Marksans Pharma Limited (MARKSANS) Earnings Call Transcript & Summary

Yes, good afternoon, sir. Good afternoon, everyone, and welcome to Arihant Capital's Bharat Connect conference. Today, we have Marksans Pharma. The company is represented by Jitendra Sharma sir. He is the CFO of the company. So, without doing any further delay, we will start the session. Sir, over to you.

Yes, thank you. I'm Jitendra Sharma, I'm Group Chief Financial Officer of Marksans Pharma Limited. Basically, I'll just start with a brief introduction about the company, and then we can move to the question-and- answer session. I don't know the list of attendees and for the benefit of the first time viewers, we are a pharmaceutical formulations, manufacturing and marketing company. We basically have 4 manufacturing facilities; 2 in India, 1 each in U.K. and U.S. All facilities have the global accreditations. We basically are a forward-integrated company wherein we market our products directly to the end consumers. We have the distribution capabilities in the markets where we are present. Almost 95% of our revenue is coming from Europe, U.S., Australia, New Zealand and Canada. We have some emerging market presence also, but then the revenues are around 5%. U.S., we are like -- I think we are trending towards $100 million plus kind of revenue in this current financial year. In U.K., we are expecting to achieve GBP 100 million of revenue this year, which makes us among the top 3 Indian pharmaceutical company in U.K. We are growing very rapidly within like -- again, largely in terms of the revenue, almost 75% of our revenue is coming from the OTC segment, and the other 25% comes from Rx. Within OTC, we have a very large presence across the pain management, cough and cold, gastrointestinal and allergy segments. This year, we are trending towards like INR 2,000 crores plus of the revenue. And in terms of the EBITDA margin also, we are expecting over 20% EBITDA margin. In the first 9 months, the EBITDA margin was around 22%, and we expect to maintain the same margin in the coming period as well. Yes, with this, I'm like throwing the forum to question-and-answer section.

Sure sir. Participants are requested to raise their hand, so we can unmute them, and they can ask their question directly with the management or they can also put their questions in the chat box. So, first question is regarding the new molecules that the company is having in the pipeline and which are to be launched in the coming year [ FY '25 ]?

See, we have over 70 products in our R&D pipeline, and -- so that's a huge number of products which, like our R&D team is working on, and we expect at least 10 to 12 products will get launched every year. And this is across the geographies, covering all our existing markets, mainly U.S., U.K. and Australia. So, 10 to 12 products every year. That is the kind of pipeline we have. Overall, the pipeline we have is of around 70 molecules.

Okay. Okay. We have a few questions from our clients. Mr. Ankit Gupta, please go ahead.

Yes. Sir, if you can talk about how is the pricing scenario for the generic market in U.S. and Europe and U.K. So, if you can briefly talk about, are we seeing some relief from the kind of pricing pressure that we have seen in the U.S. generic market for over 7, 8 years now? Your views on that. And then I have subsequent questions.

So see, the U.S. market this year, definitely, the pricing pressure has eased out a bit and we are seeing pricing pressure on very few molecules, but otherwise, the pricing seems to be pretty stable. And again, like so far as Marksans is concerned, a large part of our market is coming from OTC segment, and there relatively pricing pressure is low as compared to Rx. So, to sum up, definitely, this year, the pricing pressure has eased out a bit and we see lot of stability in pricing so far as the U.S. and European markets are concerned.

Sir, Within OTC, how is the competition -- like pardon me for my less understanding of the company and a bit of ignorance about the company. But in OTC, how is the competition, relatively in generics, we see that, for FDA filing also, we see 10 to 15 competitors in even complex generics. In OTC business, how is the competition when you launch a product?

