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Recommendations India

Marksans Pharma 4QFY2014 performance highlights and results update

June 2, 2014, Monday, 16:50 GMT | 12:50 EST | 21:20 IST | 23:50 SGT
Contributed by Angel Broking

Marksans Pharma (MPL) posted sales growth of 43.7% for FY14 at Rs 630 cr, which was in-line with our expectations of Rs 626.7 cr. however the company missed our profitability estimates. MPL reported EBITDA of Rs 117.7 cr, margins 18.7% against our expectation of Rs 125 cr and margins of 20%. Unfavorable product mix and lower full year average exchange rate has led to this disappointment. Hence we have reason to believe this is just a temporary bump and going forward the company would be able to come back to its normal profitability track.

Key Highlights

- UK and Australia performance was broadly in-line with our expectations. Bell reported revenues of Rs 165 cr growth of 21.3% whereas Relonchem reported sales of Rs 100 cr, growth of 69.5%. Nova Australia grew by 9.3% to Rs 55 cr. going forward we believe similar trend to continue i.e. UK region to grow by 23-25%, led by Relonchem and stagnant growth for Nova Australia.

- Standalone revenues (includes CRAMS, Emerging Markets and US business) at Rs 310 cr was marginally higher than our expectation of Rs 296.9 cr, thanks to CRAMs segment which reported growth of 47% yoy to Rs 158.5. Due to delay of one order, US revenues were below than our expectations.

- Though EBITDA margins for FY14 have improved 370 bps yoy, it falls short of our expectation of 20% due to lower average rate of exchange of the year as compared to higher quarterly rates. However we believe this would normalize going forward and company should be able to come back our expected profitability. Hence we are not making any changes in our estimates.

- Interest at Rs 19.1 cr includes Rs 5.52 cr of forex loss. Normalizing for the same, the interest cost are stable yoy

Valuation & Recommendation

The company has successfully turned around and is now ready for its second Phase of journey, which would be growth-driven. Given the growth momentum and steady margins, we are positive on the prospects of the company. On the valuations front, the stock is trading at a PE of 8.2x/6.0x on FY15E/FY16E EPS respectively, which looks attractive. We believe the company is at an inflection point and hence stock should be looked from a two year perspective in order to witness performance in numbers. We recommend a BUY on the stock with a target price of Rs 37 (10x on FY16E)