Smallcap Pharma co with strong growth potential | Marksans Pharma Fundamental Analysis

Summary

This video script highlights MIT's investment strategy, focusing on long-term wealth creation through stock picks like KPIT and Newen Software, which have yielded significant returns. It delves into Marxen Pharma, a recent addition to MIT's portfolio, discussing its business model, leadership, and growth drivers. The script provides a fundamental analysis of Marxen Pharma, including its OTC and prescription drug market presence, manufacturing capabilities, and R&D strengths. It also outlines the company's growth plans, financial health, and potential risks, concluding that Marxen Pharma's valuation appears reasonable with promising future prospects.

Takeaways

• 😀 MIT is recognized for its long-term investment strategy and stock picking skills, especially in the Indian stock market.
• 📈 MIT's investment in KPIT in June 2020 at 60 rupees per share has resulted in over 30 times return as of today, with MIT still holding the same stake, showing their long-term vision.
• 💊 MIT's investment in Newen Software during June 2020 at 70 rupees per share has seen over 15 times return, with MIT increasing its stake during a 50% dip, demonstrating their strategy of buying more at lower prices.
• 🏫 MIT has added a pharmaceutical stock, Marckand Pharma, to its portfolio, purchasing 2.3% stake and consistently increasing it over the last 12 quarters.
• 🚀 Marckand Pharma, established in 2001, is engaged in the research, manufacturing, and marketing of generic pharmaceutical products, including OTC and prescription medicines.
• 🌐 The company has a global presence with manufacturing facilities in India, the UK, and the US, and exports to regulated markets worldwide.
• 🛠️ Marckand Pharma's R&D capabilities include four R&D centers, over 50 scientists per center, and a robust pipeline with numerous products filed and approved by the US FDA.
• 💼 Leadership at Marckand Pharma includes experienced professionals from the pharmaceutical industry, with the founder, Mr. Mark Sanha, having over 30 years of experience.
• 📊 The company's financials are strong, with consistent growth in top line and bottom line, high profitability, negligible debt, and high cash from operations.
• 💹 Marckand Pharma aims for a 50% growth in its top line in the next two years, with a current P/E ratio of around 30-31, indicating potential for further upside.
• ⚠️ Key risks for Marckand Pharma include regulatory risks, competitive pressures, raw material volatility, the risk of wrong or high red acquisitions, and currency fluctuation risks.

Q & A

What is the significance of MIT's investment strategy in the Indian stock market?

MIT is recognized for its long-term wealth creation approach, holding stocks for many years and demonstrating exceptional stock picking skills. It has a history of identifying and investing in top Indian companies, contributing to significant returns over time.

What was the return on investment for MIT when they invested in KPIT in June 2020?

MIT's investment in KPIT in June 2020 resulted in a return of more than 30 times in the last four years, showcasing their successful long-term investment strategy.

How did MIT respond to the 50% drop in Newen Software's stock price between July 21 and November 22?

Instead of panic selling, MIT increased its stake in Newen Software three times, from 1.6% to 4.15%, demonstrating their commitment to long-term investment and confidence in the company's potential.

What is the business model of Marckand Pharma?

Marckand Pharma is engaged in the research, manufacturing, and marketing of generic pharmaceutical products, including both OTC (over-the-counter) products and prescription medicines across various therapeutic segments.

What is the revenue breakup of Marckand Pharma in terms of business segments?

In FY24, 26% of Marckand Pharma's revenue came from the prescription segment, while 74% was from OTC products.

What are the top therapeutic segments for Marckand Pharma in the OTC market?

The top therapeutic segments for Marckand Pharma in the OTC market are pain management, cough and cold, cardiovascular, central nervous system, and gastrointestinal, with pain management contributing the most at 44% of revenue in FY23.

What is the significance of the acquisition of TAA Pharma Goa facility for Marckand Pharma?

The acquisition of the TAA Pharma Goa facility is expected to double Marckand Pharma's Indian manufacturing capacity, enhancing its ability to meet market demand and contributing to the company's growth.

What are the key growth drivers for the pharmaceutical sector that Marckand Pharma plans to capitalize on?

Key growth drivers include an aging population, the rise of chronic diseases, the expansion of the OTC drug market due to digital health and self-care focus, and the demand for natural ingredient-based OTC medications.

