Mankind Pharma shares plunge 7% on day 2 after strong debut

Mankind Pharma, which made a stellar market debut on Tuesday, witnessed selling pressure on the second day of trading as investors resorted to profit booking to encash listing gains. The stock corrected nearly 7% in intraday trade on the BSE on Wednesday after rallying over 30% on its listing yesterday.

Early today, Mankind Pharma shares opened marginally higher at ₹1,431 against the previous closing price of ₹1,424.05 on the BSE. However, the pharma stock soon lost momentum and slipped as much as 6.7% to hit the day’s low of ₹1,334.50 per share, while the market capitalisation dipped to ₹55,132 crore.

Despite today’s fall, the stock is trading 23.5% higher than its initial public offering (IPO) price of ₹1,080 per share.

On Tuesday, Mankind Pharma had a blockbuster listing on stock exchanges with the shares listing at ₹1,300 on the BSE and NSE, a 20.4% premium to its issue price of ₹1,080 per share. Extending opening gains, the counter ended at ₹1,424.05, up 32% from its issue price and 10% from its listing price.

The strong listing of Mankind Pharma, the maker of Manforce condoms and pregnancy test kit Prega News, was in line with Street expectations as the stock was commanding a premium of ₹120 per equity share in the grey market, a parallel market where deals are done in-person only among the trusted group of investors, ahead of listing. 

The Delhi-based company raised ₹4,326 crore in the country’s biggest initial public offering (IPO) so far this year, which received an overwhelming response from qualified institutional investors (QIBs) and non-institutional investors (NIIs), but failed to excite retail investors.

The three-day IPO of Mankind Pharma, which opened for subscription between April 25-27, was subscribed 15.32 times, with the portion reserved for QIBs and NIIs receiving bids nearly 49.16 times and 3.8% times, respectively. However, the IPO received a tepid response from retail investors as the quota reserved for them was booked 0.92 times.

The IPO of the country’s fourth largest pharma company was completely an offer for sale (OFS), which means the entire proceeds from the issue would be paid to the selling shareholders in proportion to the equity shares offered by them and the company would not receive any proceeds from the scheme.

Macquarie assigns 'outperform' rating

Global research firm Macquarie on Tuesday initiated coverage on the stock with an 'outperform' rating and a target price of ₹1,400. The brokerage expects Mankind’s profit after tax (PAT) to more than double by FY26E, citing solid domestic business which contributes nearly 98% of its revenue. Within its domestic business, around 90% of revenue comes from prescription pharmaceuticals and the rest from the consumer health business.

The agency highlighted that Mankind Pharma's growth potential in the chronic segment may boost its margins and net profit. It expects margins to rise from 22% to 28% and net profit to more than double from around ₹1,300 crore to ₹2,800 crore from FY23 to FY26.

"We believe growth potential in the chronic segment would likely drive meaningful margin expansion from nearly 22% in FY23E to nearly 28% by FY26E, leading PAT to more than double (from about ₹1,300 crore in FY23E to ₹2800 crore in FY26E)," said Macquarie in its report.

The report noted that despite maximum market-share gain in chronic therapies (around 40 bps) in the last five years, Mankind’s chronic contribution of around 34% is below the India Pharma Market’s (IPM) average of around 38%. The agency expects its chronic therapy contribution to increase from 34% to over 40% by FY26, which will boost its margin.

Mankind is focused on growing its dominance in chronic therapies through field force expansion (25-30% addition in last 3 years), acquisition of Panacea, and inlicensing deal with Novartis.

Mankind has a net cash of ₹280 crore as of Dec’22 with strong cash flow generation. “FY22 ROIC of 30% and ROE of 26% fare much better than its domestic peers (avg ROIC 17%, avg ROE 16%) and are in line with MNC peers such as Abbott, Pfizer, and GSK India. However, capacity utilization remains low, suggesting room for improvement,” the global brokerage said.

The agency believes that continued sales outperformance to the India market, focus on chronic therapies, and improved salesforce productivity are growth drivers. However, failure to gain market share in chronic, regulatory changes in the Indian pharmaceutical market, and further stake sale by PE investors are key risks going ahead.

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