Why Marksans Pharma Share Price is Rising

The Indian pharma industry is currently valued at US$ 50 billion (bn).

India is a major exporter of pharma products, with over 200+ countries served by Indian pharma exports. India supplies over 50% of Africa's requirement for generics, 40% of generic demand in the US and 25% of all medicine in the UK.

The launch of National Health Protection scheme has given a much-needed boost to the sector and shot up demand across segments. Domestic demand remains strong.

These factors have helped Indian pharma companies to grow by leaps and bounds. Amid all this, a relatively smaller counterpart has registered multibagger returns in the past one year.

Marksans Pharma share price has rallied 120% in the last one year while it has rallied over 85% in 2023 so far.

Marksans Pharma is a global pharmaceutical company with a presence in 50+ companies. 95% of its revenue comes from regulated markets like the US, the UK, Australia and New Zealand.

Let's find out why the company's shares are on an uptrend.

#1 Decline in freight and raw material costs

For improving margins, Marksans Pharma relies on two major levers. One is high cost of raw materials (RM) coming down and other is reduction in the cost of freight.

Reduction in freight cost has contributed to more than 100 basis points in margin improvement in the recent quarter. The improvement has led to increase in margin on a sequential basis.

Unlike freight where we can immediately benefit from the reduction in prices, raw materials consider a lot of other factors like inventory levels, forecast for demand, current consumption etc. Only after these factors are considered, the price and purchase come into play.

Although raw material prices have come down, the company was unable to capitalise on the reducing prices fully as compared to last year. However, the company did fare well with better inventory management in place.

The benefits of falling raw material prices were clearly visible in the fourth quarter of financial year 2022-23.

Going forward, it is expected that the momentum will continue and the company will see a further reduction in the cost of the raw materials.

#2 Internal improvement

Due to the disruption in global supply chains, sourcing raw materials became a challenge. To face this issue, Marksans Pharma was holding inventories at all time high levels, around six months of inventory, so that production continued smoothly without affecting revenue.

The company has made a lot of internal improvements to enhance its working cycle. The company has started reducing its inventory levels.

The company is expected to benefit from raw materials, freight, packing materials, and other costs coming down.

The management is of the view that all these efforts will leave the company with an idle cash of around Rs 2 bn every year. This would help Marksans Pharma fund its acquisitions and capital expenditures.

#3 CRAM opportunities

The pharmaceutical contract research and manufacturing industry is estimated to grow at a compounded annual growth rate (CAGR) of 10.3% between 2022 and 2027. The segment is forecast to increase by US$ 121.4 bn.

The growth of the market depends on several factors, including the availability of cost-efficient resources in emerging markets, and the growing need to focus on core competencies.

One of the key factors driving the growth in the CRAM segment is the availability of cost-efficient resources in emerging markets. Countries such as China, India, Brazil, and Mexico have made significant advances in healthcare infrastructure as well as technological advances in drug development.

As a result, large and medium-sized pharmaceutical companies from developed countries are outsourcing the research and manufacturing operations of various drugs and therapies to vendors in such countries.

One of the key reasons for the increasing popularity of outsourcing these processes is the availability of labor at a comparatively lower price than in developed countries.

Factors such as the increasing number of USFDA-approved manufacturing plants in such countries also encourage outsourcing. For instance, India, which is one of the most preferred countries for contract manufacturing organisation, has more than 100 USFDA-approved manufacturing facilities. The number of such facilities has increased in recent years.

Industry experts believe the Contract Research and Manufacturing service (CRAMs) industry in India is at an inflection point. This industry is exactly where IT used to be way back in mid-90s.

We can't help but draw parallels to the 1990s as it was one of the biggest reasons for the big IT companies seeing an outsourcing wave in the mid-90s, which continues even today.

#4 Limited competition in Softgel segment

Marksans Pharma is currently one of the most active Indian pharma companies focused in the Softgel segment where competition is limited. It is focussed on Softgel capsule to build a differentiated set-in offering in the crowded generic market.

There are many challenges in preparing Softgel formulations like economic, technical and patent constraints. Thus there are not many players in this segment. Also, there are high capex requirements and operational costs further restricts entry of other players in this segment.

Marksans Pharma has filed for Softgel products in all major markets including USA, UK, Europe, Canada, Australia, and Russia. US alone is a potentially US$ 9 bn market.

Marksans Pharma has the capacity of making 2.4 bn Softgel capsules per annum and has all the necessary approval by USFDA, UKMHRA, Australian TGA, and other key regulatory authorities.

#5 Capacity expansion

In April 2023, Marksans Pharma acquired the manufacturing unit from Teva Pharm India. The manufacturing capacity of the newly acquired plant will be upscaled further.

The new facility will manufacture oral solids, tablets, hard and softgels, ointments, and liquid creams. The new plant will upscale the manufacturing footprint in India by additional 8 bn units per annum over the period of next two years.

The new manufacturing unit is expected to start generating sustainable cash flows form the third quarter of the current financial year. This is expected to increase the production capacity of Marksans Pharma by 44.4%.

Healthy financials may support growth

Marksans Pharma reported revenue of Rs 18.5 bn for the year ended March 2023, more than 25% growth compared to last year's Rs 14.9 bn. The company aims to reach the revenue target of Rs 20 bn in the coming years.

It reported a profit after tax (PAT) of Rs 2.7 bn compared to a profit of Rs 1.9 bn reported in FY22.

Over the past five years, Marksans Pharma has consistently registered growth in both topline and bottomline which has improved margins from 9% to 18% at present.

The company has a healthy cash balance of Rs 3.8 bn as on 31 March 2023 which allows it to comfortably go ahead with its capex.

Marksans Pharma is a zero-debt company.

How Marksans Pharma shares have performed recently

Marksans Pharma share price has gained 11.7% in the past one week. The shares gained 21% over the last one month. While over the past one year, Marksans Pharma shares have rallied 126.2%.

The shares hit a 52-week high of Rs 113.4 on 18 July 2023 and a 52-week low of 45.4 on 29 September 2022.

About Marksans Pharma

Marksans Pharma, headquartered at Mumbai (India) is a global pharmaceutical company. The company is actively engaged in R&D and offers CRAMS to global pharmaceutical companies.

Marksans pharma is India's leading pharmaceutical company with a focus on regulated markets, specializing in research, manufacturing and marketing of generic pharmaceutical formulations.

For more details about the company, you can have a look at Marksans Pharma's factsheet and quarterly results.

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