What is Marckand Pharma's plan for the US market in terms of OTC revenue growth?

Marckand Pharma aims to double its OTC revenue in the US market in the next two years by increasing its capacity, presence, and product portfolio.

What is the financial performance of Marckand Pharma in recent years?

Marckand Pharma has shown consistent growth in its top line and bottom line since 2017, with profitability increasing from single digits to around 21% and a strong cash generation from operations.

What are the key risks associated with investing in Marckand Pharma?

Key risks include regulatory risks due to the highly regulated nature of the pharmaceutical sector, competition in the US and European markets, raw material volatility, the risk of wrong or high-red acquisitions, and currency fluctuation risks due to a significant portion of revenue coming from exports.

Outlines

00:00

📈 Investment Insights from MIT's Portfolio

The video discusses the investment strategies of MIT, a prestigious institution known for its long-term approach to wealth creation. MIT's investment arm has a history of identifying and holding onto exceptional Indian companies for many years. Notable examples include investments in KPIT and Newgen Software, which have yielded significant returns over the years. MIT's recent addition to its portfolio is Marksans Pharma, a company with a promising business model and growth potential. The video emphasizes the importance of research and patience for long-term investment success, rather than seeking quick stock tips.

05:02

🏭 Marksans Pharma's Business Overview and Manufacturing Strength

Marksans Pharma, established in 2001, is engaged in the research, manufacturing, and marketing of generic pharmaceutical products, including both over-the-counter (OTC) and prescription medicines. The company's business is predominantly export-oriented, with a significant presence in regulated markets like the US, UK, and Europe. Marksans operates state-of-the-art manufacturing facilities in India, the UK, and the US, and is known for its R&D capabilities with a robust pipeline of over 350 dossiers filed and numerous approvals from the US FDA. The company's OTC business is divided into store brands and own labels, with a focus on segments like pain management, cough and cold, and cardiovascular products.

10:03

💹 Growth Drivers and Strategic Initiatives at Marksans Pharma

Marksans Pharma is poised for growth driven by factors such as an aging population, the rise of chronic diseases, and increasing demand for OTC drugs. The company plans to capitalize on these opportunities by expanding its presence in the US market, where it aims to double its OTC revenue. It is also focusing on product pipeline expansion across therapeutic segments and has recently acquired a manufacturing facility in Goa to increase its production capacity. Marksans is also looking into backward integration by manufacturing APIs for its products, which is expected to improve its margin profile. The management is confident about achieving a top-line growth of 50% in the next two years, with a market cap of around 10,000 CR.

15:04

🔍 Financial Performance and Risk Factors of Marksans Pharma

Marksans Pharma has shown consistent growth in its top line and bottom line, with a significant increase in profitability and cash from operations. The company has a strong balance sheet with negligible debt and a high cash balance. Despite the positive financial performance, the company faces several risks, including regulatory challenges, competitive pressures, raw material price volatility, the risk of unsuccessful acquisitions, and currency fluctuations. The video concludes by emphasizing the importance of understanding these risks before investing in the company, and it invites viewers to share their thoughts on their preferred pharma stocks and suggest companies for future analysis.

Keywords

💡FIS

FIS stands for 'Financial Information Systems' or 'Financial Institutions', which are entities that manage financial services and products. In the context of the video, FIS refers to investment institutions that the speaker closely tracks to identify investment opportunities. MIT, being a top technology institute, is highlighted for its investment arm that holds stakes in various companies, showcasing its role as a significant FIS in the video's narrative.

💡Stock Picking

Stock picking refers to the strategy of selecting individual stocks as investments based on an analysis of the company's financial health, market position, and other factors. The video emphasizes MIT's stock picking skills, particularly its ability to identify and invest in companies like KPIT and Newgen Software, which have shown significant returns over time, illustrating the importance of careful stock selection in investment strategies.

💡Long-term Wealth Creation

Long-term wealth creation is an investment approach focused on growing wealth over an extended period, typically by holding onto assets for many years. The video discusses MIT's investment strategy, which is characterized by long-term wealth creation, as opposed to frequent buying and selling. This strategy is exemplified by MIT's continued holding in KPIT and Newgen Software, despite market fluctuations, demonstrating the value of a long-term perspective in investments.

