Express Idea

Marksans
Pharma
Robust play on niche US softgel opportunity

Softgelatincapsule(SGC)isanichebutunderpenetratedUS$10bnmarketin
the US with only a couple of players in most products. Moreover SGC sees
lesserpriceerosionascomparedtothe8090%erosionseenincommoditized
genericswhichcreatessomemargincushion.Marksanshas8ANDAapprovals
inUS(including1softgelANDA)andpostedastrong80%yoygrowthin9m
FY15 US revenues driven by Ibuprofen Rx and softgels. Marksans has 11
pending ANDAs (of which 10 softgels ANDAs with a target market of
US$2.5bn)whichprovidehighgrowthvisibilityforUSbusiness.Overthenext
12years,companyintendstobuilditsownfrontendtocapturetheentire
valueofportfolio;forinstance,9mFY15revenuesofUS$20mncorrespondto
revenuesofUS$6070mnforitsUSdistributorsonthesameproductbasket
throughrepackagingandmarketing.Weforecastarobust55%revenuecagr
for US business and expect US share to expand from 19% of 9m FY15
revenuesto~30%inFY17E.

Rating:
Target(13months):
CMP:
Upside:

BUY
Rs82
Rs72
14.1%
Rs66

ExitTrigger
*:

*Exittriggeristhepricelevelbelowwhich
investorshouldexitposition

Sector:

Pharmaceuticals

Sector view:

Positive

Sensex:

29,044

52Weekh/l(Rs):

72/20

Marketcap(Rscr):

2,853

6mAvgvol(000Nos):

1,393

Bloombergcode:

MRKSIN

BSEcode:

524404

European business on sustainable footing

NSEcode:

MARKSANS

Company sells OTC and generics in UK through its two acquisitions Bells &
Sons (OTC) and Relonchem (generics) respectively with a largely even split
betweenthetwosegments.UKaccountsfor~42%ofconsolidatedrevenues
andinadiscussionwithus,companyappearedconfidentonsustainabilityof
OTC business in pain management, gastrointestinal and cough and cold.
CRAMS accounts for 26% revenues with a focus on highly specialized
moleculeslikenarcoticswhichcommandhighermargin.

FV(Re):

Companyratinggrid
LowHigh

Expect stellar ~37% EPS cagr over FY15-17E

We expect US business to be the key revenue driver as company gradually

develops front end OTC presence to maximize the softgel ANDA approvals
expected over the next couple of years. It would also expand presence in
Europe especially Germany with a focus on softgels while CRAMS business
would continue at its steady run rate. We factor in a stellar ~38% EPS cagr
over FY1517E and expect the rerating story to continue; recommend BUY.
AnyadverseregulatoryactionontheonlyUSFDAapprovedGoasiteremains
thekeyrisktoourreco.

EarningsGrowth

CashFlow

B/SStrength

Valuationappeal

Risk

Sharepricetrend
Marksans

320

Sensex

280
240
200
160

120

Financialsummary
Y/e31Mar(Rscr)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
P/BV(x)
EV/EBITDA(x)
Debt/Equity(x)
ROE(%)
ROCE(%)

80

FY14
6,300
43.7
1,140
18.1
719
56.7

1.9
38.7
9.8
12.9
0.9
61.1
38.0

FY15E
8,244
30.9
1,929
23.4
1,188
65.2

3.1
23.4
5.4
7.1
0.5
60.5
47.0

FY16E
10,520
27.6
2,514
23.9
1,668
40.4

4.3
16.7
3.3
5.0
0.2
49.9
48.4

FY17E
13,659
29.8
3,346
24.5
2,265
35.8

5.9
12.3
2.2
3.2
0.1
43.1
44.5

Source:Company,IndiaInfolineResearch

PricesasonApril13,2015

Apr14

Oct14

Apr15

Shareholdingpattern
%

Jun14

Promoters
Insti
Others

Sep14 Dec14

51.3

51.3

0.4

7.6

51.3
9.9

48.3

41.1

38.8

Research Analyst:

BhaveshGandhi
[email protected]

ThisreportispublishedbyIIFLIndiaPrivateClientsresearchdesk.IIFLhasotherbusinessunitswithindependentresearchteamsseparated
by'Chinesewalls'cateringtodifferentsetsofcustomershavingvaryingobjectives,riskprofiles,investmenthorizon,etc.Theviewsand
opinionsexpressedinthisdocumentmayattimesbecontraryintermsofrating,targetprices,estimatesandviewsonsectorsandmarkets.

April15,2015

Best Broker of the Year by Zee Business for contribution to broking

Nirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst
Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya
Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy.

'Best Equity Broker of the Year' Bloomberg UTV, 2011

IIFL was awarded the 'Best Equity Broker of the Year' at the recently held Bloomberg UTV Financial Leadership Award, 2011. The award presented
by the Hon'ble Finance Minister of India, Shri Pranab Mukherjee. The Bloomberg UTV Financial Leadership Awards acknowledge the extraordinary
contribution of India's financial leaders and visionaries from January 2010 to January 2011.

'Best Broker in India' Finance Asia, 2011

IIFL has been awarded the 'Best Broker in India' by Finance Asia. The award is the result of Finance Asia's annual quest for the best financial services
firms across Asia, which culminated in the Country Awards 2011

Other awards
2012
BEST BROKING HOUSE WITH
GLOBAL PRESENCE

2009, 2012
& 2013
BEST MARKET
ANALYST

2009
FASTEST GROWING
LARGE BROKING HOUSE

BEST BROKERAGE,
INDIA

BEST BROKER,
INDIA

MOST IMPROVED,
INDIA

AnExpressIdeaisarecommendationbasedonourviewonthesectorand/orstockfromaneartomediumtermperspective,
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largebrokinghousecateringtoretail,HNIandinstitutionalclients.Itoperatesthroughitsbranchesandauthorisedpersonsandsubbrokersspreadacrossthe
countryandtheclientsareprovidedonlinetradingthroughinternetandofflinetradingthroughbranchesandCustomerCare.

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