See, the markets are highly competitive, be it Rx or OTC segment. So definitely, there is a competition in OTC as well. The only differentiation with us is that okay, we are the prime manufacturer, we have manufacturing capabilities both in India and in U.S. And we have the distribution capabilities like, you know wherein we distribute our products directly, we have complete in-house infrastructure for the distribution of products pan U.S. So we have a foot in ground. We have complete infrastructure, which like not many companies has, like most of the companies originating from India, China, they prefer to deal with other pharmaceutical companies or to the re-packagers out there, apart from the big pharma company who have their own like distribution capabilities. So I think like -- it is competitive. Markets are pretty competitive. What differentiates us is definitely a complete infrastructure, starting from product basket, manufacturing capabilities, distribution capabilities. And then, of course, the kind of coverage which we have in terms of product basket, we ensure that we offer the larger basket of products within OTC. We have a very good presence in soft gels. We also have, like the complex OTCs when it comes to, say, the extended releases or sustained releases products or the combination products. We also have liquids, ointments and powders, like -- so in terms of the coverage, we cover these segments in a much bigger way, in a larger way as compared to, say, other Indian companies who basically are more focused towards Rx. So, definitely, competition is there in both the segments. And in terms of capabilities, that is where at the end of the day, you need to have a complete infrastructure and it does take a lot of time and like that's what we have done. We have differentiated ourselves by ensuring that we offer the wider basket of products, and we deliver products directly to the end consumers. So that is where the differentiation comes.

Last question if I'm allowed. On the 10 to 12 launches that we'll be doing, are this for OTC products or they will also include some normal Rx products as well?

See, largely, they are coming from OTC. So, I think out of, say, 12 products, on an average, 9 to 10 will be OTC and 2 to 3 will be in Rx.

And how do you differentiate between a complex OTC and normal OTC and how is the competition in complex OTC?

So when I say complex, I mean to say difficult to manufacture, like there are certain soft gels. There are many soft gel manufacturers even in India also. But then none of them have the ANDA because they manufacture nutraceuticals. So when it comes to the ANDA licenses for soft gel products, there are many -- few companies. There are handful of companies who are actually doing that. Similarly, out there in those markets, combination products are not common, like. So we were first generic approval in India for the combination of paracetamol and ibuprofen combination like, so which is known as combi-plans in India. But then we were the first generic approval from India for U.S. market for this product. Similarly, like we have many extended-release products in OTC, which are ANDAs and the number of players for these kind of products are limited.

Okay. Next question is from Viraj Mahadevia. Sir, you are unmuted. Please go ahead.

Hi, Jitendra, it's Viraj here. Can you give us a sense of where you are in the Teva plant ramp-up in Goa? And how much you think of incremental revenues you will add in FY '25 from Teva?

So see, basically, we started manufacturing operations from Teva. So, in terms of the revenue generation, it has already started happening. But definitely, the larger numbers will come from the next financial year, which I [Indiscernible] from April onwards. Now, in terms of the capabilities, of course, like, we -- the plant has potential to give us incremental revenue of over INR 1,000 crore to INR 1,200 crore. Now, how much we can achieve during next year, that will depend on the kind of capacities which will be in place and, of course, the product market also. So we expect somewhere around INR 600 crores to come in next year.

Understood. Fantastic. So that will account for a large part of the revenue growth of the business.

Yes.

Great. And any incremental progress because your -- even after acquisition of the Teva plant and the debottlenecking investments, how much investment is still left in that plant over the next year or so?

See, our expansion plan for Teva was in 2 phases. So in Phase 1, we were to spend around INR 200 crore. And then there is another phase where -- like we will be spending another INR 100 crore. So I think this year so far, we have spent over INR 100 crores already in Teva plant. And maybe we will be spending another INR 100 crore broadly by next.

Understood. Understood, so for the overall Teva acquisition plus debottlenecking, et cetera, our INR 100 crore spend is balanced.

Yes. Yes.

Understood. And my third question is, given that your -- my perennial question to options under management team, given your cash pile is building up, and now Teva only INR 100 crores left and you generate probably INR 200 crores of free cash flow annually. What are the plans for spending the balance capital, including buybacks, dividends and your acquisition?

So, see, definitely largely these monies will get utilized in the growth-related avenues. So we are looking at like M&A activity as well. We are looking at expanding geographically within SKU. We also definitely will keep investing in capacities because I think Teva plant will take care of our next 2 to 3 years of requirement. But beyond that, definitely, we need to create more facilities because we are talking of doubling our revenue, and then then beyond that. So, definitely [Indiscernible] in creating the fast cash.

Our next question is from [ Navin Bagh ].

My question is on the product pipeline that you have over the next, say 4, 5 years, you're speaking of about 10 to 12 molecules and you have 70 on the pipeline. Can you just kind of quantify in terms of the potential market size?

