Following up on my earlier blog on ‘Marksans Pharma Ltd’ , in this blog I will analyse the company’s performance in Q2FY21 & Q3FY21. Also, the management of Marksans Pharma had their first ever conference call in Q3FY21, I will be sharing key takeaways from that as well.
You can read my detailed blog on the company here: Marksans Pharma Ltd- Analysis
Marksans Pharma Ltd- Business Model
Before I explain the Q3FY21 performance of the company, I would like to share a brief about the differentiated business model of Marksans Pharma Ltd.
Marksans Pharma Ltd-Q3FY21 Analysis
Coming to Q3FY21, it was the best ever quarter in terms of both revenue and profitability, much like all other companies.
In terms of revenue, while the quarter on quarter sales growth was very marginal but YoY growth was impressive at 24.5%.
Now, coming to Marksans’ gross margin, it has been continuously improving with the current quarter margin standing at more than 60%.
I had an doubt regarding a particular number. In Q2FY21, there was an depreciation amount of ₹18.9 cr compared to ₹7cr in Q1FY21. On more than doubling of depreciation expenses, there should be a substantial increase in Fixed asset which increased from ₹220cr to ₹233cr, an increase of just ₹13cr. Depreciation on the minor increase would not be enough. But when you look at the Intangible assets, the value has declined from ₹82.6cr to ₹69.8cr.
So, basically the increase in deprecation cost is actually amortization of its intangible assets.
On asking the company about the specific reason for the same, I got the below response:
“Marksans had licenses in UK which were yet to be commercialized and amortizing of carrying value in the balance sheet was being done at normal run rate. During Q2FY21 Marksans team in UK took a call that these licenses need accelerated rate of amortization. This was done in Q2FY21 as a one off and hence depreciation and amortization is back to normal in Q3FY21.”
If you look at the quarterly numbers, the margins have shown an continous uptrend since the last 8 quarters. Whether, it is the peak performance, I don’t know.
But listening to several conference calls by management, every company is expecting things to get better only.
Marksans Pharma Ltd-Q3FY21 Analysis
- Co derives about 85% of revenue from the US & UK market.
- On consistent improvement in Gross margins, the management specified the below points:
- 1. Increase in revenue
- 2. Operational efficiency
- 3. Improving product mix
- Current capacity utilization is around 70% and the company has been adding capacities in their existing plants
- Marksans has a capital expenditure plan of ₹200cr for the next 3-4 year. Will be used for brownfield expansion, backward API Integration and possibly for inorganic acquisition.
- Company entered US market in 2011 supplying bulk drugs acting as back end. In 2015, they acquired Time Cap labs in the US and started moving towards the front end. That has lead to margin improvement and as the US arm gains further scale, the margin is expected to grow further.
- Also, there is a order book of $100mn from US for the next financial year.
- The company has launched 50+ products in the US, and the management foresees huge growth potential in their product portfolio.
- Marksans Pharma Ltd is a debt free company.
Marksans Pharma Ltd-Valuation
In terms of valuation, the Price to sales stands at just 1.6x while the P/E ratio stands at just 11x. The company is also generating very healthy cash flow. For Q3FY21, the cash flow from operation was ₹91.3cr.
The low valuation was a hot discussion point by participants in the concall. I would assume if the company continues the current level of performance, sooner of later the investors will be rewarded.