💡Portfolio

A portfolio in the financial context refers to a collection of financial assets such as stocks, bonds, and cash equivalents held by an individual or institution. The video mentions MIT's portfolio, which includes top Indian companies, highlighting the diversity and quality of investments that contribute to the institute's financial success and reputation in the investment community.

💡Multibagger

A multibagger is a stock that gives returns of several times the initial investment over a period. The video uses the term to describe the exceptional performance of companies like KPIT and Newgen Software in MIT's portfolio, which have provided more than 30 times and 15 times returns respectively, underscoring the potential for high returns in successful stock picking.

💡Pharma Stock

A pharma stock refers to shares in a company that operates within the pharmaceutical industry. The video discusses MIT's recent addition of a pharma stock, Marksans Pharma, to its portfolio, indicating a strategic move into the healthcare sector. This highlights the diversification of MIT's investments and the potential growth prospects in the pharmaceutical market.

💡Generic Pharmaceutical Products

Generic pharmaceutical products are copies of brand-name drugs that have lost their patent protection. They are typically sold at a lower price and are considered to be cost-effective alternatives. Marksans Pharma, as mentioned in the video, is involved in the research, manufacturing, and marketing of such products, including both over-the-counter (OTC) and prescription medicines, emphasizing the company's role in providing affordable healthcare solutions.

💡Regulated Market

A regulated market is a financial market where the trading of securities is governed by strict rules and regulations set by a regulatory authority. The video discusses how Marksans Pharma operates in regulated markets like the US and Europe, which implies a high level of scrutiny and compliance but also a barrier to entry for competitors, contributing to the company's competitive advantage.

💡R&D Spending

R&D spending refers to the funds allocated by a company for research and development activities. The video highlights Marksans Pharma's R&D capabilities, including its four R&D centers and a robust pipeline of products, indicating the company's commitment to innovation and growth in the pharmaceutical sector.

💡Backward Integration

Backward integration in business refers to a strategy where a company starts to produce its own inputs or components that were previously bought from suppliers. The video mentions Marksans Pharma's plan for backward integration by manufacturing APIs for its products, which can lead to cost savings and improved control over the supply chain, contributing to the company's margin profile and profitability.

💡Growth Driver

A growth driver is a factor that contributes to the expansion or increase in a business's revenue, market share, or profitability. The video identifies several growth drivers for Marksans Pharma, including an aging population, the rise of chronic diseases, and the growth of the OTC market, which are expected to fuel the company's future growth and expansion.

Highlights

MIT's investment arm is recognized for its long-term wealth creation strategy and exceptional stock picking skills.

MIT's investment in KPIT in June 2020 resulted in a return of over 30 times, demonstrating their ability to identify high-potential companies.

MIT's strategy involves holding stocks for many years, reflecting a clear vision for long-term growth rather than frequent trading.

Marxen Pharma was added to MIT's portfolio, with a 2.3% stake purchase, showing MIT's selective investment approach in the Indian market.

Marxen Pharma's management has guided for a 50% growth in its stop line in the next two years, indicating a promising future.

The company's business model includes both OTC and prescription medicine, with a significant focus on exports to regulated markets.

Marxen Pharma's manufacturing facilities in India, UK, and the US are accredited and have the capacity to produce billions of units annually.

The company's R&D capabilities are robust, with four R&D centers and a pipeline of over 350 products awaiting FDA approval.

Marxen Pharma's leadership, including founder MD and chairman Mr. Mark Sanha, brings decades of experience in the pharmaceutical industry.

Key growth drivers for Marxen Pharma include an aging population, the rise of chronic diseases, and the expansion of the OTC market.

The company plans to double its OTC revenue in the US market and has increased its product portfolio and manufacturing capacity.

Marxen Pharma has a strong financial position with high profitability, negligible debt, and significant cash from operations.

The company's stock has shown a strong upside in recent months, trading at a P/E ratio of around 30-31, with a market cap of approximately 10,000 CR.

Risks associated with Marxen Pharma's growth include regulatory challenges, competitive pressures, raw material volatility, and currency fluctuations.

The company's future growth plan involves product pipeline expansion, acquisitions, and backward integration to improve margins.

Marxen Pharma's management is confident about achieving a topline of 3,000 CR by 2026, reflecting a nearly 50% growth in two years.

The video emphasizes the importance of research and understanding a company's business model for long-term investment success.