Well, it's huge. So I think, we are talking of billions of dollars, and -- in terms of the market size. [Indiscernible] see basically, that -- again, a bit of differentiation here is that when I say OTC, we basically are getting into the mature products. Like, which are already out patented and which are there in market, and we see visibility in terms of its market size. So the market size is huge.

And what is the revenue that Marksans expect to garner from these products over the next couple of years at least?

See, again, if you ask me to put number, ballpark numbers, that isn't true. But then of course, these new launches will help us to ensure that our product basket gets complete, like within the therapeutic segment, number one. Number two, definitely see the incremental -- a substantial part of the incremental revenue also will come from these products. So when I say that we will double our revenue, say over a period of say in 3 to 4 years' time, then say a large amount of it, 60% to 65% of it will come from these products.

Okay. Okay. And of these 70 products that you have in pipeline, if I understand correctly, about 75% is OTC and 25% is prescription.

Broadly, yes.

Okay. Sir, one question in the chat box is regarding what is the margins in different geographies? So can you explain some -- regarding this different margins in different geographies for your business?

See, basically margin varies, like, geography specific, products specific. So, technically, what we do is like, we can divide margins into 2 parts. One is the manufacturers margin, which say we keep out here in India when we manufacture products. And then there is one marketers margin, which the distributing company, our overseas subsidiaries are entitled to when they promote products in those geographies. So for us, it is always a blended margin. And the blended margin is of course the overall margin which we have in the company as a whole. So it is around 22% at present. Margin profile do differ like, at the [Indiscernible] because, say, U.S., we are building up the business, and we are yet to see the benefits of operating leverage, which we have seen in U.K., the similar benefits we are envisaging once we cross the threshold limit of revenue. So definitely, at present, like -- relatively, our U.S. distribution margins are on the lower side. But now since the business has already crossed $100 million, I think from next year, we see some operating leverage benefit also getting in, and those margins also will improve in coming years' time.

Okay. And what are the CapEx that you have planned for the next 2 to 3 years?

See, at least INR 100 crore every month -- every year for next 2 years. So that is already planned.

Any specific project you have not undertaken, anything?

See, Teva balance spending is there definitely next year also, partnering getting into Teva facility. And then there will be CapEx which will be there every year in all our 4 facilities. So I think INR 100 crore next year, next 2 years is what we have planned right now.

Okay. And on the borrowing side, what are your -- I mean what is the management thinking in terms of how to reduce the debts?

We don't have any debts. We are a zero debt company.

Okay. And you are going to keep it that way.

We are going to keep it that way, largely. Yes.

I mean when I'm asking, I mean, beyond the 2, 3 years also after the Teva plant completion, do you plan to...

Yes, we don't plan to. So I think we will maintain that sanctity of balance sheet. We don't plan to leverage. Maybe there might be some small leverage which may come through an acquisition process. But otherwise, of course, we don't intend to leverage ourselves beyond small gap in the balance sheet, which may be largely coming through an acquisition or some sort of working capital leverage, nothing beyond.

Okay. And any revenue growth guidance over the next 2 to 3 years on a CAGR basis?

See, we will keep growing at high-teens. So, of course, next 2 years, we are looking at good amount of growth specifically coming from U.S. markets. So we are looking at -- so we are trending at INR 2,000 crore-plus this year. and within 2 years, we expect the revenue to cross INR 3,000 crores.

Okay. And one question is, sir, regarding your sales setup and MR strength and your brand building spend per annum. [ Mr. Varsa Vareka ], he has posted this question on Q&A.

So, see, we don't have any domestic sales and marketing operations out here in India. So our business is into regulated markets. We are into a generic product sales and marketing. And within generics, we do both OTC and Rx. The distribution channels of sales and marketing, it's pretty different in those geographies as compared to what we have out here in India. So -- but then broadly, we have a team of around 200 people in U.K. and almost around 190 people in U.S.

Okay. Okay. We have a question from Mr. Namit Arora.

