Mankind Pharma made a strong debut with a 28 per cent gain over the upper end of the IPO price band. The stock is trading at ₹1,377, compared to the IPO price of ₹1,080. We recommended investors subscribe to the issue at the time of IPO and reiterate the same despite the strong gains. Investors can hold the stock as the valuation premium is rewarding the India-focused sales and further growth avenues can sustain earnings growth.

The valuation at the time of IPO (32 times 9MFY23 annualised earnings) was closer to the middle of the peer valuation range and is now trading closer to the upper end of the range at 41 times. Considering the India-focused sales, which only Abbott India is comparable to, the premium to Mankind Pharma can be attributed to the growth prospects of the Indian pharmaceutical market (IPM). Mankind Pharma derives 97 per cent of sales from India. The trailing period also had an acquisition impact of close to ₹200 crore (impairment and legal) adjusted, for which the annualised PE for 9MFY23 at the current price falls to 36 times.

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Mankind Pharma’s foray into chronic segment (34 per cent of sales) had been interrupted by Covid in the past two years. This led to underutilisation of the chronic segment salesforce of nearly 3,000 marketing representatives, who were added around 2019-2020. Panacea Biotech, acquired in early 2022 and whose portfolio is geared towards specialist doctors, is also underutilised in the transformation period. Growth in chronic portfolio, Panacea brands, and Mankind’s own products (Dydraboon) should add to Mankind’s existing growth and sustain its IPM growth in the medium term. This is to be coupled with an expected recovery in operating leverage, as acquired and growing assets are yet to reach company-level margins of 26 per cent (FY20-22) compared to 9MFY23 EBITDA margin of 22 per cent.