Transcripts

hey everyone in one of the recent video

I discussed five FIS that I track very

closely to identify investment

opportunities among them one fi that I

deeply respect for their stock picking

skill is MIT world's number one

institute for technology even more

prestigious than the iits so MIT has an

investment arm that also hold top Indian

companies in their portfolio the best

part about MIT is their clear goal to

invest for long-term wealth creation

they don't buy and sell stocks

frequently rather they hold stocks for

many years and they have a great history

of identifying exceptional companies

from the Indian stock market for

instance they invested in kpit in June

2020 when was trading at levels of 60

rupe today kpit is trading at levels of

more than 1,800 that's more than 30

times return in last four years and the

best part is MIT still holds the same

amount of stake in the company that

clearly shows their long-term Vision

likewise they invested in Newen software

in June 2020 when it was trading at

bonus adjusted levels of 70 rupee the

interesting part is when Newen software

fell down 50% between July 21 till

November 22 rather than Panic selling

like retail investor MIT actually

increased at cocation three times from

1.6% to 4.15% today new Jen is at L than

1100 which means more than 15 times

return for MIT and it continues to hold

this allocation in the company not only

kpit and Newen MIT has a long list of

multi bagers and its portfolio including

action construction equipment itd

cementation radical ketan RK forging and

so on one although off late MIT is very

selective in its investment in the

Indian market in fact it is reducing

stake as the midcap and small cap

segment of the Indian stock market has

become expensive but recently it has

added a Pharma stock in its portfolio

company name is marxen Pharma in the

latest shareholding pattern MIT has

purchased 2.3% stake in the company in

fact fi has consistently increased stake

in the company over the last 12 quarters

and public stake in the company has

consistently fallen from 48% all the way

to

33.7% and when I deep dive into the

business I found it quite promising just

to give you an idea company's management

has guided for 50% growth in its stop

line in the next two year and today

company is trading at P of Just Around

3031 so in this video we'll do the

fundamental analysis of marks and PHA

that would include its business model

leadership financials key growth driver

and Company's growth plan to capitalize

on those growth driver then we'll look

at the key risk in the growth thesis and

finally cover the valuation part but

before we discuss further if you are

here just for stock tips my video won't

be of any help because a i catered only

to long-term fundamental investor and B

one of the biggest requirement to create

wealth in the stock market is conviction

and patience and that comes only when

you do the research yourself otherwise

even a small 10 15% correction can

create panic and when you understand the

business and its growth potential that

correction can actually create buying

opportunities and that is the key for

wealth creation so don't blindly invest

in any stock make sure that you do your

research before investing your money and

and if you find my analysis useful you

can also explore my exclusive weekly

video series where I discuss my own

investment ideas and top conviction

picks along with reasoning on top of

that I track more than 200 quel Zs to

identify potential investment

opportunities you can get the details on

my website or via the joint button with

this let's get started with today's

video so Marx and Pharma came into

existence in 2001 where it got demerged

from Glenmark Pharma under the name

Glenmark laboratory Limited

later in 2005 Landmark laboratory

limited and TC Pharma merged to create a

new entity named marxen Pharma it has

been a roller coaster Journey for the

company since then during 2007 to9

period markson acquired a few companies

from Australia and UK by raising debt

but that integration did not work out

well and Company got into losses however

company's management was highly focused

and over the years eventually Marx and

Pharma became net debt free and surplus

cash along with very good growth in Top

Line and bottom line so basically Marx

and farma is engaged in the research

manufacturing and marketing of generic

pharmaceutical products that include OTC

product that is farma product sold over

the counters that does not require any

doctor prescription plus it also sells

GIC prescription medicine that include

your capsule oral liquid and ointment

this slide gives a good picture of

company's business breakup in fi 24

Revenue breakup 26% business was from

the prescription segment and 74% from

OTC that is over the counter medicine

and this segment shows the revenue by

geography for q1 of fi25 where us and

North America contribution is 42.5% and

has grown 30% year on year UK and Europe

contributed another 42.6% Australia and

New Zealand has 11% contribution

followed with 3.8% from rest of the

world so basically Marx and Pharma is

completely into export into regulated

market now top therapeutic segments in

OTC where marks and operate include your

pain management that contribute 44% % in

Revenue in f23 followed with cough and

cold with 14% contribution then