So, Mr. Sharma, my question was around any lessons because you've been with the company for over 20 years. Now, in the past, the company went through a few cycles, there were some strategic direction that you took. So any lessons from those experiences and how the future is going to be different? I know the last 4 years have been excellent. But I'm just trying to see, as an organization, you build some cornerstones that you will follow going forward so that there is no chance of any recurrence.

See, we have always been very focused. I think we evolved as an organization, as a company, when we started 20 years back, it was a new start-up company actually started by Mr. Mark Saldanha And so building up from scratch to this level, definitely, we have seen the complete cycle wherein we had experiences like definitely certain tough experiences and certain good experiences. But we remain focused. I think we were true to our business model. I think if we look back and see what we used to talk like in earlier years also, I think we have delivered like, maybe there is -- it has taken a bit of time, a bit of say, more time. But eventually, I think we have delivered what we have promised to our investors. In terms of lessons, definitely, I think leveraging was something which we felt that we definitely were a bit overleveraged in the initial period of our startup. Now, of course, we are a debt free company, and we don't intend to again leverage our balance sheet. So I think that's the most important lesson as a finance person we have seen.

Got it. That's very helpful, sir. And I just had one more question. In terms of your positioning, whether it's the international effort or international markets or domestic markets or a combination, how do you think about positioning your company given that it's a very competitive market and there are very large number of companies, both India and those pursuing the international markets? So just some thoughts in terms of strategy, positioning, where you think competitive strengths are and how do you play to that?

Yes, I think our entire business model talks about the kind of positioning which we have and the kind of success which we have seen is just because of the kind of business model which was implemented eventually. So, I think, we are an Indian multinational company. We have positioned ourselves like as a low-cost manufacturer, as a company who has the distribution capabilities, forward integrated business model. And over a period of time, like the kind of trust which we have generated from our customer side in terms of ensuring quality, service levels, and the pricing also has given us a lot of strength. And I think now the platform is established, which we feel is a very, very stable platform with a lot of depth in its business model. We are very well diversified geographically. We are there in the largest markets of the world. We have a good product basket available with us. We have a very good customer base which we have created over a period of time for us. So I think we have come up overall as a very solid and strong organization with a focus for growth and long-term sustainability.

We have the next question from Samir Palod.

Yes, hi Am I audible.

Yes, you're audible. Also attendees, please note that because the management has some priorities already. So this will be the last question. Yes, go ahead.

Continue for 10 minutes. So maybe the next -- up to 10 minutes, we can take questions, no problem.

Sure. Sure. Go ahead, Samir sir.

Yes. What I'd like to know is, you talked about the fact that 75% of your sales are in OTC. Now these are genericized and not on Rx. What makes the Marksans make the kind of margins that it has delivered at least in the last 1 or 2. So, when it is not a [ high on ] technology product, it is already in OTC. These are cutthroat markets like the U.S. and EU and U.K., where a majority of your sales are. So, I'm still not able to understand the [ age ] and the reason why you're able to get such margins on products which are not, I would say, not complex or don't involve that much R&D. You only spend 1.5%, 2% of your revenues on R&D. So if you can just explain that bit, maybe the competitive situation is different or a lot of people are vacating those?

No, no, no. See, there is myth. There are a lot of myths in the industry as such, like in terms of the general understanding, every product is complex. At the end of the day, no product is easy. Specifically in the regulated market, there is nothing like easy or difficult. I mean to say it's all complex at the end of the day. The only thing is that the product has become a generic. So, like, not many player can get into those molecules by taking the licenses from the regulatory authorities. So I think just to answer your question, it is a bit of smart positioning, which we have done, identifying the gaps, carving out niches because when we got into those markets, they were already large Indian companies or global companies into those markets, offering the similar products. And concisely we have gotten into segment where we felt that we can get into. Soft gels, definitely gave us that entry point. And after that, of course, we did some acquisitions, we inherited some products through our acquired companies. We kept on launching a lot of new products, like regularly. So, today, we have built up a very large basket of products covering these segments almost in entirety. So I think what differentiates here is the scale. Of course, we remain very focused. And today, we are scaling this business model to another level. So the kind of the capacities which we have, the scale at which we manufacture and market these products. So, we have ensured that we remain very, very competitive in terms of our costs. We remain very agile and very alert on our quality and we give lot of emphasis on timely delivery and servicing our customers. So I think it's the large gamut of operation, which we are handling and every aspect of it is difficult, which we have -- I think, over a period of time understood. I think a lot of hard work has gone into it. It is definitely a very difficult business after those geographies are highly competitive, tracking pressure is again like in the last 5 years, we have seen the worst periods because of the COVID, then the supply chain disruptions. As it is, competition was always high. So I think we have thrived. We have survived and thrived in these kinds of overall circumstances. And I think that should give lot of comfort to the investors that we are capable of handling the difficult situations. We have come out very well. We have strategized. We have found out a niche for ourselves. Today, I think the difficult period is behind us, at least in terms of creating that business model. So I think we have a very strong balance sheet, very good cash balance, very good cash generation, existing relationships, good capacities. So I think from here, we see the growth momentum to continue, and hopefully, you will see actually improving our numbers quarter-on-quarter basis.

