confidence and Funds management in a way to avoid leveraged balance sheet: -
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Issued 493.2 lakhs optionally convertible warrants at ₹ 74.0 per warrant totaling to ₹ 365.0 cr. to OrbiMed, a global leading healthcare investment firm.
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Issued 10.0 lakhs warrants to the Promoter, Managing Director and CEO, Mr. Mark Saldanha at the said price of ₹ 74.0 per warrant.
As on date share price is still 74 shows the room for upside from perspective of investment firm and promoter.
Disc:- No Reg. Advisor. Invested. Do your own Diligence.
http://marksanspharma.com/pdf/investor-presentation-august-2021.pdf
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Do you have any idea, when these warrants will expire?
H2 of 2022 is when warrants will expire
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If the investors do not convert the warrants before the expiry, does that mean the firm will not receive the additional equity infusion? Or does the firm still receive some amount of capital, regardless of conversion of warrants?
Hey, their subsidiary in the US, is TimeCapsLabs, and if you visit their website, their major business is in generic drugs only. So unfortunately, Marksans Pharma will be exposed to the generic drug price erosion, and I think the market just discounted that.
I think once the API backward integration for captive consumption, is done regardless of price erosion, - gross margins will rise.
Do you guys know of any other Indian Pharma company which is integrated in the entire value chain?
Firm receives some amount of capital regardless of conversion of warrants. If the share price increases and if they want to exercise these warrants then they have to pay some additional money.
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