cardiovascular has 9% contribution

Center n system with 8% gestro interal

with 9% and rest is your diabetes and so

on in OTC business it can be further

divided into two segment first is store

brand where marxen manufacture medicine

as private label for store and second is

own label that include its brand

currently 80% OTC business is from store

brands and 20 % from own label this

slide shows the manufacturing facility

of the company within India markson has

existing manufacturing facility in Goa

that manufacture capsule and tablet it

is one of the biggest manufacturing

facility in Asia with capacity to

manufacture 2.4 billion Soft gel and

hard gelatin capsule perom and 6 billion

solid tablets perom it's fully automated

and generic pharmaceutical manufactured

from this facility are exported across

the globe it has the required

accredition including usfda please note

that last year markson had acquired TAA

Fara Goa facility and with this

acquisition its Indian capacity would

double from 8 billion unit perom then it

has manufacturing facility in UK that

manufacture non- steine liquids and

powder seses and supplies to UK West

Africa and Middle East that has

manufacturing facility in us that

manufacture hard gels tablets and

capsule with capacity of 6 billion

tablets and hard capsule per anom this

slide gives a good overview of company's

R&D capability that include four R&D

Center two in India one in UK and US

each company has a team of more than 50

scientists more than 70 products in

pipeline more than 350 dossers filed

with 300 approved andda by usfda this

figure shows the annual R&D spending

also as percentage of sale I hope you

got a fair idea of marks and business

model now let us look at company's

leadership

profile so Marx and farma founder MD and

chairman is Mr Mark sanha he's the

Second Generation member of the sanha

family where his father Mr Gracia sanha

founded gland Mark pharmaceutical Mr

gracius s had two son gland and Mark and

that's where he named the company gland

Mark after his two son although Mark sag

gr separated from glenark farma now he

is an industry veteran with more than 30

years of experience and has being the

key person for growth behind the company

apart from Mr Mark other leadership of

the company is also highly experienced

with many years of Industry experience

with top farma companies across the

world I don't want to get into the

details canly check the leadership on

their website or in company's

presentation now let us move on to the

key grow driver for the company and

marks and farmer plans for the

future now there are multiple factors

that would drive the growth in Pharma

sector first of all there's an aging

population especially in the developed

countries then second Road driver is

Rise of chronic disease for instance

disease like hypertension diabetes

chronic respiratory disease and

cardiovascular issue are rising across

the globe due to Rising urbanizations

stressful work culture lack of physical

activity and poor dietary habits now

within Pharma if you look at the OTC

market specifically there's a healthy

growth in this segment so first grow

driver for OTC market is Rise of digital

Health increasing use of technology in

healthcare has led to the popularity of

digital Health platform and mobile

health application so this trend is

expected to drive the expansion of OTC

drug market and second driver is focus

on self-care so due to Greater focus on

Healthcare there's a higher demand for

OTC drugs

moreover there's a growing demand for

ODC medication derived from natural

ingredient now the question is how is

Marx and farmer planning to capitalize

on this growth opportunity so first of

all Marx and Pharma is planning to

increase its penetration in US it aims

to double OTC Revenue in the US in the Q

for con call management mentioned that

we are very bullish on the US market it

is our grow driver for the next two

years we have increased our capacity we

have increased our presence out there

our product portfolio out there so we

are expecting to double our Revenue in

the US market soon so literally we are

quite optimistic and bullish where US

market is concerned and when management

was asked what gives you the confidence

to grow 50% in the next two year

management mentioned that we have a good

AUD book status to give us visibility of

reaching to this number further they

mentioned it's still very small number

for a market like us so it's not

something that is novel or is unique in

any way but it is still at tip of the

iceberg on top of this Marx and farma is

expanding its product pipeline across

thetic segment this slide gives a good

idea on the product expansion pipeline

in the UK company has planned 34 new

filing over the next 3 years in addition

16 products are already filed and

awaiting approval in US 32 products are

in the pipeline in Australia and usand

10 products are in the pipeline and

expected to be launched over the next 2

years for rest of the world 124 products

are approved 120 products awaiting

approval and 108 products are in the

pipeline in addition to this marxen has

recently acquired TAA Fara Goa

manufacturing facility with capacity to

manufacture 8 billion units perom it

would happen in three phases phase to

expansion to 6 billion unit perom will

be completed by end of f25 as per

management our expansion and scalability

