Marksans Pharma - Just The Beginning; Visit Note:: Edelweiss, link

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Marksans Pharma (MRKS), post successfully tackling operational and financial issues, has emerged much stronger and focused, and is now well poised to ride the growth superhighway over coming years. While the softgel capsules opportunity will be growth lynchpin, most of the company’s other businesses too will propel surge. Management expects more approvals, market share gains in launched products and better mix to boost revenue and profitability. It has guided for 30% plus revenue CAGR and 300-400bps margin surge over FY14-17.

Out of the woods: Clocking robust growth

A host of issues (negative net worth, high debt, low profitability, etc.) had cropped up simultaneously in FY10-12, taking a toll on MRKS’ financial health. However, management’s focused and tenacious approach helped the company sail through turbulent times relatively unscathed. As investments have ripened and the ecosystem for businesses has improved, MRKS has clocked impressive growth/ return metrics over the past 2 years. It delivered 27% / 31% revenue/EBITDA CAGR over FY11-FY14, net worth has turned positive and debt has plummeted significantly.

Well placed to cash in on niche softgel opportunity

Softgel capsules is an uncrowded segment with healthy margins, and MRKS is one of the potent emerging global players in this market. While US is the key driver, the company’s current softgel business will ramp up further as approvals start flowing in across the globe. The US softgel market is estimated at USD8bn+, of which MRKS is eyeing 90% (including RX & OTC segments). With single product approval (Ibuprofen softgel), the company generates USD12mn revenue in the US. Additionally, it has a healthy pipeline (10 ANDAs awaiting approval) and more ANDA approvals are bound to spur growth.

Financials

Year to March	FY11	FY12	FY13	FY14
Net revenue	3,039	3,548	4,372	6,285
EBITDA	248	419	694	1,177
EBITDA margin (%)	8.2	11.8	15.8	18.7
Core EPS (x)	(1.2)	(1.0)	1.2	1.9
P/E based on core EPS (x)	NM	NM	53.9	34.4
ROAE (%)	69.4	20.5	56.5	51.8
ROACE (%)	1.3	5.3	14.5	21.5

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LINK
https://www.edelweiss.in/research/Marksans-Pharma--Just-The-Beginning;-Visit-Note/27120.html