Sir, just to back up a little bit, my question was more -- you've explained the fact that you've come out very well post-COVID and the teams have done a lot of hard work, et cetera. But I'm still trying to understand what allows you to make the kind of margins, the 20% to 25% EBITDA margins that you displayed in the last at least 2 years, in very, very competitive markets and in products, which are not complex when you say that every product is complex, but these are really OTC products. So why should you -- what allows you to make 20%, 25% type of margin, because all -- at least all other Indian companies, they don't have the front end, they don't have the distribution chain and hence work with other pharma companies, but they have the same capabilities in terms of R&D and exporting pharmaceuticals to the various geographies. But some of them are today not even making the kind of margins that you are making on genericized OTC products.

See, I have answered. See, there are 2 things, 2 important things. One is focus and another is scale. Now I have seen companies here in India, which has done very well in Bihar. I have seen certain Indian companies who have done very well in Sri Lanka. Now you can say that although these are very small markets, and there are no margins out there, but then why a X company can do much bigger numbers in Bihar and having great margins, which even a company in like [ Australia ] can't give. So, answer to that is that, it depends on your focus. Like, your understanding of the market, your focus in that market, the scale at which you are doing operations, how are you able to identify gaps, create carve-out and niche for yourself. So that's where the strategy comes into picture, the understanding of market gets into picture. So there are certain themes which as a management, there is capabilities to identify those opportunities. So there are a lot of intangibles out here. And I think we have done well in identifying those opportunities and getting -- and establishing ourselves into those areas.

Okay. So would it be also fair that given that you're projecting INR 2,000 crores of sales this year, possibly increasing to INR 3,000 crores in the next 2 years, would you see further improvement in margins given the operating efficiency? How would you categorize your margins on a look forward basis?

See, I can't give you a guidance on that. But definitely, we see potential, and we are very confident that we will continue with the improved performance. Yes, difficult give you guidance, but definitely, we are very pretty confident about it.

And my last question, sir, will be, is there -- I mean, I'm guessing that in the U.S. and U.K., your distribution arms that you've already set up basically sell to a lot of the organized pharmacy chains. Is that correct?

Online?

And not to the physical stores?

No, no, no. We are selling to all physical stores. Our online presence is hardly 1% to 2%.

No, no. So, I meant that your key customers will be the pharmacy chains, right?

Yes.

Okay. So, is there any threat that they would develop their own private labels for some of the OTC brands that you are selling, especially the low-end ones like paracetamol, et cetera? Is there any risk that that can -- their business will slow down for you? Just wanted to get an understanding of that part.

See, that's where the scale comes into picture. The kind of scale which we have for those products in terms of pricing, we can offer it at much lower price as compared to what they can manufacture for themselves because they will not be able to do at that scale.

Thank you. Due to time constrains, that will be the last question. We want to say that thank you all the participants, and please note that the Investor Relations as well as Arihant Capital will be happy to take any questions later on, on a one-on-one basis or if sir will allow, we can do a group meeting later on as well.

Definitely, I look forward to it and I'm always available. Do let me know in case if any meetings are to be done or if there is any specific questions, you can write to Arihant or to our IR representative, and we will get back to them immediately. Thank you.

Sure, sir. Thank you sir. Thank you for your time, and thank you all the participants. We can all disconnect.

Thank you. Thank you very much. Thank you.