of the acquired unit of TAA Fara is

proceeding according to the plan and

we'll see meaningful Revenue

contribution from the unit in f25 so

that would be another key grow driver in

f25 on top of this company sitting on

cash balance of 674 CR in March 4 so

there is enough dry powder for inorganic

growth via acquisition markson is also

in the process of backward integration

through manufacturing API for four major

products for its captive consumption in

the next two year company plans to

achieve both backward and forward

integration that would result in

Improvement in company's margin profile

and eventually would get reflected in

the bottom line overall management has

guided for 3,000 CR of Topline byr 26

just for reference company's f24 Revenue

was 217 7 CR so that's nearly 50% growth

expected in 2 years and margin would

remain in around 20% plus range in fact

management is quite confident on

achieving these numbers when asked in

the con call management said that last

year we had projected 2,000 CR and we

lended up at 2,177 CR I believe in the

next two years we'll definitely tou

3,000 CR now let us look at company's

financials and

valuation if you look at the historical

data markson struggled finan during 2015

to 17 phase where Top Line got stagnant

and margin fell down sharply that badly

impacted the operating profit but since

2017 Marx and Pharma is growing

consistently every year company's margin

zoomed from single digit all the way to

25% during covid but then normalized to

current levels of 21% company's net

profit also zoomed exponentially during

covid and then corrected postco however

net profits have already surpassed covid

highs and today at 334 CR in the balance

sheet company's borrowing has increased

in the past but company has very high

cash and cash equivalent that stands at

674 CR for f524 so company's net cash

Rich it is consistently generating huge

cash from operation its latest Roe 16.5%

rooc 20% and debt to equity is 0.12

which is negligible so financials are

looking very solid with very good Top

Line and bottom line growth High

profitability negligible debt and high

cash from operation now if you look at

company share price movement in last one

year stock moved from levels of 110 to

160 then Consolidated in the range for a

few months and then in last couple of

months there's a strong upside in the

share price with high volume in spite of

excellent returns companies currently

trading at a p of around 3031 and

command a market cap of around 10,000 CR

now considering the growth potential I

believe that marks and valuations are

still reasonable and there's good upside

potential but before we conclude

anything let's look at the final part of

the video that is key risk in the growth

thesis so first key risk is regulation

Risk please note that Pharma sector is

highly regulated especially Marx and

Pharma operate in highly regulated

market of us and Europe and there are

strict regulatory standard with frequent

inspection so there's always a high risk

of non-approval of their products in the

market or penalty in case of

non-compliance of regulation on the

other side it also create a strong anti-

barrier for new players it's not easy to

crack the market Market of us and Europe

and once you do that only sky is the

limit then second risk is competition

risk us and European market are

extremely competitive and it's not easy

to get a shell space in the drug store

for OTC drug so this competition risk

would always exist third is raw material

volatility risk markson import KSM that

is key starting material and API for its

drug as raw material so any inflationary

environment for KSM and API can lead to

pressure in gross margin and a then

fourth is risk of wrong or high red

acquisition since markson does a lot of

acquisition for its growth there's

always a risk of acquisition to go wrong

and they may end up acquiring a very

expensive company and final fifth risk

is currency fluctuation risk large part

of Revenue of the company comes from

export and hence the company faces risk

of currency fluctuation depreciation of

your USD Euro and pound could have an

adverse impact on its revenue and

profitability so in this video we

discuss the fundamental analysis of Marx

and Pharma that was added by MIT in

latest June 24 holding companies in the

business of genic medicine across OTC

and prescription segment mainly in the

US UK and European region so regulated

region fundamentally companies looking

very promising with solid business model

Decades of experience strong financials

and the future growth potential is

looking solid with strong product

pipeline Acquisitions and expansion of

facility management expect the top line

to grow 50% in the next two year and and

currently trading at a p ratio of around

3031 with market cap of around 10,000 CR

considering the growth potential

currently valuation looks attractive

although it's not an easy sector to make

money there are multiple risk including

regulation risk competition risk raw

material fluctuation then currency

fluctuation and so on so make sure that

you understand all the aspect of the

company before investing your money now

tell me in the comment which is your

most preferred farma stock also let me

know if you want me to cover any other

company I'll see you next video till

then take yet